Management lessons – why the Schlieffen Plan failed: the What vs the How

“In western Europe the military machine, with its thousands of wheels, costing millions to maintain, cannot stand still for long. One cannot fight a war for one or two years, from position to position, in 12 day long battles until both combatants are completely exhausted and weakened and forced to sue for peace. We must attempt to defeat our enemies quickly and decisively.”

Count von Schlieffen, German strategist, 1905

What was the Schlieffen Plan?

Long before 1914, Germany was preparing for war. In 1905, Count von Schlieffen, the German Chief of Staff completed what became known as the Schlieffen Plan in which planning commenced in 1897, based on the theory that Germany would be at war with France and Russia at the same time.

The aim was not to fight the war on two fronts at the same time, in the West against France and in the East against Russia. The plan was to first defeat France within 6 weeks by invading through neutral Belgium and capturing Paris before Russia could mobilise its army. After the fall of France, German troops could then be diverted to the East and attack Russia.

The Schlieffen Plan failed spectacularly as World War I became a war of attrition, bogged down in trench warfare in eastern France and Belgium, well short of Paris. The Germans believed that neutral Belgium would not resist and that the British through their 1839 treaty with Belgium, allegedly described as a ‘scrap of paper’ by the German High Command would not come to the support of Belgium. Furthermore, the Germans believed that there was no need to fear the British Expeditionary Force (BEF) which the Kaiser called a ‘contemptible little army’.

What are three management lessons from the failure of the Schlieffen Plan?

Lesson 1: inflexible and arrogant leadership leads to failure

Apparently over 80% of the German soldiers were not professional soldiers. The schedules were prepared by a military hierarchy for fit regular soldiers under ideal conditions, not for non-regular soldiers who were not for physically or emotionally fit to march 30 km per day with heavy packs. The German High Command refused to modify the plan when the advance faltered. There was no Plan B

Lesson 2: under estimating and not understanding your opponents and their tactics

The BEF was not expected to support Belgium but they helped delay the plan. This led to atrocities being committed often by the inexperienced and untrained German troops. The bureaucratic minds of the German planners justified these actions as nothing should stop the plan’s operation. These atrocities in turn assisted in portraying the image of the ‘evil Hun’, which mobilised public and political opinion, first in Britain and later in America, indirectly allowing America into the war several years later.

Lesson 3: not understanding and taking into account logistics in your plan

The Schlieffen Plan was partially successful in the first month of the war, as it resulted rapid penetration into France. However, the speed of the initial advance created its own problems, placing a strain on the supply lines as well as placing great strain on the German troops, where the majority were travelling on foot and also having to fight on the way. They became fatigued, sunburnt and developed blisters reducing their fighting capacity. The daily needs of feeding the hundreds of thousands of horses and men, and providing ammunition was a logistical nightmare (logistics in your business). The army moved away from the railheads at 30 kms per day resulting in the supplies being brought to the front by horses. It is estimated that the German army needed 3,900 tonnes of food and fodder each day, clearly a difficult task when overwhelmingly horses were used for transport. Clearly logistics limited the operational success of the plan.

There were other reasons for the failure of the Schlieffen. However, as managers that we can learn from the three management lessons from the failure of the Schlieffen Plan.

In conclusion, the questions you need to ask yourself are:

Post note: The Russian Army mobilised quicker than the Germans had predicted which meant a war on two fronts.

How NOT to celebrate Christmas…

“Every Who down in Whoville liked Christmas a lot

But the Grinch who lived just North of Whoville did not!

The Grinch hated Christmas! The whole Christmas season!

Now, please don’t ask why. No one quite knows the reason.

It could be, perhaps, that his shoes were too tight.

It could be his head wasn’t screwed on just right”

From the book “How the Grinch Stole Christmas!” by Dr Suess (Theodor Geisel)

So, what relevance does a children’s book of rhyme about a grumpy, solitary creature who tries to end Christmas by stealing Christmas-themed items from the homes of a nearby town Whoville have for managers?

In previous Christmas blogs, topics covered  included the need to have rules on behaviour, the importance of taking the opportunity to celebrate, thank staff and display leadership as well as a time for renewal and evaluation and setting the tone for the next year

John Cleese the famous comedian and Antony Jay one of the authors of TV show “Yes Minister” made a fortune from training videos that emphasised what not to do. With the large number of articles on management and leadership easily available today, I find it inconceivable that managers still display appalling examples of how not to do things. In these times where communication is spread quickly through social media it is even more important to ensure communication to staff in particular, is considered and done carefully.

