Entrepreneurs need to be able to react quickly. Too often any action will be delayed hoping that things will get better. They rarely do.
Wile E. Coyote always tried to catch the Road Runner to eat as he was always hungry. His increasingly outrageous methods to catch the Road Runner, were always unsuccessful and ended up backfiring and hurting him. Ironically, if successful he would have annihilated the victim and not solve his hunger problem. Focus was lost!!! The Road Runner was fast, quick thinking and able to change direction to avoid capture.
We were working with a radiologist last summer who was in the process of making offers on a group of diagnostic clinics which had been for sale for many months. These clinics were in high volume areas and while pricey, the purchase could be justified based on the assertions of the vendor and the Provincial Govt. payment rates. At almost the same time, the year-end financials were received as well as the announcement from the government that rates were being reduced by 5%. While financial results were poor, the reduction of the rates meant that the purchase could not be justified based on the asking price. The vendor waited too long and was inflexible!
Recently, there was an announcement by a major supermarket chain that they were demanding price reductions from their supply base. These price reductions will have a material effect on supplier operations and will ultimately reduce profitability. Reduction in profitability will also negatively impact the value of the business.
These two examples show that the market is changing very rapidly and business values can change with corresponding speed.
Entrepreneurs need to be able to react quickly.
Too often, any action will be delayed hoping that things will get better. They rarely do. The focus is elsewhere! A total examination of the operations will be needed to fully understand processes and costs so that remedial action can be quickly taken.
The other factor mentioned is the value of the business. Sellers look to the past to justify the value of their business but purchasers look to the future. Based on visits with many entrepreneurs, many are delaying making changes and hope that things will be better in the future. These delays will be costly as with the speed as noted above, companies will be caught flat footed which will lower the ultimate value of the business.
Proactive vs. Reactive
The 3 chief reasons, in our opinion, why actions are delayed or not go forward are:
- Owner hubris. Either, no one is telling the boss/owner what to do or the owner knows everything! There will be better pricing tomorrow
- There is no current pain. Company still making money. Lending covenants are good and customers still buying.
- Costs: Hiring outsiders/advisors to assist in evaluating operations or spending money to effect cost reductions to improve operations is considered wasteful. Costs, not benefits, are paramount considerations!
Firms that are proactive, always looking at ways to improve, will undoubtedly grow and succeed. Companies that continue on the same ways, will undoubtedly have to deal with major issues.
Is your business like Wile E. Coyote – unfocused and prone to do the wrong thing? Or the Road Runner – fast and focused?