The myopia in struggling small companies

A bigger role for the business development function coupled with process and employee improvements drives turnaround fortunes in small companies.

On the inside underperforming companies are primarily challenged by cultural matters, process issues or an insufficient offering which, after prolonged inattention, reveal themselves as money problems.

In certain instances, leadership is unable or uninterested in addressing the problem. As the financial warning signs start going off, value declines and other stakeholders begin to take notice. At this stage restoring credibility with vendors, employees, and customers becomes more difficult. For closely held companies in these circumstances, it is probably well past time to have sold the operation and retired on the proceeds.

Frankly, it might be the last time a turnaround could be instituted before closing up quietly or having to seek legal protections. Family members, suppliers, customers, and employees all have a stake in the future of the enterprise. When leadership is the hurdle due to inattention, skill deficit, inability to pass the torch, or the fear of post retirement, there seem to be few good alternatives.

One novel option is to sell, partner, or give the company to a turnaround investment group. The fix requires a unique aptitude – most small companies do something, other than selling, well. If the underperformance extends to obsolesce in operational systems and the culture is unwieldy, few advisors will have the skills to fix it all.

The business turnaround group I developed works with small manufacturers and commercial service companies. These are specialized, but underperforming firms in stable industries. They require fresh, capable and enlightened direction to chart a sustainable course. At the outset, candidates for help participate in a thorough due diligence process to determine value and feasibility.

One of the routes available for returning value to these entities is the transfer of a majority stake in the company. In this approach the sellers will retain a share that will be sold at an expected higher value when the turnaround group sells the restored, now profitable company in about 3 years.

Since 1999, Lauterback Consulting has been assisting companies of generally less than 50 employees to turnaround, start-up, and grow. Learn more about my work with business owners and their CPAs, attorneys and bankers. Call me today.