How one man overcame 5 years of helplessness through strategic thinking
September 5, 2014
Peter started his travel consultancy in 1989. He is not an agent, but he works through them to package custom tours, which allows him to see new places and make a decent living off. Peter initially started out as a solopreneur but when business picked up in the mid 90s, he employed 3 staff to help him run the business.
By all intents and purposes, Peter was successful. He enjoyed a lifestyle that few could afford, but he was neither flashy nor a spendthrift. A down-to-earth half-millionaire.
Then came the Internet phenomenon and Peter started seeing business dip. Initially he was not worried because the airlines and the agents were simply placing their product brochures online. But since 2007, there came a slew of young enterprising businesspeople who sold on “experience” rather than location. Initially, it was just a fad; and Peter’s high-touch selling to his long-time clients still maintained the edge. But very soon, he found that his long time clients are moving away to the online packages.
Peter’s business started dropping like a hot potato. Yet, by 2009, he didn’t even have a website because, in his words, “All my products are 100% customized. I don’t have any products to put up. I use the traditional way to sell and it has been successful.”
Things came to a head in 2010 when, under the shadow of the financial crisis, nobody had the mood to travel. But when the economy recovered two years later, and people started travelling again, his customers didn’t come back. His situation had become dire with no reprieve in sight. So for the last 5 years, Peter had been lingering in No Man’s Land – not alive, but not exactly dead. A business zombie.
Not only did he resort to cutting back on his lifestyle – which wasn’t extravagant in the first place – he has finally come to the point where he was now facing cashflow problems. Peter had to change or he would have to fold.
Seeing the picture for the first time
The first thing Peter did was to place 5 years’ worth of financial results in front of him. He never really did this simply because he was living a comfortable lifestyle. But now that things were dire, he took out the reports and compared them over time. The first thing he noticed was that revenue had been on the decline. The wane was imperceptible – roughly 8 percent per year. What was more telling were his costs. They were rising more than 11 percent. So all in all, net profit had been declining at almost 20 percent per year, but he didn’t know that!
That thinking in time exercise had allowed him, for the first time in 5 years, to really understand what has been happening. He realized that he was externalizing the issue, blaming first the Internet, then the enterprising youngsters who sold on a different premise, and then the financial crisis. What he failed to realize was that he was in a ripe position to have pounced on those technologies when they came online. But he preferred to stick to the “tried-and-true” method. His preference for the status quo led him to his financial quandary – and he was now paying the price!
What do I want now?
Seeing the current situation for what it really is, Peter is now in the position to make changes. One might think that his intent would be easy: to make more money, and for a while, Peter also thought that that was it. But as he did more soul searching, he realized that, at 57 years of age, there was little that he could do to change his ways. There was a need to radically overhaul his business model, something that he knows he can’t do on his own. In what may be described as an epiphany, Peter realized that he might have to shape up or ship out. His intent became “What is the best way to maximize returns from all my past efforts?”
Diving deep to maximize returns
Peter identified his system as “increasing returns for my business” and after brainstorming his drivers, developed this system diagram:
What met Peter was a sobering picture that his business was no longer sustainable, with low long-term value (LTV) of each customer. This was further exacerbated by low product longevity (defined as the length of time the product is in demand), and declining customer loyalty. Ultimately, the business will fail.
Yet the business is still profitable, and that is reinforcing the returns system. If somehow the business can lower its costs, increase product longevity by increasing brand value and customer loyalty, it would impact cashflow, and his cash position, positively.
Peter now has two options: continue as is and hope for the best (knowing that it will ultimately die) or leave the company and bring in someone new; someone who could impact all the drivers previously mentioned, at a cost lower than Peter’s salary. Then Peter could free himself to find new projects to do.
A brand new hypothesis
Peter always felt that he would die on the job. He thought that so long as he was on it, it would be all right. Unfortunately, he has now realized that that will not be the case. Instead, he now has to formulate a new hypothesis for it. And that was exactly what he did: “that the business can survive without me”. As of this writing, Peter’s hypothesis is being played out. But he has already gotten in a new business head to run it, who has changed a slew of things to up its brand, its products and hopefully, its customer loyalty.
And what of Peter? This is what he had to say…
“I have grown up thinking that one should never give up on a good idea. Your business will keep growing if you work hard at it. I never imagined that I could be the person who was causing my business to shrink – and maybe even die. The strategic thinking process has helped me understand why we were doing badly, and more importantly, given me a way out of feeling trapped. I don’t feel bad about the business doing poorly anymore. I have a new way of looking at it.”
Talk about a reframe!
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