Some companies, like Delta Airlines, fail mainly because of circumstances beyond their control terrorist attacks, rising interest rates, surging fuel costs.
But usually companies fail simply because theyre dumb. Dumb companies start with the right idea but the wrong amount of capital not nearly enough. Or they raise millions in other peoples money only to spend it on the wrong ideas at the wrong time.
In the last round of failures, United Airlines, Kmart, WorldCom, Enron, and 47 other huge American corporations went belly up. Millions of shareholders were wiped out and hundreds of thousands of workers were thrown out of their jobs. Many even lost their pension plans. Tens of thousands of smaller businesses also went up in smoke.
Now, the catalysts for a new round of failures are bursting onto the scene exploding fuel costs and rising interest rates. But this time …
Dont Wait for the End Game
Before Taking Protective Action
Long before a company sinks into bankruptcy, its stock price turns south and goes into a tailspin.
Delta Airlines, for example, fell from its peak of over $70 per share to less than $40 even before 9/11. And it plunged in half again long before bankruptcy emerged as a real possibility.
Now, its near $1.40. Investors who bought at the peak have lost 98% of their money. Even investors who thought they were picking up a bargain early this year are down by over 80%.
So when a company is starting to look vulnerable, dont wait around. Get out sooner rather than later.
Today, the vulnerable sectors include:
- Airlines and transportation companies. Even at $50 for crude oil, their profits were getting slammed with surging fuel costs. And this morning, crude oil surged well above $66, coming within less than a dollar of busting to brand new, all-time highs.
- Banks and mortgage lenders. Almost all are getting squeezed by rising short-term borrowing costs. And the fact that long-term interest rates the yields on their loans and bonds are not rising as quickly doesnt help them any. It only makes it worse.
- Real estate companies and home builders. Yesterday, the National Association of Realtors (NAR) reported that existing home sales for July fell by 2.6% to an annualized pace of 7.16 million homes. (Wall Street was expecting 7.29 million sales.)
But heres the really bad news: Inventories of homes for sale rose 2.6% to 2.751 million, a 4.6-month supply at the current sales pace. Thats the largest inventory since May 1988. And today, it was announced that the inventory of unsold NEW homes is also at a record (despite an increase in sales).
If you own the shares in a sinking company, your solution is simple: All you have to do is pick up the phone, call your broker and issue one four-letter instruction: SELL.
But suppose you own the company privately. Or suppose youre running the company yourself. Then what?
Then, the solution is not so simple. Protecting your company from the dangers or turning it around is going to take some work … and some brains.
Thats why, today, Ive turned to the one company-building brain in
Almost every company hes touched has prospered. Hes helped turn dumb, failing companies into smart, soaring companies. Hes transformed star companies into superstars. And hes done this in some of the worst business environments imaginable.
Now, Clayton is launching a free, regular e-mail newsletter designed to help entrepreneurs, business owners and marketing people grow their companies fast. To sign up, go to www.makepeacetotalpackage.com
But first, he wants to tell you personally about one of his worst experiences …
How to Kill a
Great Company
in One Easy Lesson
by Clayton Makepeace
Back in the 1980s, I agreed to help the owner of a small company grow his business. Within three years, it was the largest company in its industry. And we did it in a sinking market for its primary product!
We attracted between 5,000 and 10,000 new customers every month. By 1988, we had more than 120,000 paying customers. Sales revenues and profits quadrupled.
Thats when things turned sour.
My client decided to cash out take his profits and retire and asked me to help him sell his company. So I created a 20-minute video and a comprehensive company profile to help attract prospective buyers.
The buyers, who paid top-dollar, turned out to be a team of three Rhodes Scholars with advanced business degrees from
Within a week after the papers were signed, the crackerjack marketing team we had built was placed under an oppressive bureaucracy: An Executive Committee made up of the new owners, their hand-picked CEO, the CFO and the General Manager, none of whom knew one blessed thing about marketing.
Within days, we went from a company focused on marketing to a company infatuated with corporate planning.
Key marketers were sidetracked in day-long meetings and week-long out-of-the-office marathons. Scores of crucial sales promotions were put on hold while the marketing staff diddled themselves silly with endless research and reporting tasks.
I went ballistic. I warned everyone whod listen that de-emphasizing marketing was going to drive the company into bankruptcy.
That drew giggles all around.
Youre overreacting, said the new owners. Its going to be just fine, chanted the Executive Committee.
It wasnt fine. Not by a long shot.
