Corporate Death Spiral– Going to Hell in Hand-Basket: Avoid Downward Spiral– Stop The Bleeding, Do Things Differently…

Corporate death spiral, going to hell in a handbasket… describes a situation when a business is headed for disaster inescapably or precipitately… Many business’s today are struggling: The business model that worked 20 years ago, or 10 years ago, or even a few years ago no longer apply to today’s competitive global market…

According to Gregg Stocker; nowhere is it written that a company, regardless of how large or how successful it might seem to be, will survive… The media continue to report about large, well-known companies that at one time are extremely successful, then fall apart seemingly overnight. In reality, the decline of an organization is a process that usually takes several years and results from a number of– actions, decisions, behaviors… that contribute to the demise.

The highly complex nature of organizations and markets makes it difficult to determine what actions or events led to the problems being faced today… The decline can actually begin when times are good and continue for many years, before it becomes obvious that the organization is in deep trouble…

spiral gallup-business-deaths-graph Unfortunately when the decline becomes apparent, the leaders often shift into crisis mode and implement drastic actions to improve the situation, which although are well-intentioned, they actually result in speeding-up rate of decline… Entering the corporate death spiral is a process that begins with weakening of an organization’s immune system. When one or more of the signs are evident, it’s vital to fix the problems by understanding and attacking ‘causes’ of the warning signs instead of treating only ‘symptoms’ with short-term actions…

According to David Gardner; leaders either have to figure out how lead their companies in a constantly evolving market, or run the risk of becoming a victim of the inevitable– change in market or transition of market… Companies in a death spiral watch market change or transition before their very eyes, and then later wonder how they could have missed it…

Economic Death Spiral: More U.S. Businesses Dying Than Starting by Wynton Hall writes: In a report, Gallup CEO and Chairman Jim Clifton revealed that– for the first time in 35 years, U.S. business deaths now outnumber business births… Clifton says for the past six years since 2008, business startups have fallen below the business failure rate, spurring what he calls– an underground earthquake– that only stands to worsen…

According to Clifton; let’s get one thing clear; the economy is never truly coming back unless the    birth and death trends of businesses is reversed… Indeed, the numbers are striking: Contrary to the oft-cited 26 million businesses in U.S. figure, Clifton says 20 million of these so-called ‘businesses’ are merely companies on paper with– zero workers, profits, customers, sales…

In reality, U.S. has just 6 million businesses with one or more employers– 3.8 million of which have four or fewer employees. In total, these 6 million U.S. companies provide jobs for more than 100 million people in U.S… Of the 2.2 million job-creating companies with five or more workers, the numbers break down accordingly: There are about one million companies with five to nine employees, 600,000 businesses with 10 to 19 employees, and 500,000 companies with 20 to 99 employees. There are 90,000 businesses with 100 to 499 employees. And there are just 18,000 with 500 employees or more, which includes about a thousand companies with 10,000 employees or more…

According to Jim Clifton; these numbers paint an ominous portrait of business in dire state of decline, and I don’t want to sound like doomsayers, but when small and medium-sized businesses are dying faster than being born, so is free enterprise, and when free enterprise dies nations die with it…

spiral thKKFY93PV In the article Avoid the Downward Spiral by Dennis Gerschick writes: Success often leads to complacency and complacency leads to poor results and the downward spiral… Many companies who were very successful at one point ended up going out of business, e.g.;  Who were the top two retailers in the U. S. in 1975? Sears and K-Mart: What happened to them? Both are on a downward spiral…

There are a lot of adages that may seem like pithy statements but they usually contain much wisdom, e.g.; one adage that has done more damage to more businesses than any other is: If it ain’t broke, don’t fix it. At successful companies they modified it to read: If it ain’t broke break it, because if you don’t, your competitors willThe adage; If it ain’t broke, don’t fix it– really suggests the company is good enough just the way it is, and there is no need to improve it. This attitude sets the stage for complacency and the downward spiral… The world is constantly changing and businesses have to change to be able to compete in the new world.