This year I was sent a copy of the following Christmas notice posted on a company notice board.

From the text it would appear there have been problems of behaviour at the company’s Christmas parties in the past. As a manager, what do you think of this Christmas message to staff?

Here are some questions to ponder…

What is the underlying message in this Christmas notice?

Is it positive?

Would this communication help lift employees’ morale and get them working to improve performance?

What tone is set for the future?

What do you think of this company’s culture?

Do you think that culture effects profitability?

Between January 2016 and late 2019, the price of the commodity this business mines rose 40%, however in two of these years this company made losses and did not pay a dividend. Anecdotally it would appear that culture could be a contributing factor to less than satisfactory financial performance.

My advice to managers and business owners is “don’t be a Grinch-like at Christmas”. It is traditionally period of goodwill. Celebrate the occasion display graciousness, thank your staff and their families…

Take advantage of the opportunity, provide hope for the future and display leadership.

And to all the readers of this blog, thank you for subscribing and I wish you and your families the compliments of the Season and best wishes for the New Year.

What is Koala Bear Syndrome?

Flea-ridden, piddling, stinking, scratching, rotten little things”

John Brown – Australian Minister for Tourism

In the 1980s, the Tourism Minister sparked a national outcry when he described the koala bear in a such disparaging way. Koalas are considered a national animal icon in Australia with overseas tourist seeking to view and be photographed holding them. Koalas are not actually bears, but are mammal marsupials (have pouches) and are protected by law.

Koalas are found in the eucalyptus forests of eastern Australia and feast exclusively on eucalyptus leaves, which are tough and not very nutritious. They are covered in grey fur, weigh up to 14 kilograms, have strong clawed feet suitable for climbing and living in trees and are universally considered ‘cute’. Their poor diet means that they get little energy, needing to eat up to one kilogram of leaves per day. They are very docile and sleep up to 18 hours per day. The koala’s brain is very small, and they are considered the least intelligent mammal in the world. In summary the koala is protected, considered ‘cute’, not very intelligent, docile and not very productive.

The concept of the Koala Bear Syndrome© (KBS©) has been developed from a lifetime of work experiences in a range of businesses. Fellow workers often referred to some of their peers, colleagues and bosses as “marsupials”.

They didn’t have pouches, so why call them marsupials?

Because like most marsupials in Australia they appeared to be a “protected species’ and displayed such characteristics as being chronic under performers who could say and do anything without bearing the consequences or being held accountable. However, I consider the characteristics of the koala a better description of such people, particularly those who produce little, under perform, lack energy, are lazy, continually made the same mistakes, are incompetent and more importantly appear to be protected by their managers. They are rarely held to account. Koala bears are another form of disruptive employee, although they are more likely to be less obvious.

Sadly, few organisations are completely free from KBS©. We all have our blind spots and the challenge is to be self-aware enough to recognise them. Looking back, there are times when I have allowed KBS© to exist by failing to recognise it. KBS© tends to manifest itself more in private family companies, where business owners are more emotionally involved and where family members are not held to the same standards as other employees. Employing relatives and friends is also another area where KBS© is more likely exit.

Are there koala bears in your organisation?

How do you recognise them and what are you going to about it?

Value statements, structured performance appraisals, codes of conduct and clear and strong leadership can assist in managing KBS©.

Management lessons from the fall of the Berlin Wall…

“The Wall will be standing in 50 and even in 100 years”

Erich Honecker – East German head of state, January 19th 1989

Almost thirty years ago, the Berlin Wall came down. The Berlin Wall was a guarded concrete barrier that cut off West Berlin from the surrounding Communist State of East Germany. Over 140 kilometres long, it was built in 1961 to prevent East Germans from escaping to West Berlin. From the early 1950s to 1961, nearly 20% of the East German population left the country for West Germany.

On 9th November 1989, with crowds mounting in East Berlin the East German authorities announced the end of travel restrictions and opened up several checkpoints for visits to West Berlin.  Thousands swept through the checkpoints. Soon Berliners from the East and West began dancing on top of the wall and breaking off pieces of the wall. The fall of the Berlin Wall triggered a revolutionary wave that ultimately redrew the map of Europe, bringing down the Iron Curtain and setting millions of people free. Within two years, the Soviet Union and its empire also fell.

