How to recover from failure
One of the biggest barriers to growth and innovation is the fear of failure and the lack of awareness of how to recover from failure. A 2015 Boston Consulting Group survey revealed that 31 per cent of respondents identified a risk-averse culture as a key obstacle to innovation. Why is it that companies still aren’t able to fully cope with the realities of business failure? The reason is: although failure is a great learning curve for an entrepreneur, it still remains to be a traumatic experience — from a psychological point of view. Moreover, a large number of business owners fail to recognise (or sometimes ignore!) the first signs of distress. Many entrepreneurs turn a b
lind eye to the need for a new strategy or a forecast that clearly shows a decline.
But, no matter what the reason for the eventual collapse of a business may be, the critical part is hitting the restart button and moving on. In the following article, we present a step-by-step guide on embracing failure and getting back on the path to success.
Dealing with the psychological impact of failure
Accept it and move on — Acceptance is the first step in dealing with failure; financial loss is a part and parcel of business. As a business owner, you must know that nothing lasts forever and things will eventually turnaround. It is in your control to takeaway positive learning from your experience and ensure that you don’t make the same mistakes second time round.
Find someone that is brutally honest with you — Concentrating on the positives is vital, but it can only take you so far. You also need to assess the mistakes and the downfalls of what happened. Very often business owners find it challenging to take an objective view, because of their emotional closeness to the company. In such a case, hire an external specialist to walk you through the process and be extremely frank with you.
Get back to the basics — The key driver for the success of any business is profitability. While entering new markets and expanding your product portfolio may seem like attractive options, put them on hold until you’ve secured a strong foundation for your business.
Recovering from losses and corporate turnaround
- Assess what went wrong — The first step is to conduct a thorough business review to identify the problems that caused the current financial situation. As part of this process, ensure that you are looking across all areas of the business including strategy, operations, sales, HR and finances. It is essential to conduct this diagnosis early on in order to understand what went wrong — and more importantly to evaluate what needs to be rectified in the future. This would mean addressing hard-hitting questions such as: Is the operational focus on the core function of the business? Are products and services being produced and delivered in the most cost-effective manner? What is the level of wastage and pilferage? Is it beyond the acceptable limit? Does the business have proper mechanisms in place for budgetary control? Are there efficient lines of funding and credit available? Does the company have a clear and realistic strategy of where it is headed? Is the company agile and flexible enough to adapt to evolving market conditions? Is the staff turnover ratio high? Are the right people with the right skills being hired?
- Put into place a business restructuring plan — Once you’ve determined the answers to the above questions, the next stage is to develop a realistic and achievable recovery plan. But, it is crucial to highlight all action steps in intricate detail and clearly define the responsibilities for every team member. Such a plan will typically include activities like:
- Shifting the company’s focus to high-potential products and shutting down departments with poor performance
- Speaking to banks, investors, etc. to restructure debt obligations and outstanding loans
- Effectively managing the working capital
- Rethinking the profile of potential customers and your go-to-market strategy
At this point, it is also worth including your CFO, legal advisor, risk partner, investors and other key stakeholders in the discussion. Moreover, once the plan is place, send out official communication to your partners (banks, investors and suppliers) telling them about your path to recovery — this is fundamental in order to maintain your credibility and renew their confidence within the business.
3. Revive your cashflow and manage your finances — Cash is king and this couldn’t be truer when your business is faced with a crisis such as financial loss or failure. At this stage, it is absolutely critical to do anything and everything possible to resuscitate incoming cash as soon as possible. This can be achieved by reducing non-essential costs, closing departments with poor financial performance, letting staff go, re-structuring investments in current markets and so on. Sit down with your CFO to evaluate the possibility of selling unprofitable business units to raise quick cash and boost liquidity. Finance plays a significant role in the turnaround of any company — after all profit is a key motivator of doing business. When a business falters, the first place that management and other stakeholders turn to is finances. Therefore, it is imperative for a business to immediately flag any losses or potential financial difficulties to its investors, partners, banks, and so on — in order to mitigate further problems. Timely, relevant information will reassure them that the business is well placed to implement sound solutions and revive operations. Remember that a strong balance sheet is your most valuable tool, shifting the emphasis from cash flow management to strategic financial management and control.
4. Set new priorities for the management teams — This will require them to — Improve your reporting system — It is very likely that poor reporting got you here in the first place and you don’t want to be in a position when you miss such signals again so make it mandatory for senior managers to prepare monthly reports and quarterly forecasts for their individual departments.
5. Streamline processes — Invest in strengthening your existing processes and introducing new ones that will help you gain more accurate information of your operations. This will mean you are getting real time updates about the progress of each department and any major breakdowns can be immediately noticed and rectified. Focus on people — The success (or failure of a business) largely depends on the quality of its people. Ensure that you are investing in training your people and offering personality development courses to enhance their soft skills. Also, consider improving your internal communications by sending out a monthly staff newsletter, organising a staff satisfaction survey, holding weekly meetings and arranging leadership summits.
6. Put someone in charge of the turnaround process — Find a senior director that can oversee your entire turnaround procedure; someone that is neutral and brings in a breath of fresh air. This person would have extensive turnaround experience and knowledge about turnaround techniques.
7. Integrate change management within your culture — Finally, introduce a clear mandate for change management throughout your organisation. Given the current state of the market, change is the only constant, it is necessary that your organisation is capable to deal with change. Make it a habit to constantly revisit and re-analyse your business strategy — track, monitor, control. Creating a nimble corporate culture will go a long way in boosting employee morale, rebuilding confidence and gaining positivity.
Originally published at smeadvisor.com.