Newport’s Point of View – An Ounce of Prevention
We’ve all heard it – an ounce of prevention is worth a pound of cure. The problem, of course, is that this saying, like so many other good bits of advice, is easier said than done.
It turns out that running a successful business is hard. If fact, unless luck is the driving force behind your business, running a successful business is often all-consuming. You learn to prioritize activities and resources. You are likely head-down with a clear focus on what needs to happen to get through the day, or the week, etc. Over time you are likely to focus more on those issues that are within your control or are more satisfying.
While these are good coping strategies, they leave you exposed to real risks.
All businesses are exposed to risks but, for now, let’s focus our attention on a situation in which the business is experiencing challenges – distress is on the horizon. For example, maybe your customer base is heavily concentrated in a single sector (e.g., energy, or retail, or manufacturing) that is caught in a sudden downturn and your sales plummet. Once the unpleasant consequences of a particular risk have materialized, denial is no longer an option. Action is required. After the denial phase, the tendency for most business leaders is to focus on the risk and pay less attention to the rest of the business. They think that if they can just conquer this one problem they will right the ship. This is a case of focusing on the symptom without taking in to consideration its deeper causes and the broader environment. This course of action is likely to only compound risk.
A better approach is to make sure you take a broad view of the business. Of course you have to deal with the issues at hand, but in doing so you should always maintain two perspectives. The first is how to deal with the specific consequence or issue at hand. The second is to ensure that your actions give you as much control, and as many options, as possible for the future.
In distressed businesses, leaders often focus on the immediate crisis but fail to do the hard work of mapping out the business’s mid-term challenges, needs, and options. There is often real resistance to do the painful - prepare a 13-week cash projection, perform a market valuation of inventory, analyze for liquidity drains or constraints, take a brutally-honest review of market prospects, or any number of other tedious tasks.
Focusing on immediate needs will conserve some resources, but you slowly lose control of the business. The early stage of distress is the time to be focused on both the problem and how you maintain control as you resolve the problem. Whether the ultimate result is a little “r” or big “R” restructuring, you want to maintain as much control as you can for as long as you can. Make no mistake, in distressed situations there will be plenty of others – customers, employees, creditors, suppliers – who want to take control away from you. Depending on the extent of distress, you may not be able to maintain complete control. Keeping maximum control over your options requires a broad perspective that addresses both the most pressing issues and the mid-term, control-preserving steps that you can take now.
Advisors can be helpful during challenging times, if they help you to focus on the right things and complement, rather than distract from or impair, your own capabilities. Advisors should bring a near-term focus and also a longer-term perspective. To cobble together a couple of other popular phrases, this is not a time to be pennywise and pound foolish, nor is it a time to discard the idea that ignorance is bliss.
In summary, to adjust the opening adage above, an ounce of planning is worth a pound of control. And control over your options is an especially valuable thing in a distressed company situation.
About Newport Board Group
Newport Board Group is a unique national professional services partnership with approx. 70 partners in 18 major US markets. We are experienced CEOs, restructuring advisors and board directors who bring real context to helping our clients and family businesses solve complex business growth and financial challenges. Our partners have deep expertise in industries, boards, operational excellence and capital markets transactions. They have served on boards, built growth companies, helped them through transitions and driven successful transactions for owners and shareholders.
Lynn has had a diverse career as an executive and advisor. As President and Founder of Lednicky Enterprises, he has provided expert advice to the energy, utility, and infrastructure sectors. His engagements have included M&A support, operational and financial restructuring, renewable energy, project development and financing and advising on production and use of natural gas as a domestic transportation fuel.