For 28 years the wall kept people in, and kept people out, separating and dividing families and friends, dividing Germany and the European continent. Over 5,000 people had escaped over this time and sadly an estimated 200 plus people died trying to escape from East Berlin to West Berlin. No one tried to escape from the West to the East.

My father believed that he would never see the dismantling of the Berlin Wall in his lifetime. I can clearly remember him saying this to us at the family Christmas in 1989. The current thinking at the time was that Communism’s rise was inevitable. Very few ‘experts’ predicted or expected that eventually Communism would collapse, let alone so quickly, and that Russia would lose its status as a world super-power.

What are the three management lessons from the fall of the Berlin Wall?

  1. The power of a vision. On 12th June 1987 US President Ronald Reagan stood at the Brandenburg Gate and demanded “Mr. Gorbachev, tear down this wall.” His words were largely ignored by the international media. Many so-called foreign policy experts dismissed Reagan’s demand as naïve and sensationalist.

There are few things more powerful for a business than having a clear and concise vision. Amazon’s vision is “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavours to offer its customers the lowest possible prices”. Amazon’s current market penetration and size is testament to their vision.

  1. Things can get better rather than worse. The worst-case scenario may not happen, particularly when people put their minds to achieving positive change. Very often we are subjected to negative media stories. We regularly hear people spreading such sentiments inside organisations.

Never under estimate what positive outcomes can be achieved with great leadership and teamwork. Everyday we are subjected to non-positive messages that make us believe our future is not in our hands. Like the East Berliners in 1989, by believing that we can escape from a prison-like environment, whether physical or mental, we can set ourselves free and make positive change.  The dismantling of the Berlin Wall is a reminder of how the seemingly impossible can became the inevitable and if there is the will to make it happen.

  1. Predicting the future is dangerous. Sadly, we tend to lean on so-called ‘experts’ who advise us and write books predicting the future. However, the fall of the Berlin Wall and the associated collapse of Communism caught almost everyone by surprise. We should be sceptical of people who claim they can predict the future.

In the late 1800s The Times predicted that “In 50 years, every street in London will be buried under nine feet of manure”. This became known as the “Great Horse Manure Crisis of 1894”.  The invention of the motor transport and Henry Ford’s assembly line production of motorcars at affordable prices changed this ‘expert’ prediction. By 1912, less than 20 years after this prediction there were more cars than horses in London. Furthermore, they were cheaper to own and use than a horse.

What are the 3 concluding messages from the fall of the Berlin Wall?

  • Change is evitable.
  • Things do not remain the same.
  • Whatever you are doing today will not be good enough for the future.

Certainly, the failure of Communism to adapt and change assisted in its downfall. This is the same for organisations. Many of the great corporations of times past no longer exist.

So, what is your business doing to recognise the evitability of change?

What should you be changing so your business not only survives but thrives?

Is an annual budget really all that important?

“The budget is not just a collection of numbers, but an expression of our values and aspirations”

Jack Lew – US Secretary of the Treasury

Many small businesses (SMEs) do not have annual budgets. In fact, I have come across some multi-million dollar businesses that do not have budgets, including several of my past clients.

What is a business budget?

A business budget is ‘a financial plan and prediction of future revenue and expenditure’. A budget is a goal for the business over the next 12 months.

Why are budgets important?

They serve a goal, or a plan…with 3 main purposes:

  • To forecast income and expenditure, and by extension profitability; (i.e. where are the costs incurred and where does the revenue come from to make a profit)
  • A tool for decision making that establishes a financial framework for the decision-making process, and assists in determining courses of action that can be either planned or unplanned over the year.
  • To monitor and measure business performance, where the actual business performance is measured against the forecast business performance.

In simple terms, all good businesses MUST have an annual budget, otherwise management and staff will not know what is expected of them, or the business.

How should budgets be compiled?

There are two main ways of compiling a budget; top down or bottom up:

  1. Top down is the less rigorous way of setting budgets and is more suitable for very small businesses. Often last years’ results are reviewed, and a percentage is added to revenue and costs for the following year.
  2. Bottom up entails reviewing costs, customers, revenue, sales and other Profit and Loss (P&L) items at a micro-level and determining what can be and what is likely to be achieved next year.

In my experience based on having my own business and on feedback from my clients, bottom up budgeting is the best method. It is important to invest the time in creating a comprehensive and realistic budget as it will be easier to manage and ultimately more effective than top down budgeting.

What are the suggested steps?

