Why do they still do this ? - when it has been well-documented and well-proven for many decades - even centuries - that so to do can mean almost inevitable corporate suicide

A relevant case study

The Background - A management training and development business which had been growing steadily for approx. ten years from a standing start, and with a turnover of approx. £1.5m, and with approx. 20 staff, including Tutors, had not over that whole period made any significant Pre-Tax Net profits, eg, just £50k in the previous year, albeit that it had provided the Owner / Founder / Entrepreneur / Chairman with an extremely comfortable life and lifestyle

However the said Chairman, who was quite clearly the sole driving force behind the business, was taking life more and more easily, and in fact slipping gently but quite forcibly in to leisurely (and very early) retirement, and in the process was neglecting the business, (an accusation which he of course refuted), and which business as a result was now suffering significant sales turnover and net profitability problems - and thence cashflow problems - and thence danger

The Owner / Founder / Chairman / CEO, who had done an absolutely amazing job in starting and building this significant enterprise, found himself being badgered by his family, by the staff and by the Tutors to return to an active role in the business, but he was extremely reluctant so to do, and continued to avoid even entering the relevant debate  

The problem - When it came to matters of succession planning, the said Chairman had for some years enjoyed that which can only be described as a Blind Spot, convincing himself that no replacement for him was needed or desired, and that he could and would continue to lead the company but in a very light touch and semi-detached manner, and in a manner which we professionals would describe as a Non Executive Chairman role, but that is a term which he rejected consistently and absolutely   

His contention was quite simply that if the business was hitting its (albeit static) sales turnover target figure every year, as set by him, which it did for a while, and if it was also hitting its industry-sector standard % Gross Margin aspirations every year, which it was, then therefore everything would be / should in his view be absolutely hunky-dory, given that his Fixed Overheads were under control, which they were effectively, ie on the purely operational level

However, after a while, the sales turnover figures did begin to slip, hardly surprisingly in the circumstances of there being no MD, nor Sales Director, nor in fact any senior executive running / driving the business - and in turn, of course, the Net Profitability moved speedily in to Loss

At the point at which OMSG Group were asked to assist, and to put in a Non Exec, the firm was beginning to have some difficulty in paying its monthly salaries, and similarly in paying its key supplier Tutor fees monthly

The analysis- It took little time for the appointed OMSG Group Non Exec, working in close consultation with the staff and with the Chairman to establish firmly and to agree that the falling Sales Turnover was indeed the key underlying issue, and which was warranting careful and thoughtful yet speedy attention. He also confirmed after investigation that there were indeed no hidden problems with the % GP Margin, nor with the (directly-related to the operations of the business) Fixed Overheads per se

The action - The Chairman and his family appreciated, really for the first time, that the situation of their owning that which was in fact a leader-less business was entirely unsustainable, in the short, medium and longer term, and that if he the Chairman was not going to re-enter the fold, which he assured all that he was not, then an appropriately-qualified CEO/MD had to be appointed and speedily in order to restore primarily the lost Sales Turnover as an immediate and urgent priority - and for the new CEO to then move on to actually increasing further and significantly so the said Sales Turnover - whilst of course not eroding at any the time the agreed % GP Margin figure, nor permitting any increase in the Fixed Overheads, beyond his own cost of employment

It was agreed also by all members of the family that the advertising for and the recruitment of the said CEO/MD would be controlled primarily by the OMSG Group Non Exec, and not by the Chairman, and it was furthermore agreed that the Chairman would reduce his (very considerable) monthly drawings by 25% for twelve months at least !

The outcome- Two years later, the lost Sales Turnover has been speedily regained, and the business is growing very strongly its top line once again beyond that recovery phase, and Net Profitability has jumped to £650k per annum in just twelve months, and to an expected £1.1m in Year Two  

The moral of this story / case study- Having a strong-minded, independent detached objective and highly-experienced and expertised OMSG Group Non Exec on board right from many years earlier could and would have made all the difference to the Chairman and to his family - and to the staff and the tutors - and to their business, and to their peace of mind ! - this in order to be able to be analysing regularly /monthly and quarterly with them - and clearly and speedily - the detailed nuts and bolts of all of the perceived problems and opportunities within their business

And, to be discussing and examining with them - and validating and proving appropriately - the relevant and workable alternative strategies and tactics with which to deal successfully with those problems and opportunities - And for the said OMSG Group Non Exec to be willing to commit to stay with and support the client firm and all of its people throughout the whole of the three or four years involved, to be planning with them and then supporting them through the various implementation stages of the changes which had been jointly discussed and agreed, and to then be working with them to be growing the business once again strongly and safely for the medium and long term

And, ,,,,,,,,,,,,,,,   to provide the business owners with a massive Return on Investment on the outlay of fees to OMSG Group for the services of the said Non Exec  -  of some 28 times !

And, Yes, we would say all of that wouldn’t we ! – but it is all true, nonetheless

More next month, with another case study reflecting a topical issue for SME businesses

May 2011