Getting out of a Business
June 27, 2008
I recently read that GE is getting out of the appliance business, a line it’s been in for about 100 years. The strategy has been called “profit mentality,” “the pruning process,” and other names, but it’s about shedding unprofitable business lines and focusing on those that make the most money. And it’s a tough thing to do.
And that’s a particular challenge for the entrepreneurial company – letting go. We entrepreneurs love our businesses. They are our model children, who never grow up (unless we let them), never ask for the car keys, and never stray far from our egos. What do you do when your anchor business becomes an albatross? It’s not just a matter of the money. Our investment goes much deeper.
I once knew a CEO who had built a small conglomerate of about 10 non-aligned businesses. His rule was, “if it doesn’t show a profit for 3 consecutive quarters, we divest it!” The rule worked well, except for the first business he started. He was sentimentally attached. It became the exception to the rule for nearly 3 years, before he could come to part with it.
Letting go of a favored business line may involve only small changes, or it may require a substantive shift or even a business reinvention. Here are _____ important issues (taken from my “Business Leader’s Manifesto”) to help you make the right decision at the right time:
1. A GOOD INVESTMENT – I am the Leader of this business and am responsible to see that the business is treated and evaluated on the same basis as any business investment I might make, both in terms of time and money invested. I may have paid managers and staff to perform some or even all of the day-to-day tasks, but ensuring an adequate return on investment (blood, sweat and money) is my responsibility and my responsibility alone.
2. ACHIEVING SECURITY/ROI – I recognize that there are two components of an adequate return: First, time invested must be compensated through salary, benefits and perks; AND, money invested must be guaranteed a fair rate of return plus a premium for the level of risk assumed (by operating a small business – usually 3-5% over prime). Adequate returns do not just happen; they are achieved through planning and action. This commitment involves setting realistic, quantifiable goals; taking the steps necessary to see to it that those goals are achieved; that results are measured and meet expectations; that we celebrate our victories; and, that we adapt, as needed, along the way.
3. IT’S A BUSINESS – I am responsible to ensure that the business I have invested in has a real business and community purpose. This means: I must be realistic about not throwing good money after bad; about separating real business activity from my own ego gratification; and about assuring at least a baseline of security for myself and those who depend on this business by taking prudent risks.
4. IT’S ABOUT PEOPLE – I am responsible to the people who work in my business. This involves: establishing organizational goals; providing direction about their responsibilities in meeting these goals; setting standards of performance; and providing job performance feedback. This organized approach frees employees to perform effectively because it assures them that their positions are not held capriciously at my whim and that their paychecks are not constantly in jeopardy. This approach also facilitates identifying organizational successes and potential roadblocks. In a world of rapid change, just a little perceived security goes a long way.
5. IT’S ABOUT ME – Finally, I am responsible to myself, my family and my other stakeholders to engage in an active program of succession planning. Timely, thorough succession planning can facilitate a smooth transition when the day comes that I determine that: the business is no longer viable; I have personally had enough of it; or, it has just become time for me to step aside.
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