  1. Involve the right people, including financial, sales and operational staff. Their involvement will help gain their commitment to meeting the budget.
  2. Ask them for their estimates on sales, production costs or specific projects based on first principles by referring to each line item and customer in the P&L.
  3. Rigorously question each assumption, get agreement and then a commitment from those team members who are responsible for each part of the business. Ask questions such as:
    • Which customers will increase their purchases next year?
    • Where and how can we increase sales?
    • Will we be able to increase prices?
    • How can we reduce our fixed costs?
    • What staff will get pay increases next year?
  4. Use last year’s figures as a guide only, and do not simply make broad estimates from these figures.
  5. Complete the budget and share it with key staff.

In conclusion, the compiling of the annual budget is an opportunity to review and understand the business more thoroughly. A budget provides structure for the next 12 months, imposes discipline and holds people accountable for the business’ performance. What resources are required? How many staff are required? What customers are the most profitable? Where can we reduce overheads and still increase sales?

Overall budgets must be realistic and achievable and should also be aspirational and not too easy to achieve. A budget should have ‘stretch targets’, to ensure the business grows. In all my years in business, I have never set a budget where revenue or sales were less than the previous year.

Lessons on leadership and making a difference….

“In a gentle way, you can shake the world.”
Mahatma Gandhi –  humanitarian

I have just completed reading a book called Toilet Warrior by my friend Mark Balla. The book details how a single person can ‘make a difference’ in the world by having an inspiring vision, energy and a plan. These are also the foundations of running a successful business.

In a chance meeting on a crowded suburban train in India in 2014, Mark was invited to visit Dharavi, a slum of 1 million people living in an area of 1 square mile in Mumbai. This visit changed his life, and more importantly the lives of thousands of others.

The visit to the slum opened his eyes to a major problem that is not often recognised. He noticed that there were very few teenage girls attending school.

Why?

Not because families had forbidden girls to attend school, but because the schools had no toilets. Very few schools in India have toilets or adequate and suitable toilets for the numbers of school children. The primary reason the girls did not go to school was that when they were having their periods they were unable to change their menstrual pads. This also applies to female teachers.

In India, the implications of over 30% of girls not attending school during their periods was that over 25% dropped out when they reach puberty. The follow-on effects of under educated females both socially, culturally and economically is profound.

Mark decided to do something and set up a charity to build toilets in India with the support of Rotary International, an international service organisation whose objective is to encourage and foster the ideals of service in the community and worldwide. However, this was not straight forward and required considerable management skills and perseverance.

Defecating in the open in India with all the related hygiene issues was considered ‘the norm’. Furthermore, if public or school toilets were available they would normally be in an unfit state. Behavioural change became an obstacle. There were also safety issues as girls would wait until dark to go to the toilet and this was when they were very likely to be attacked.

When undertaking the building of the first set of toilets for a school, it became apparent that the designs were not suitable and there were not enough toilets for girls. Biology, fashion and privacy issues had not been considered. Even after the first set of toilets were built a visit 2 years later found that they were not being maintained to an acceptable standard and required a corrective action plan.

What are three leadership lessons from this?

  1. Have a vision – Mark has a vision to remove a major barrier getting in the way of girls completing their education
  2. Management by walking around – the issues of design, maintenance and education were only identified by being on-site
  3. Have a Plan B – when the initial designs were not suitable, they were changed through collaborate and seeking expert advice

To date, well over 40,000 children in Indian schools have been given improved educational opportunities and access to proper sanitation facilities thanks to Mark’s vision and the amazing network that is Rotary International.

I would recommend that you buy and read Mark’s book. All proceeds go to Rotary International’s WASH (water and sanitation hygiene) program.

Here is the link: https://www.toiletwarrior.net/

The underlaying message is that individuals can make a difference with vision, planning and networking.

If you are interested in more details, here is a Tedx talk delivered by Mark:

https://www.youtube.com/watch?v=r3xr13xFfto

One small step…

“I believe that this Nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to earth.”
John F Kennedy – USA President

Just over 50 years ago on 20th July, 1969, the whole world watched as Neil Armstrong became the first human to step onto the surface of the moon. It was witnessed by a global audience of over an estimated 600 million people. This was an amazing one-fifth of the world’s population.

