Up until now, we have reviewed four traps that are common in nearly every business. The first two capture you in start-up phase. The third and fourth traps are only encountered when a company encounters some level of success. The fifth trap of a company or organization is the decline and denial trap. This trap sounds the most ominous. That’s because it is. Unlike the previous traps, this trap is almost always fatal.
Decline and Denial – The Fatal Trap
To better understand this trap, you first need to understand how you got here. Decline and denial does not just happen on its own. It should never be a surprise.
If you have reached this stage, it is because of one of two reasons. You may have ignored several clear warning signs. In particular, you ignored the warning signs of the success trap. Or, you failed to implement a strategy to reinvent the business once you recognized you were in the success trap.
Ignoring the warning signs of the Success Trap
The warning signs of the success trap are fairly clear. Here are some of the most obvious:
- New competition enters your segment that totally reinvents the business (eg. The “Amazon effect”)
- Market pressures are degrading profit margins to the point that your product is treated as a commodity
- Your strategic edge is gone because technology has made it such that anyone can duplicate your business.
If you ignore these or other warning signs, you will eventually find yourself in the decline and denial trap. You have to come to the realization that you will no longer be able to provide your services with your current model. You essentially have two options. The first option is to duplicate the model of the new entrants. You have to hope that your existing market presence will win out and that you can still rule the day. Unfortunately, you probably will not be able to maintain the profit margins you are currently realizing.
Perhaps a better option is to reinvent your services in such a way as to head off the new competition. I experienced this phenomenon with a company I was with. The capabilities of our product line had become so commoditized, we could no longer get the high-profit margins we were used to getting. We had to reinvent our services in such a way that our customers recognized the value-add that we brought and were willing to continue to work with us, even though they realized there were now cheaper options available.
Failing to implement a strategy to reinvent the business
Perhaps the number one reason for decline and denial is the second word in that name, “denial”. If you live in a state of denial, you will eventually find yourself on the losing end of this equation. Many companies do not see new competition coming. Many more see them coming, but don’t believe it’s going to be a problem. This denial gets companies like Sears in trouble and leads to their eventual demise.
Business owners have to maintain a realistic perspective about competition. That doesn’t mean they have to constantly be worried that the sky is falling. But it does mean that they need to keep evaluating the market, testing their customer loyalty, and evaluating options to make their company more profitable, more successful and more apt to continue to grow.
Impact of Decline and Denial
If your company is trapped at this stage, then you are likely to start seeing a few tell-tale signs.
Loss of Customers
First, you are likely starting to lose customers. And not just any customer, you are likely going to lose an important one. I’ve seen this before. A company loses a few small customers to a new competitor. The business owner or sales team shrugs it off. “They weren’t a strategic customer”, they say. But the competitor is gaining momentum. For every new customer, they are taking some of your revenue away and putting it into their bank account. They are also learning about you. (What, you don’t think your former customers talk about you?). This gives them new intel. It helps them understand how to compete against you in the future.
The loss of customers is going to happen. It happens to everyone. But be aware that it could be the start of something bigger.
Loss of Key Team Members
If you are headed into a period of decline and denial, often the first people that see it is your own team members. And let’s face it, they don’t have the same investment or commitment into your business as you do. So they are not going to be as apt to stick around and weather the storm.
Additionally, remember what I said about former customers talking to your competitors? Well, if they really like someone on your team, they are going to tell your competitor that. And suddenly you may find your star technician working for the competition because your former customer wanted them on the team.
What can you do?
There is not a lot of hope of recovering once you are caught in the decline and denial trap. But there essentially are three options:
- Reinvent yourself NOW! You should have done this at the previous trap. You don’t have much time left, so get to it. If you are going to try this, get some good advice. A business coach, financial planner or strategic partner can be a great asset here.
- Exit. Perhaps the best thing you can do is exit the market. Sell off your assets or merge with that competitor that you were trying to fend off.
- Bankruptcy. It is probably the last resort, but it may give you a chance for rebirth.
Don’t wait. Act now. You need to get moving if you want to get out of this trap. A good business coach would keep you from getting there in the first place. Contact me if you are ready to do something about it.