Business Failure 8: Another Word About the Closure of Hostess Bakery

I was vacationing at Disney World when they announced the closure of Hostess. I wanted to add my own insights and lessons we can learn.

Many people remain shocked that the makers of Twinkies, Ding-Dongs, and Hostess Cupcakes closed their doors. They cannot believe that an American icon would fail. The signs indicating potential failure, however, glared like a freeway billboard directing you to the right off ramp.

Failure to Keep Your Product Niche

Hostess produced snack food. Most adults remember sucking the cream out of Twinkies or peeling the marshmallow covering off of a Hostess Snowball. Millions of consumers unwound their Ding-Dongs. Hostess maintained a loyal following—through the 60 and 80s.

Upon reflection, however, you will have noticed that Hostess had lost its product market niche in the last 15 years.

• Hostess failed to answer a growing demand for healthy or natural snacks
• Little Debbie, an upstart company that did not start selling packaged snacks until the 1960s, began taking shelf space. Soon Little Debbie displays took valued front of store end racks, leaving Hostess relegated to end racks at the back of the store
• Hostess relied on their old brand names with few new brands in the last 20 years
• Hostess purchased scores of companies in the 1970-1990s, yet failed to keep markets

Bewildering Ricochet Changes

Hostess experienced poor management, constant changes in leadership, and financial upheavals. The company could not sustain a workable business strategy. They:

• First filed bankruptcy in 2004 and named a new chief executive
• Stock prices fell from $34 $2.05 a to share
• Fought off a hostile takeover bid from Mexican baked good giant Grupo Bimbo
• Emerged from the bankruptcy in 2009 because a group of investors took them private
• Filed for bankruptcy a second time in 2011.
• Changed company names five times in one decade
• Stopped paying future pension benefits, breaking its contract with the union
•  Bakery, Confectionery, Tobacco Workers and Grain Miller’s International Union resulting in a strike by the union
• Filed for closure on November 21, 2012

Thursday we will also discuss other ways companies run out of cash and fail

Thank Your Employees, Your Clients, Your Suppliers, Your Family, & Your God

Take time this weekend to give thanks to all who help your business survive and thrive

We at the Larry Stevenson Group thank you for reading and commenting on our thoughts

Business Failure 7: Adapt to Change Too Slowly

This continues our series outlining reasons businesses fail so that you can avoid them

An increasing number of business fail because they do not adapt to change fast enough. New technologies and global markets generate rapid changes in products, markets, and consumer expectations. Businesses must adapt and do it quickly to survive. Owners need to stay aware of new demands and trends.

Examples of Failures

Let me share examples of businesses that failed to adapt appropriately:

• Hostess Bakery announced closure rather than survive its 3rd bankruptcy because it did not offer healthier snacks and lost its market to Little Debbie
• Sears, the innovator of catalogue and credit card sales, failed to adapt to discount and big box retailers like Wal-Mart, Target, and Costco. Sears continues to close stores
• Borders failed to adapt to eBooks and online booksellers: closed all its stores
• Pan American Airlines incurred too much overhead and did not adapt to discount airlines and failed
• Circuit City did not adapt to online sales, big box electronics at Costco, and retailers like Best Buy. Circuit City (one of Jim Collins best companies) failed in 2009

Examples of Successes That Adapted

In addition, you may follow several examples of companies that adapted, survived, and thrived:

• Apple adapted and reinvented itself several times: Mac, IMac, IBook, IPod, IPhone, and IPad. Each time expanding its market share
• Dominos Pizza recently completely adapted it's pizza sauce to reengage consumer’s who claimed their pizza “tasted like cardboard”
• IBM after almost completely failing at the beginning of the century adapted to a service model that did not include manufacturing computers a complete transformation
• Hyundai and Kia adapted the style, type, and class of car they manufactured to begin to rival Honda and Toyota for their market

The Innovator’s Dilemma

Clayton Christensen describes the challenge businesses face in The Innovator’s Dilemma, The Innovator’s DNA, and other books. He shows that the success of a business may initiate its inability to open new products and services. He describes five principles you must consider. I suggest you purchase and read it.

Thursday we wish you a Happy Thanksgiving

Business Failure 6: Prolonged Successes Can Dull Decisions

This continues our series on factors that can cause your business to fail

You may consider that too much success can lead to business failure paradoxical. However, many businesses fail because of prolonged success. I consult with a lot of businesses each month. Many existed for 14 years or longer. They did well during the great economies during those same years. However, most had not developed a business or marketing plan. Their success had lulled them into a sense of security, which proved unsustainable when tough times came.