The importance of this event at the time was indescribable. At the time, our family did not own a TV. In 1969, TVs in Australia were expensive, costing well over one month’s average wage. My parents had decided to rent a TV to watch the moon landing. This was how important this event was. At the time I was in primary school. The school also hired a TV and we all watched the event live on a grainy screen, and importantly for me as a 10 year old, lessons were cancelled for the day. In those days there was no the audio-visual equipment or computers in schools. Everybody was talking about man landing on the moon.

What are the management lessons from this historic event?

President Kennedy’s 1961 speech is one of the best examples of a vision statement, as within the decade, man had landed on the moon and returned safely.  However, it is important to remember that the moon landing was the result of decades of work by hundreds of thousands of people working across the disciplines of science, technology, and engineering, peaking at a cost of 4.41% of the Federal US budget in 1966.

How important is it for an organisation to have a vision?

A vision is a picture or an idea. It helps focus us on the future, provides inspiration and assists in overcoming the obstacles that inevitably appear along the way. A vision is a target. It should be aspirational, perhaps like the concept of a BHAG (Big Hairy Audacious Goal) in Jim Collins’ book Built to Last: Successful Habits of Visionary Companies, and be successfully communicated throughout the organisation.

Another example of the power of an aspirational vision is Rotary International’s End Polio Now program. In 1979 Clem Renouf, the Australian President of Rotary International read about in the Readers Digest how smallpox had been eradicated. After discussing this with a medical expert, he asked what other diseases could be eradicated. He was told that polio was one such disease. Renouf then proposed a vision where the world could be polio free. At the time, more than 350,000 people were infected by polio each year across 125 countries. Later that year Rotary’s Board of Directors passed a resolution for a program for “the eradication of poliomyelitis and the alleviation of its consequences” throughout the world.  Subsequently, in 1985 the End Polio Now program was adopted with the aim of eradicating polio worldwide. With so many countries where polio was still endemic, this was a challenging vision, a BHAG.

Rotary initiated the program and together with the support of UNICEF, WHO and other organisations such as the Bill and Melinda Gates Foundation have now almost achieved Clem Renouf’s original vision. in 2018, only 33 cases of polio were reported in just two countries, Afghanistan and Pakistan. At times there were difficulties in overcoming cultural suspicion, low levels of education, training staff to manage and administer the program, political insurgencies and geographical remoteness. However, despite these obstacles, the original vision ensured the program continued and it is now almost complete.

What other lessons are there for managers in man landing on the moon and the ending polio program?

Apart from an inspiring vision, it demonstrated the importance of having a plan behind the vision. Furthermore, the moon landing is a lesson in perseverance and determination. In less than 10 years from Kennedy’s vision speech, Apollo 11 landed on the moon and the astronauts returned safely to earth. Great strides were made in technological advances in rockets, computers and other space-age materials and innovations. The Apollo Program required integrated circuits which lead to the development of micro-electronics connecting the world. This gave us pocket calculators, home computers, mobile phones, iPads and other high-tech devices. An inspiring vision can lead to other remarkable and beneficial outcomes. Today we can see the positive impact of Apollo Program everywhere.

There are a number of websites and other sources that provide methodologies on how to create a vision statement for your organisation. As can be demonstrated from the above two examples, strong and clear visions are powerful tools and can provide a framework for the future. The future can be positively changed for the better. This is the case with any organisation.

Visions should be compiled into a vision statement in a suitable form to communicate to staff, customers, suppliers and other stakeholders. Vision statements define goals and assist in creating a path for the future. Just look at the Apollo Program and End Polio Now.

Does your organisation have a vision statement?

If not, do you think that the organisation would benefit from having a vision statement followed by a well-constructed plan behind the vision?

What is a processionary caterpillar manager?

 “What matters in learning is not to be taught, but to wake up.”

 Jean-Henri Fabre – father of modern entomology

In the 19th Century, Jean-Henri Fabre the famous French naturalist, conducted an experiment with Pine Processionary caterpillars. He arranged the caterpillars in a continuous loop around the rim of a flower pot, where each caterpillar’s head touched the end of the caterpillar in front of it so that the procession formed a full circle. He then placed the favourite food of the caterpillars in the middle of the circle of caterpillars.

What happened?

The caterpillars went around and around in circles formed by the procession, blindly following the caterpillar in front. Despite the food being less than 3 centimetres away, they all died of hunger and exhaustion. All they needed to survive was to change direction to get the food.

The caterpillars were following instinct – habit – custom – tradition – past experience – precedent – opinions – ‘standard practice’ or whatever you may choose to call it..

