3 Signs that It’s Time to Pull the Plug

The New Year is a time of growth planning, renewed focus and basic housekeeping.  We encourage you to take this time to evaluate your business for pruning opportunities.  Just like nature’s cycle, the old must die to make room for the new in the business realm as well. You may be keeping a dying business alive on life support when it is time to dedicate those resources to something new.  Feeding a dying business with cash obscures many fatal illnesses and deceives business managers in to believing that all is well.

Wall Street tells us to cut losses short and let winners run but at what point is the race over? In business, losses can actually be masquerading as diminishing gains for mature products or services.  As you watch revenue flat line and then begin a gradual decline, you wonder whether this is a normal low cycle or temporal downturn. Worse yet, is it the end of your product’s useful life in the market? The sickening feeling in your stomach tells you that it is the later- but how can you find out for sure? How do you know that it is time to shoot the dog or put the old girl out to pasture?

In the spirit of New Year’s resolutions, we’ll step in as your business therapist. Examine the following things to determine if it is in fact the end of the road, or just time for a strategy makeover:

  1. Return on investment:  if you are pumping increased time, energy and investment into your sales effort only to keep up with your historical sales levels, it is likely you are selling an obsolescent product or selling into a saturated market. Worse case: it’s both.
  2. Gross profit margin: have you been lowering prices over time? It’s possible you have been telling yourself that this is “just the industry I’m in” and moving forward with the false comfort of the lemming heading towards the cliff.  It’s time to face the cold hard truth: there will come a time in the not so distant future when it will no longer make sense for you to be in this business.
  3. Objectively analyze your market: first, hire a 3rd party to survey your customer base to collect detached feedback on market demand, the competitors and the perceived value of your product offering.  Then, take a hard look at the collective market dynamics- how fast is the industry growing? What regulatory issues are at play or coming in the near term?  Are there any disruptive trends or innovations that have shifted your customer base? In short, is there any way you can become the market leader or is it a losing game?

The tribal wisdom of the Dakota Indians, passed on from one generation to the next, says that when you discover you are riding a dead horse, the best strategy is to dismount. If you are like the kid at the supermarket that is riding fast but going nowhere on the mechanical horse- take the horse’s pulse.  After careful evaluation you may come to find that the winner has run his race but can run no more. Identify new growth opportunities, plan your transition, then say your final goodbyes and pull the plug.