Reasons Too Much Success Dulls Decisions

Business owners crave success. They do everything they can to increase profits, revenues, and sales. They do not realize that too much success may lead to poor decisions. The success affects decision making for different reasons. Too much success may:

• Increase your confidence so that you assume you will always be right and do not analyze as deeply as you should
• Overwhelm your time management so that you do not have time to do sufficient research or study for decision making
• Create new product or seasonal cycles that make previous decisions inaccurate
• Move you into a market position that makes you the target for competitors that previously ignored your business
• Mistakes and small failures teach you new skills and problem-solving that you don’t learn with too much success
• Lock you into a strategy that does not adapt to changing markets (the success of Kodak film prevented them from foreseeing digital photography and inkjet printers)
• Prevent you from looking deeper into the unseen or hidden reasons for the success

How to Avoid Losing Perspective

You can avoid losing perspective or dulling your decision-making process by several methods:

• Analyze your processes and results for success as well as problems and failures
• Conduct an annual SWOT analysis using outside sources as well as inside sources
• Regularly read articles about new trends, inventions, and products in your industry
• Listen to your clients, your employees, and your competitors wisely
• Get outside advice during good and bad times

Tuesday we discuss what happens when your company adapts to change too slowly

Business Failure 5: Too Close to the Edge or Too Much Risk

This continues our series on reasons businesses may fail and how to avoid them

People hear that businesses fail because they overextend themselves. Frequently, the overextension relates to the business owner taking their business too close to the edge or too risky. Sometimes, business owners succumb to the temptation of high profits or high return on investment which pushes them to take their business to the edge or to take risks with the promise of high profits or high revenues.

Some Take it Too Close to the Edge or Make It Too Risky

Why do business owners take the business too close to the edge of the cliff? What would induce a business owner to put their business at risk?  Answers vary:

• Sometimes the higher the risk, the higher the possible profit or return on investment
• Many times the business owners keep extending their financial burden in hopes that it will eventually pay off until they suddenly find themselves at the edge or even over the edge financially
• Frequently, the same sense of adventure or risk that enthuses an entrepreneur drives them to take unacceptable risks or push their companies to the edge
• Occasionally, the business owner, a technician, does not possess the financial or managerial skills to realize the risk or how certain decisions will send them over the edge

Whether the business owner does it on purpose or in ignorance, taking too many risks or getting too close to the edge can cause business failure. Occasionally, however, the risk pays huge financial rewards.

Avoid Too Much Risk or Taking it Too Close to the Edge

You can avoid too much risk or going too far with some discretion:

• Establish clear guidelines for how much risk or how close to the edge you will go before you act
• Create a secondary safety net to guide how to react when you reach your guideline
• Act with a partner or professional financial consultant to advise you about when you get too close to the edge or too risky

Saturday we discuss how too much success may dull your decision making process

Business Failure 4: Subordinates Hold or You Have Inaccurate Information

This continues our series on situations that can cause your business to fail

Businesses run on information. Market information defines clients, competition, and market opportunities. Information about overhead, supplies, and costs establish the minimum you can price your product or service. Employee information clarifies what you can expect employees to do, how to act, and how much you can rely on them. You make poor decisions if your information is inaccurate, or your staff holds information back from you or gives you false information.

Subordinates May Hold Back Information

As your business grows, you begin to rely more heavily on your staff or subordinates for information.

• Your accounting clerk relays daily revenues, accounts payables and receivables
• Your sales clerk and point of purchase systems provide daily sales information, cash received, and cash given
• You rely on your shipping clerk or inventory control system to tell you how much product you have on hand
• Your suppliers or vendors maintain information about competitive pricing and discounts

What if the people you rely on for information withhold it or give you false information? Many reasons could influence the information you received:

• The person preparing the information is incompetent and inaccurate
• They receive wrong information from their sources and don’t verify it
• They have an overriding reason to withhold information i.e. loyalty to others, cover a mistake
• They don’t understand the information you really want and inadvertently give you the wrong data
• You offended or embarrassed them and they want revenge or payback

All of these reasons, and more, can result in your subordinates holding back or giving you inaccurate information

You Have Inaccurate Information

You may also receive false or inaccurate information for other reasons:

• We increasingly rely on automated information for monitoring or decision-making purposes. What if a key formula in a spreadsheet or database is improperly entered? It can give you inaccurate information and you would not know it.
• We Google questionable information sources

Bad decisions based on inaccurate data can ruin your business

Thursday we review how living too close to the edge or loading too much risk causes failure

Business Failure 3: Rationalizing Rather than Confronting Brutal Facts

This continues our series on situations that cause business failures so you can avoid them

Every business possesses flaws, weaknesses, and problems. Sometimes the business itself generates the problems. Sometimes situations or circumstances outside the business create the flaws or weaknesses. Jim Collins describes one of the characteristics of great companies. He labeled one characteristic: Confront the Brutal Facts. Ignoring or rationalizing them may cause your business to fail.