What are the lessons for managers?

  1. Activity is not accomplishment. How often are you busy, but not accomplishing anything?
  2. Are you “caught in a rut” by following traditional routines, habit patterns, or schedules and not achieving the outcomes the organisation requires to be successful in the future?
  3. As managers, balancing tradition and implementing new strategies is difficult. Success is based on the willingness to plan, fail, learn, and move forward, so the existing strategies support a successful and productive future?

So, are you or your staff acting as processionary caterpillars and mistaking activity for outcomes?

If so, what new ideas and activities are required to ensure continued success?

What habits and activities do you need to stop doing?

6 Ways to Grow Your Business

Guest Blog by Kym Wallis

As a business owner, you’re probably always on the look-out for new ways to grow your business.

There’s a lot of competition out there. Consumers have a lot of choice. So if you want your business to grow, you need to outshine the competition.

How can you do this?

Here are 6 effective ways to grow your business:

1. Build a brand identity

Consumers today have more choices than ever before. That means that, if you want to successfully grow your business, you need to develop a brand identity that’s unique and appealing to your potential customer base.

Remember, you don’t need to try and compete with big companies. If you want to add value to your customers, you should focus on finding what’s special about your business.

What does your business stand for? Who are your customers? And how can you help them?

Once you’ve established this, you can focus on building your identity and applying this across everything you do. From your marketing efforts, to the design of your website, being consistent is key if you want to grow your business successfully.

2. Focus on customer service

Word of mouth is one of the most powerful ways of growing sales. When a potential customer is deciding whether to purchase from you, one of the first things they are likely to check is feedback and reviews from others.

That means that, if you’re trying to grow your business, focusing on customer satisfaction is a must.

The first step is to understand your customers’ needs. Who are your customers? What are their problems, and how can you solve them?

You should always be looking for feedback so you can find out where you can improve. Always be looking to expand on your levels of service so that your customer has the best possible experience.

3. Promote customer loyalty

It’s nearly always cheaper to keep an existing customer than it is to attract a new one. Promoting customer loyalty should be of high priority if you’re trying to grow your business.

Make sure that you look after your existing customer base. Stay in contact via newsletter, social media, or other channels. And make sure you’re keeping your customers informed when it comes to promotional offers and discounts on products.

4. Be realistic about completing tasks

When you’re running your own business, it can be very easy to become overwhelmed. With so many tasks to complete, it’s important to prioritise your tasks and manage your time properly.

It’s also important to recognise that you can’t do everything yourself. Sometimes you won’t have the time, the skills, or the resources to complete a certain task.

If this is the case, it can be beneficial to outsource some of your tasks to third-parties or freelancers. This will free up time, so that you can focus on growing your business.

5. Use an omnichannel approach

The rising popularity of online and mobile shopping means that, when it comes to shopping, consumers today expect to have more options.

Mobile shopping is the fasting growing channel. It offers a multitude of benefits for customers and businesses alike, like being more convenient and freeing up time to do other things.

However, there are still benefits to a traditional, offline shopping experience. For example, a lot of customers still value being able to look at a product in the flesh, try it out, and test it.

That’s why, for businesses that are trying to grow, it’s best to take an omnichannel approach. Doing this ensures you take advantage of the benefits of both online and offline sales. Combining platforms can help you to maximise results.

For example, customers can find the best deals online, then finalise their purchase offline, or the reverse. It gives more flexibility, and gives you the opportunity for more up-selling and cross-selling of products.

6. Social media marketing

If you’re trying to grow your business, being able to reach as many potential customers as possible is essential.

That’s where social media marketing comes in. Social media platforms give you a huge audience, and allow you to reach a large number of people instantly.

You can use it to communicate effectively with your existing customers. You can also use it to listen to feedback or complaints and see where you need to improve.

In addition to this, you can use it to promote your products or services and reach out to potential new customers, or to re-target previous customers.

One of the ways you can do this is through Facebook paid ads. These ads let you target customers based on location, gender, age, interests, pages they have liked, browsing habits, or various other criteria. This is a cost effective and easy to use marketing tool.

Author’s Bio

Kym Wallis, the founding director of Higher Ranking has over 15 years of advertising sales, digital strategy, and business development experience. He is currently working as Digital Adviser for Colourtech.

What are the three warning signs that a business is on the verge of failing?

“Failure isn’t fatal, but failure to change might be”

John Wooden – American basketball player and coach

Sadly, hundreds of businesses collapse each year in Australia, often owing millions to creditors and employees.

