Why do they do this, when such wholly-inappropriate omission will inevitably damage, seriously and often fatally, the future of their underlying core business activity ?

A relevant case study

A long-established and largely successful top-end-of-the-market cattle livestock slaughterhouse / abattoir business with an approx £20m turnover got itself in to all sorts of most unpleasant difficulties, well before the current recession / depression, this because the then-in-place director/shareholders refused point blank-

• to look beyond their immediate current (superficially-successful) business model, and

• to take appropriate notice of the key medium and long term trends which were beginning to be impacting on to their industry sector

The said director / shareholders had done an absolutely amazing job in effectively starting up and then building and developing this significant enterprise over a number of decades, and with their having put in to place during that time the most excellent and absolutely state-of-the-art EEC-approved abattoir facilities, but they had become stuck in a time-warp as regards the rapidly-changing market place for their products

The prevailing situation was that all of the generated product was sold, as it always had been, in the form of complete sides of beef, and all of these were sold direct to the wholesale buyers in Smithfield Market in London

To the credit of the directors, there had been at least some attempt to “brand” the sides, with in some cases the company name going on to each side of beef, though many of the London wholesalers would not permit such processor branding, and put their own brand on instead

Again, to their credit, our client firm did command a modest premium price for its very up-market product, even via these trade channels, but the said premium was modest indeed, and in no way reflected seriously the considerable extra costs which were being incurred in the breeding and rearing and processing of such very high quality beef livestock

What the director / shareholders of our client firm had failed previously to appreciate fully was that the very particular trade channel in to which they were choosing to be selling was clearly incapable of providing them (the processor / slaughterers) with the short, medium and long term returns which they needed for their company, via which to be able to survive and prosper

At this point, the director / shareholders at last woke up, as the company became increasingly unviable and when it was moving inevitably towards failure, and they realised that just sitting back and taking no remedial action of any kind was not a serious option. They were indeed going to go under, unless some dramatic action was taken and fast

Stage one – On the advice of an OMSG Non Exec who had been appointed, a new MD/CEO was put into place, and he came quite specifically with a food industry background rather than from a livestock and meat industry background. Also, it was agreed that the OMSG Non Exec was to continue on with the client company for at least three to four years, to support both the new MD and his senior management team, and the by-now largely non executive board 

Stage two – The new MD and the OMSG Non Exec both understood and appreciated very speedily the need for significant change, and the latter quickly brought to the table the key information that the existing trade channel for the firm’s products – the London / Smithfield Market - was in virtually terminal decline, and was by now handling only a single figure percentage of the total meat trade in the UK, and even that low figure was continuing to fall steadily year on year

Thus, a powerful and urgent need to move in to new routes to market was identified at an early stage in discussions, as was simultaneously the need to provide those new channels with the product (top end of the market beef) in the exact form in which they wished to receive it, (and which also made far greater economic sense for all concerned, not least in transport costs) –

• Boned-out “Vac Packs” of beef - approximating in total in each case to say a quarter of an animal, that work being undertaken at the slaughterhouse / meat processing plant, but which needed further cutting and final preparation and final presentation at the retail point of sale

• Actual retail packs of the individual cuts of beef - finally prepared and presented, with all of that work being undertaken also at the original slaughterhouse / meat processing plant    

Stage three – To meet the challenge of this new type of product / service demand, there was going to have to be a massive sea-change back at the plant, in terms of buildings and equipment and personnel, and in costings and in pricing, and in quality control, and not least in terms of significant Fixed Capital Expenditure ! - Our clients were in effect going to have to become a food factory and business, rather than an abattoir, however super-excellent that latter facility might be !

The final outcome - To their credit, the director / shareholders bit the bullet, and a very expensive bullet it was too, in terms of further massive amounts of Fixed Capital Expenditure ,,,,,,,,, and they went strongly for the new business model and just as fast as they could, practically and sensibly, and being guided and hand-held at all times by their MD and by the OMSG Non Exec

A further two years plus down the line, the company was by then selling only 25% of its output to the wholesale meat trade, and even that low % age was falling steadily month by month, to the point shortly afterwards when only a minute proportion of output went in that particular direction. The company had also become involved significantly in selling boxed retail cuts of beef, fully branded, via a sophisticated transacting website operation, direct to the end consumer. There was also put in place a very large and successful Factory Retail Outlet, and both of these sub-sets contributed strongly to turnover and profitability levels, and to cash flow profiling, and to 25% of total output        

The company was now trading profitably once again, and significantly so, and was thereby ensuring its future commercial and financial survival and prosperity  
 
The moral– Having a strong-minded, independent detached objective and highly-experienced Non Exec on board made all the difference, to the MD, to his senior management team, and the to the board, in order to be analysing clearly the problem, and to be discussing examining and proving appropriately the relevant and workable alternative strategies and tactics with which to deal successfully with that problem – and for the client firm to “to have its hand held” throughout - and Yes, we would say that wouldn’t we ! – but it’s true, nonetheless

More next month, on another topical issue for SME businesses

July 2010