'Zombie' Companies
DUMPING THE LOSERS
How to recognize when a company or project or division or parts of a company are dead and need to be pruned. Or keepingg the winners and dumping the losers. Knowing when to held 'em and when to fold 'em.
1. Costs are much higher than revenues.
2. Sales people blame the "Sales Cycle" or have other excuses which seek to delay the inevitable.
3. Morale is down and dropping.
4. Staff turnover is increasing.
5. People are forgetting the obvious ("I forgot the contracts", the story of Istari Electronics), blaming each other but never themselves (not taking responsibility for their own actions/not having a good 'heart') and not learning from their mistakes (repeating the same mistakes over and over again).
6. Stuff falls through the cracks.
7. Lack of initiative.
8. Lack of demand (curve) for the product or service (CFL football in Ottawa).
9. People start lying to you.
10. Current Assets are much less than Current Liabilities.
11. Media rumours of financial troubles begin to circulate.
12. Shrinkage increases- employees and others begin taking furniture, computers, money, client and customer lists. Your employees become your competitors.
13. Sick leave, MHDs, holiday pay, absence-on-the-job increase. People play 'golf' and other electronic games on their PCs.
14. Receivables become hard to collect because people erronoeously believe that if the company goes bankrupt they won't have to pay (untrue in most cases because the receiver will try to collect).
15. Staff hide purchases, purchase orders, other costs.
16. Sales increase at the end of a quarter only to be reversed in the next quarter as inventory is returned.
17. Fianancial statements cease to reflect accurately the cash position; cash becomes scarce.
18. Bank lines are fully utilized.
19. Creditors call at home and at the office. Payables exceed 90 days.
20. Productivity drops because supplier credit dries up and materials and services needed for production are hard to come by.
21. Client and customer complaints skyrocket. Repeat customers and clients are way down.
Student Note: Having said this, some firms like Fed/ex probably had all or most of the above symptoms yet went on to great success. There is no sure fire way to be absolutely certain that it is time to put a business or a division out of its misery. Fed/ex was successful against all the odds because Fred Smith had a burning desire to succeed and he was prepared to do whatever it took to ensure that Fed/ex continued on including some things that were almost certainly inappropriate and perhaps unlawful. But for every Fed/ex there are probably dozens of businesses that should be shut down or pruned ruthlessly. Pity the entrepreneur that says: 'If only I had more time and more financing, I could'a been the champ.' In almost all cases, this is just not so.