Business Owners in Denial
I recently published an article regarding contractor profitability and received quite a few phone calls. I was amazed by the number of people who were losing money and had the same common characteristic: denial. There was a common failure to address the true cause of the problem and having the courage to deal with it. Here are some of the characteristics many of these failing businesses had in common:
Blaming low margins on the recession:
Almost every person I talked with blamed the 2007 recession. Hello, 2007 was six years ago! If you have not redesigned your business and adjusted to the new marketplace, you never will. The majority of our customers are profitable and doing well. Quit blaming something that happened six years ago for your issues today. I talked with people who did over $2 million in sales who blamed the recession. Excuse me; if you do $2 million in sales, you have enough sales to make money. The problem is your margins are too low, your overhead is too high or your organization is not producing. It is not the recession.
The ones that did not blame the recession complained about competition. There have always been cheap contractors and there always will be cheap contractors. You must either outsell them or find markets where you can gain an advantage. Take a piece of paper and pencil and figure out what it will take to make the numbers work or if you like call me, and I will try to help you over the phone.
Enabling underperforming employees:
Businesses that are losing money have another common problem: underperforming employees. At first, this seems like a valid excuse, but the real problem is that the owner was blaming the wrong person. An owner will often blame the employees, when in reality this problem has occurred because the owner is not holding people accountable and measuring performance. Show me an organization where the owner never visits jobs and I will show you an organization that thinks the boss is made of money. I realize many of these employees have been with you for a long time, but the best way to protect someone’s job is to make sure they do what they need to do. Denial about employee performance is not going to turn your company around.
Bringing sons and daughters into the mix:
In many ways, this is the single greatest sign of denial. You are not making money, so you bring your kids into the mix. I just for the life of me have a hard time understanding the logic of this. Here is the rule of thumb: If you have a son or daughter who is coming into the business who has been a mediocre performer in school and life, he or she needs to get a job somewhere else. You just do not need to add this pressure to your life, and you are not doing them a favor. Suppose you are 55 and they are 25; if the business has gone poorly for years, the likelihood of your turning this around is poor. When you turn 65 or 70, they are going to be 35 or 40 and looking for a job.
Raising children is similar to managing employees. It is all about accountability and establishing boundaries. If you have not done this at work or at home, the likelihood of bringing this kid into your business and it working is almost zero. Denial regarding family circumstances doesn’t help anyone.
Now, if the sons or daughters were high achievers and aggressive, and their goal is to help turn the business around, you have to immediately give them that role. Tell them the numbers, have an open-book policy and let them help make the decisions. See if they can stand up and do the things that need to be done. They need to fix it so there is a future, and hopefully they are better at it than dad or mom, who feed the losses.
Supporting emotional but losing business segments:
It is not uncommon to find a division of the business that does not make money but the owner wants to continue to do work in that area. Maybe it is new construction or small and complex jobs. Maybe the owner enjoys that type of work but it just is not profitable. Don’t let your business be your hobby. Focus on things that are profitable and avoid losses. If you want to do this type of stuff, make money and do it in your spare time. Maybe it can be a charity endeavor. Denial of an unprofitable segment of work will kill your ability to turn the business around.
In summary, don’t let denial hurt your future. Denial is a refusal to accept reality. If you can’t accept where your business is, how will you ever fix it? Most alcoholics don’t quit drinking until they hit rock bottom. Business losses are much the same. Recovery starts with the truth and acknowledgement of the problem. Without that, all else is lost.