Rationalize or Ignore the Brutal Facts

Avoiding confrontation feels like the easier thing to do. Several brutal facts arise in a business:

• Tough personnel or interpersonal problems in your team
• Low performance and productivity
• Low sales month after month
• Cash flow or financial woes hamper growth or stress your family income. All of these brutal facts pile up on business owners
• A national big box store moved across town from your neighborhood hardware store
• Your profit & loss statement for the last three months showed consistent losses
• You & your business partner see very different visions for the company’s future

You choose how to respond to the brutal facts about your business. You may choose to ignore them and hope they disappear with time. However, consequences follow rationalizing and ignoring:

• Personnel issues grow & fester when ignored or rationalized that they will disappear
• Ignoring poor performance and low productivity will drive your business into failure
• Using excuses to justify low sales, cash flow, or financial woes prevents you from confronting and finding solutions to improve them
• Failure to confront a big box store or consistent losses could cost you your business

Confront the Brutal Facts

Business owners who confront the brutal facts resolve them and grow their business. Your success will increase exponentially when you involve others to confront the brutal facts of your business. Various methods will help you:

• Study and research data related to the facts you need to confront
• Brainstorm ideas with your team, mentors, SCORE coaches, or others
• Consult with free or paid business consultants specializing in your problem
• Plan actions to resolve problems

Tuesday we will consider how managers may have faulty information to make decisions

Business Failure 2: Managerial Error

This continues our series on reasons businesses fail so you can avoid them in your business

According to Forbes article Why Do Companies Fail?, managerial error leads as the number one reason companies fail. Michael Gerber, the author of The E-Myth Revisited, highlights that most “entrepreneurs are technicians having a spasm of entrepreneurship.” He describes the designers, plumbers, programmers, or inventors who start businesses because they love what they do. However, they may not manage well. They focus on doing the work, rather than moving it forward.

Typical Managerial Errors

Examples of management errors:

• Continuing to do the work, when you should manage others doing the work
• Neglected and poorly managed risk management contributes to employee dishonesty and theft alone causes 30% of all business failures
• Focus on the technical work and not the sales, marketing, billing, or accounting
• Spending more money than you possess or can earn in enough time
• Failure to adapt to changing market conditions
• Growing too fast financially, or hiring too many employees
• Renting facilities too soon, too large, or in the wrong location
• Lack of technical know-how, managerial know-how, or vision

Avoiding Managerial Error

You can avoid management errors through several methods:

• Read or listen to great management books
• Attend management seminars or workshops
• Join the Chamber of Commerce or other business association
• Develop a mastermind team to give you feedback or brainstorm ideas
• Consult Small Business Development Centers or SCORE on key decisions
• Outsource accounting, sales, purchasing, or other skills you do not possess appropriately
• Agile, Lean, & Pivot before spending money

More Information

Check out these sites ideas about how to avoid common managerial mistakes:

• Lyve Alexis Pleshette shares 8 Deadly Mistakes of Small Businesses
• Starting Up Tips contains multiple articles that may help
• Gaebler outlines Family Business Mistakes
• Budget Tracker reviews Small Business Budgeting Mistakes (Are you making one?)
• Dummies.com published Recognizing (and Avoiding) Common Management Mistakes
• Goke Ilesanmi wrote 13 Fatal Errors Managers Make and how You Can Avoid Them
• MindTools provides 10 Common Leadership and Management Mistakes

Saturday we examine explaining away the brutal facts rather than confronting them

Business Failure 1: Overview

We begin exploring reasons businesses fail to inspire you to avoid the same problems

More businesses fail than succeed. Dunn & Bradstreet reports that census data shows that “69% of new firms with employees survive at least two years, 51% survive at least five years…Bureau of Labor Statistics shows that 49% of new businesses survive five years or more…34% of new businesses survive 10 years or more, and more than a quarter (26%) at least fifteen years after being started.”

Business Fail

The numbers above look good, but they still indicate a

• “49% fail rate in five years and 74% in fifteen”
• “More than 550,000 business opened in 2009, 660,000 closed in the same year”
• “In 2009, the Department of Commerce estimated that there were 27.5 million businesses in the United States”
• “Only, 18,000 of those businesses had more than 500 employees, the rest were considered small businesses”

Reasons Businesses Fail

Ken Makovsky wrote an article for Forbes Why Do Companies Fail? He offers the following reasons:

