BILL LEE: Lackluster Earnings
And how to eliminate them.
BY: BILL LEE
The purpose of a business is to create wealth for its stockholders. Other purposes include creating employment opportunities in the community, servicing and satisfying the company’s customer base. But without satisfactory earnings, the life cycle of a business is relatively short.
Virtually all owners and managers desire satisfactory profits, but many end up with either lackluster earnings or outright losses. Based on my experience as an industry consultant, the following are the most critical areas that prevent companies from successfully turning the corner on profitability.
1. A laissez-faire management style practiced by owners or managers is the single most common factor I observe.
When top management loses its focus or lacks the discipline to follow basic business principles and best practices, satisfactory levels of profitability become more and more difficult to achieve.
Many times second generationowners— and beyond—actually need systems, procedures, benchmarks and reports more than their predecessors, perhaps because they lack their instincts. Entrepreneurship is not necessarily hereditary.
2. The CEO gets too involved in outside activities. Sometimes it’s running a related business on the side, such as building houses, but it can just as likely be becoming too involved in community activities, church work or hobbies.
I recall one owner whose business began a downhill spiral when he allowed business friends to talk him into running for mayor. He won the election, but the business lost its leader.
There’s certainly nothing wrong with either community involvement or church work, but a qualified manager should be recruited to manage the business if the CEO makes the decision to focus on outside interests.
3. The owner passes the torch to offspring who have never before been much more than hired hands. Daddy made all decisions, so the offspring never learned the decision-making process.
It’s not easy to make the transition from a multifunctional worker to CEO. Sure, the heir may have mastered truck driving, counter sales and a handful of purchasing duties, but it’s almost impossible to feel the pressure of leadership without first sitting in the hot seat.
Moral of the story: Make sure your successor is qualified to manage the business. If not, go to the outside and hire a professional manager.