Executives must stay informed of changes in technology, demographics, political and social trends, economic conditions, what competitors are doing… but  many executives, don’t so for a variety of reasons which may include, e.g.; executives being  myopic – they focus on what they are doing but fail to see forest for the trees… They do not see the changes or trends, and many might think that  the changes or trends are only temporary, and conditions will revert back to what they always knew… Change scares many executives because they cannot predict the future. Many executives find comfort in maintaining the status quo… Many executives simply want to stay on the same path until they retire; the business is secondary and they think only in their own best interest…

In the article Is Your Business Bleeding Out? by Ben Lichtenwalner writes: Bleeding-out (i.e., exsanguinations in medical terms) is death caused by loss of blood from a wound. In business, the term could be used to describe a similar death. Wounded by an event(s), the organization can fail to recover, slowly bleeds to death… Whatever the injury source, the bleeding must be stopped for the business to survive… It’s important that leadership– recognize the impact, identify the source of the bleeding, and put a stop to it…

There are several types of blood the business may lose, e.g.: People; your best people, seeing the trouble, they seek employment elsewhere… Efficiency; resources are wasted on politics, personal agendas and ulterior motives… Commitment; disengaged workers who remain, show a lack of enthusiasm and performance decreases… Whatever the type of blood loss you experience, it’s highly likely you will eventually see decreased levels of all three. The downward spiral often begins with one attribute and takes-on other vital components as negative momentum builds. Faced with a wounded organization about to bleed-out consider how hospitals usually treat patient that are in this condition:

Emergency Procedures for an Organization Bleeding-Out: When a patient is admitted to hospital, the medical staff processes the patient through four phases: Triage, Diagnosis, Treatment, Recovery:

  • Triage: Stop the hemorrhage: At this point, fast, strong and highly visible action is required. Communications to the organization about your commitment to resolving the issue is necessary– you may not be 100% certain of the root cause…
  • Diagnose: Triage executed, now you must begin to diagnose root cause. This means a cross-functional, multi-level team dedicated to naming the source…
  • Treatment: Treatment process is often uncomfortable for many– like re-breaking a misaligned limb… but, commitment to completing the healing process is vital. Or, if not careful, you can slip back to old routines and bleeding resumes– often at faster pace…
  • Recovery: Organization must experience a time of healing, and hypersensitive to the problems of the past… leadership must be constantly engaged with employees and reinforcing ongoing support and commitment for the long-term…

Don’t just sit there; Yes, whatever you do, don’t just sit there. Allowing the organization to bleed-out is like a medic standing beside a dying patient, watching them slowly fade away. In long-term, you would be equally responsible for the slow death of the company. Stand up; Say something; Take action… According to  Aswath Damodaran; the Chinese saying;  = you are born, get old, get sick and die… Looking back at history, there are companies that have beaten the odds of the business life cycle, fought off decline, and reborn as successful ventures, for example; Apple’s climb back from the dark days of 1997 to the top of the market capitalization… As you think of other examples it’s worth noting that the very fact that you can name companies that are reborn suggests that businesses can survive the death spiral and thrive…

spiral ciavniuad06fxohwao4d3a Notwithstanding the sobering reality, it’s still useful to put success stories under the microscope, not only to get an understanding of what allowed these companies to succeed, but also to develop forward-looking criteria that you may be able to use to sustain a business, for example; ‘Acceptance’: The old ways don’t work any more…

To have a corporate rebirth, a company has to get through the acceptance that old ways, don’t work any more… ‘Change Agent’: This may be cliché but change has to start at top… ‘Plan for Change’: Knowing that the existing ways don’t work any more is important but it’s futile unless accompanied by new mission and focus… ‘Luck’: Much as you would like to attribute success to great skill and failure to poor management, it remains true that the X-factor in business success is luck (although people create their own luck).

According to Joann Auger; the downward spiral is that tendency to get caught up in ‘what’s wrong’ and ‘why it’s wrong’ conversations thus spiraling into negativity… Often leaders wait too long to address problems, or are only made aware of problems when it has reached near crisis… and this can be the beginning of a downward spiral…