“Bad decisions made with good intentions are still bad decisions.”
Too many independent kitchen and bath owners have an inflated sense of their company’s performance due to the pandemic creating an astronomical demand for design projects. While success may overwhelm owners with a sense of what you’re doing right, it may inadvertently cover up flaws in your business model.
Jim Collins’s New York Times best-selling book How the Mighty Fall: And Why Some Companies Never Give In discusses how every company is vulnerable to decline. The reasons companies fall are simple: When leaders try to solve all the problems themselves, their company descends to irrelevance or financial ruin.
The good news is that even when a company has gone down the wrong path for a long time, turnarounds are possible – and even sustained success remains achievable.
Stage 1: Hubris born of success
When a leader replaces the ability to learn and understand from insightful thought and right action with the notion that “we’re successful because we do these things, specifically,” that leader has succumbed to hubris. Be wary of efforts to branch out your business for tremendous success if it compromises your core business. If your core business is neglected, your whole enterprise is in jeopardy.
This can happen to kitchen and bath dealers when they try to scale their business before it is ready. Grounding your operations with a centralized selling system will speed up your sales and increase your margins. This bold move is rooted in discipline and past successes proving that it works. Utilizing a centralized selling system will set your business on a course to be scalable several years down the line rather than several decades.
Stage 2: Undisciplined pursuit of more
The decline doesn’t come from avoiding bold action but from taking unassessed risks and simply being ambitious for the wrong reasons. Some kitchen and bath owners fall into the trap of trying to scale their business too soon. This flawed maneuver frequently happens before an owner has mastered their financials. Companies that have entered stage two have already distanced themselves from what made them great in the first place.
Collins cites the former electronics mammoth Circuit City whose business peaked at the end of the 1990s. However, Circuit City’s endeavors into the used car and Divx (a short-lived competitor of DVDs) markets were misguided, causing the company to neglect its electronics empire and drive it into the ground.
Firms should always stay within their ability to engage customers effectively and deliver consistently excellent products and services.
Stage 3: Denial of risk and peril
Some kitchen and bath dealers have been experiencing 5% – 10% lower gross profit margins due to manufacturers’ surcharges from supply chain issues. This dip in profitability creates another situation that may make it difficult for owners to see a flaw in their business model.
In stage three, leaders tend to discount harmful data that warns of threats to the business and amplify positive data that hasn’t been corroborated and therefore is of an uncertain value. They are much less likely to accept responsibility for how the negative state of their operations came to be. In the third stage of decline, it is crucial to take a step back from the business to ask probing questions about what caused the company to reach this woeful state of operations.
That’s not to say that bold action should be avoided during troubling times, but rather that the action should come from sound judgment checked by trusted sources, such as a board of advisors. How do you know which risks are worth taking and which are too risky to try?
The waterline principle
Say your business is a ship on the open sea, and holes are blown into the hull whenever you make a bad decision. If those holes tear the boat below the waterline, that’s reason to immediately stop the action causing that damage and determine a new course of action to take. If they strike above the waterline owners can accommodate a longer timeline for fixing the problem.
Stage 4: Grasping for salvation
Businesses that have entered stage four of decline are failing. Owners will want to reach out for help to save their business in any way possible, and make wrong moves in the process. Desperate owners seek a secret solution – to be rescued by some business savior, or to make a bold ploy for a rapid turnaround so they can be seen as the hero who single-handedly saved the business.
Kitchen and bath owners think dropping their prices by 10% to 15% to keep their sales up will save their business during a recession. On the surface, the logic behind this action makes sense. If your products and services cost less when people are tight with money, people will still buy from you. This will show anyone looking that your business continues to be busy during a time of hardship. However, doing this keeps your expenses high, alters prospects’ views of what your company stands for, and, more than compromising your ability to earn a profit, is likely to send your company into a death spiral. It takes a lot more than sales to make up the difference in the loss of gross profit.
Collins asserts that only through resolution and willpower can companies at this level of decline reverse their course and be on track for success.
By way of example, Winston Churchill, in the early 1930s, was outside of government, depressed, blamed for great Britain’s failing economy, and considered a spent force. Though depressed from his failings, Churchill continued to believe in himself amidst severe criticism. With the arrival of World War II, he proved to be a legendary leader and is now recognized for his successes rather than failures.
Stage 5: Capitulation to irrelevance
Companies enter stage five of decline when the accumulation of expenses and the results of poor choices have gone too far to reverse. Executive and employee spirit is broken, causing hope for saving the company to be lost. This is the end of the path leading to bankruptcy or irrelevancy.
Speaking to the opposite course of these five stages, kitchen and bath firm owners who abide in core operating procedures – that are never to be compromised – should be able to lead their firms to sustained profitability.
- Conduct your operations within a code of values you believe in
- Master your business by knowing your numbers
- Budget quarterly, annually, and three years out
- Streamline your operations:
- Implement a transparent budgeting system
- Sell your products and services on the Good-Better-Best model
Embrace a diversity of ideas in making significant decisions for your firm. Seek outside wisdom and insist on objectivity when analyzing your operations. By benchmarking your progress through a lens of objectivity, the things you want your business to be – reliable, innovative, and profitable – will make it a model of success.
—SEN Leadership Team
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