The flow of new customers faltered, then plunged. Our active customer file began shrinking. Sales to existing customers plummeted.
Finally, unable to make the new owners see the error of their ways, I quit. As I walked out of the office for the last time, I told the CEO, I understand what being a Rhodes Scholar does for you. Youd have to study to be this stupid.
I told the CEO that his company would go belly-up within six months. I was wrong. He filed for bankruptcy 90 days later.
Honest Marketing Is the Only Way
to REALLY Put Your Customers First
It drives me nuts when executives who know nothing about sales and marketing give lip service to the concept of putting the customer first, but never actually do it in practice.
Instead, they relegate the only people who actually communicate with customers customer service, sales and marketing staff to an inferior position in the company.
Before the Rhodes Scholars showed up, my client had put sales and marketing first. And because their first job was to respond to customers desires and concerns it automatically meant our customers were #1.
But the Rhodes Scholars and their preening Executive Committee wanted to be first the masters of all they surveyed, at the pinnacle of the corporate pyramid. So, they put sales and marketing in its place under their thumbs, often no more important than janitorial services.
And by doing so, they turned my clients Smart Company into a Dumb Company in one fell swoop.
In a Smart Company, the Marketing
Department Is Empowered to Respond
Immediately to Customer Needs
The marketing department in a Smart Company is armed with the freshest and most accurate intelligence on the true desires and complaints of its customers and its prospects.
With that information, the marketing department is empowered to respond immediately to customer needs. It does so by directing:
- How to get quality feedback from the customer service department
- How to develop products that will make the customer happy
- How to create sales promotions and the layout of catalogs and;/or a store
- Every other activity in the chain of events that begins with contacting a prospect or customer and that culminates with actual sales.
In Dumb Companies, top execs simply dont get it. They fail to understand the supreme importance of good customer relations, sales and marketing. Or worse, they see it as a necessary evil.
And their structure shows it. Marketers are kept under tight rein slaves to multiple layers of bean-counters, bureaucrats and other self-important gasbags who have long forgotten where the money in their paychecks comes from (assuming they knew it in the first place).
Dumb Companies make sure that marketers the only experts in the company capable of boosting sales, revenues and profits are kept in a straightjacket. They ensure that crucial sales campaigns are delayed by corporate procedures requiring marketing-challenged morons at the top to approve their every move.
The CEO and top execs spend no more time or effort on sales and marketing than they do monitoring human resources, or any other department. Marketing is beneath them something the weirdoes down on the fourth floor are responsible for.
Getting Everyone
on the Same Page
In a Smart Company, every employee clearly understands that his or her job exists for one reason and one reason only: to help make the customer happy and help marketing increase revenues.
- The Accounting Department exists to ensure that Sales and Marketing have the financial resources they need to attract maximum numbers of new customers … and to boost sales revenues.
- Human Resources exists to ensure that Marketing and Sales have the best talent available … and the best support from every supporting department.
- Information Technology exists to give Marketing the daily reports it needs to monitor and analyze the effectiveness of its strategies and campaigns.
- The Legal or Compliance Department helps marketers create promotions that are as effective as is humanly possible within established ethical and legal boundaries.
If Youre the Owner or CEO,
Be Sure Youre Wearing Two Hats
First, lead the charge with the Marketing department.
When you set goals and monitor key costs, make sure its always in conjunction with current, accurate marketing response reports.
Break logjams.
Help them innovate new products and sales approaches.
Provide the quick approvals needed to kick winning sales campaigns into overdrive.
Second, bring up the rear. That means driving everyone down the line to make sure that making customers happy and supporting marketing efforts is their #1 priority.
BOTTOM LINE: Dumb Companies think that the marketing department exists to sell products.
Smart Companies know that the only reason to have a product is to make customers happy and give the marketing department a vehicle with which it can attract new customers, produce revenues and deliver profits.
My advice: If you own or run a Dumb Company, start now to change how you and your employees think about your business. The simple act of redefining it as a customer-centric marketing business is your first step.
Your second step is to transform your corporate structure and procedures in order to make customers, sales and marketing your FIRST priority.
Do that and your company can soar, even in bad times. Stay your current course, and you risk letting it sink into oblivion, especially if business turns sour.
Third, for more specific instructions coming to you regularly, sign up for my free e-mail
Best wishes,
Martin Weiss and
Clayton Makepeace
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2005 by Weiss Research, Inc. All rights reserved.
15430 Endeavour Drive, Jupiter, FL 33478