• “Most companies flounder for one simple reason: managerial error”
• “The key sign—the litmus test—is whether you begin to explain away the brutal facts rather than confront the brutal facts head on”
• “Sometimes CEIs don’t get the information they need to make informed decisions. Subordinates are afraid to tell them the truth”
• “Some companies simply live too close to the edge—loading up too much risk at once”
• “People are less likely to make optimal decisions after prolonged periods of success”
• “Companies (e.g. Polaroid and Xerox) are slow to confront the changing world around them”
• “Companies run out of cash”
• “Too often CEO’s succumb to an undisciplined lust for growth, accumulating assets for the sake of accumulating assets”
• “Rotten corporate culture. Arthur Andersen, Enron, and Salomon Brothers were all brought down (or nearly so) by rogue actions of a tiny few”
• “What undoes companies is the familiar stuff of human folly: denial, hubris, ego, wishful thinking, poor communication, lax oversight, greed and deceit”
• “Refusal to hear bad news immediately…don’t make excuses”

Thursday we will analyze business failures related to lack of management by a technician

Seasonal Marketing Campaigns 3: Cross-Promoting Seasonal Campaigns

This concludes our short series on seasonal marketing campaigns to boost your business

You can enhance your seasonal marketing campaigns with cross-promotions with other companies or products. A cross-promotion involves offering an item to clients who purchase your product. Most companies cross-promote with another company. Some large diversified companies offer cross-promotions from within their own subsidiaries.

Examples of Cross-Promotions

True cross-promotions offer a product or service free of charge for the purchase of your product. You may also exchange cross-promotions with the other business so that they promote your business or product. Cross-promotions may work especially well with seasonal promotions. For example:

• A photographer offers a free family meal at a local restaurant for mothers day portraits
• A car dealership offers a weekend stay at a hotel for Valentines with the purchase of a car
• A manufacturer offers a free trip to Hawaii for two through a local travel agent for winter purchases over $15,000
• A vacation resort offers free car rental for guests who book a week during the slow season
• A CPA firm offers a free will through a law firm for doing corporate or personal taxes for large amounts

Almost every business can find a possible cross-promotion if they think creatively. A few rules may help. Cross-promotions typically offer:

• A free item or gift certificate, not discounts or partial payments offers
• Items of equal value to your offer (a free meal for a set of four tires would be unequal, but if the restaurant offers 50 meals for the 25 sets of wheels it equalizes)
• A specific time period to both obtain and redeem the cross-promotion, typically within the season of the seasonal campaign

More Information

You may find additional information at these links:

• Marketing Solutions offers Successful Cross Marketing & Bartering Strategies for Salons & Day Spas
• Conwed Global Netting Solutions offers Enhance Produce shelf awareness
• QSR highlights Combating the Seasonal Swing
• Supermarket News states Cross Promotions Called Big Scorers for Seasonal Events
• Cooperative Grocer made cross-promotions part of Delightful Shopping

Tuesday we will share some reasons business fail so that you can learn from them

Seasonal Marketing Campaigns 2: Fulfill a Successful Seasonal Campaign

This continues our series on successful seasonal marketing campaigns for your business

Once you recognize your seasonal campaigns and needs, you need to prepare to fulfill your increased orders, sales, and deliveries. That means ordering more supplies and raw material. It also means either hiring additional staff or paying your current staff for overtime. Seasonal increases require planning and preparation.

Techniques to Plan for Seasonal Fulfillment

Some advice for fulfilling your seasonal purchasing, producing, and shipping:

• Forecast what you need
  • Analyze your orders, sales, & production for at least four years to forecast this year
  • Compare stats on competitive products, services, shippers, raw materials, & more
  • Consider any new products, new services, new marketing campaigns or sales efforts
• Increase capacity to
  • Notify suppliers, vendors, and shippers of projected increases
  • Many industries earn 40-80% of revenues during seasonal sales. They start stockpiling material and product throughout the year
  • Hire temporary employees from staffing services, monitor their performance. Hire the best to fill full-time openings throughout the year
  • Plan your shipping through drop shippers, commercial carriers, or others
  • Many companies now offer free shipping on seasonal activities and sales
• Test your digital sales and order systems
  • Online businesses need to ensure they have enough memory for Cyber Monday
  • Run tests on the user interface, payment processing, and auto-drop shipments before Cyber Monday

Surviving a Seasonal Businesses

Sarah Pierce at Entrepreneur offered the following advice to Surviving a Seasonal Business:

• Be financially disciplined
• Make the most of your peak season
• Maximize your time during the off-season
• Start a complementary seasonal business

More Information

You can find more information at the following:

• In Fifth Gear’s 3 Tips for Holiday Sales Forecasting
• Prospect Stream’s case study on HoneyBaked Ham Co.
• Marketing Savant’s Marketing Through the Seasons
• Fourth Source shares this for digital marketing Seasonal Marketing—using data and insight to create campaigns that work
• BDC Canada suggest Forecasting production for seasonal manufacturing
• PBS did a series on Seasonal Manufacturing
• eNotes’ excellent article Seasonal Businesses
• Monster’s article on Make Seasonal Hiring Easier and More Efficient

Join us Saturday to learn about cross-promoting your seasonal campaigns with others