As a business owner or manager, what are the warning signs?

Please remember, we have to be honest with ourselves, have an open mind and put egos and denial aside.

“Confront the brutal facts”. This is what Jim Collins says in his book Good to Great.

Here are 3 warning signs that a business may fail:

  1. Revenue is dropping

As a manager or business owner, measuring revenue and recording it month by month over a significant period of time for at least 2 to 3 years is critical in understanding and managing the business. Many businesses have seasonal fluctuations. For example, retailers’ revenues peak before Christmas and chocolate manufacturers’ peak before Easter. It is important to understand the nature of your business.

Understanding the fluctuation in sales over the year allows you to manage your cash flow.

There is an extremely important principle in business that is often misunderstood:

Revenue is different from sales as revenue is money collected”

A sale is not a ‘true’ sale until you collect the revenue. It is important to have a cashflow forecast combined with sales and revenue recording in order to understand the implications and relationships.

A sudden drop in revenue  could result in a business not meeting their legal obligatory costs such as superannuation payments and tax payments. This is a warning sign that the business is in trouble.

I once saw a business claim to have increasing sales to a major retailer only to find out that most of the sales were on a sale or return basis. This business went broke.

  1. Cash Flow Shortage

Many businesses can be profitable but fail due to running out of cash to pay their creditors. Cash is the lifeblood of any business. For example, sales and profit may be increasing, but due to not being able to collect the sales revenue in time, the business runs out of cash.

Here is a second important principle that needs to be understood:

There is a massive difference between profit and cash.

It is therefore very important to forecast and track cashflow. By using a cashflow budget, the discipline of collecting from debtors monthly can more easily be implemented. Running out of cash is a good indication that a business is in trouble. Debtors who are slow payers and are a significant proportion of a business’ sales can put the business at risk.

Alternatively paying creditors later can significantly improve a business’ cash flow and provide funds for expansion.

In our logistics business we tracked our cash needs 6 months ahead and then tracked them against our actual performance. Wages were over 35% of our overall costs. In Australia, wages are normally paid weekly whilst collecting from creditors takes between 30 and 45 days. A single decision to outsource  our production labour with 30 day payments terms released cash into the business negating the requirement to seek external finance to grow the business.

  1. Opaque Accounts

Sadly, many business owners do not understand their accounts. Many rely on their external chartered accountant to provide them with their profit and loss figures, which are often not delivered in a timely manner. Accountants tend to report profit and loss in terms of tax compliance and rarely do the accounts provide an operating perspective.

There is a third important principle for managing business accounts:

“Variable costs, fixed costs and overheads must be clearly identified in the profit and loss statement”

I had a client whose accounts were prepared and forwarded by their external accountant up to 3 months after the end of month. The business had no idea what was making a profit. They only knew that the business made a profit. Following some discussions and correctly categorising costs into variable, fixed and overheads, we determined that there were actually three businesses or sub-businesses and that only one was making a profit.

We immediately engaged a book keeper, broke the business reporting into the three businesses and set up the accounts to reflect the operating environment. Within 6 weeks, the owner was receiving P&L information within 3 days from the end of the month. In 9 months the business had grown 50% as they could concentrate on the areas where the business was profitable. The owner now knew their gross margins, breakeven points and profits.

What are the lessons?

While the three warning signs of business failure are financial, there are two other non-financial reasons for business failure.

The first reason for business failure is poor management and systems.

They are generally symptoms of poor leadership. Management systems, both financial, sales and operational that are robust, timely and accurate are essential to manage a business both on a day to day basis and for the long term. They enhance management’s capacity to understand what is occurring in the business.

The second reason why companies fail is related to the people in the business.

In particular those in leadership positions. For example, allowing egos to undermine the evidence by believing that everything positive is due to your talents and genius and anything negative is the result of another party or the government.  This approach of internalising the positives of the business and externalising the negatives is not facing the brutal facts. Hubris and exaggerated outward confidence will mask the true situation of the business and hard decisions are not made.

In conclusion, while decreasing revenue, poor cash flow and opaque accounts may be a sign of a potential business collapse, these are often symptoms and warning signs of a potential business collapse.

The three questions you need to ask yourself are:

  • Do you recognise the signs of a potential business collapse?
  • Are your actions and attitudes part of the problem?
  • What should I do now to prevent the risk of my business collapsing?