Think about how long Jerry Yang was able to hold on to his CEO job at Yahoo, despite his company’s failure to reinvent itself around a Web 2.0 business model. Yang even convinced his board to spurn two takeover offers from Microsoft—deals that priced Yahoo at more than twice its current market value. Yet Jerry and his management team were in denial and were infected with stinking thinking from the neck up. He failed to recognize that Yahoo was in trouble and the market had changed radically.
There are countless other examples of landmark brands that dominated the markets attention but for numerous reasons, primarily denial, they fell from grace. Consider AOL, MySpace, Enron, AIG, Eastern Airlines just to name a few. The management of each and every one of them were in denial of one kind or another.
In times of radical market changes it is critical to be aware of the distinct symptoms of denial and recognize them before it is too late.
Top Five Signs Of Denial Headed For Disaster
- Cash and Liquidity. The most important sign of trouble is paper-thin cash flow and liquidity. If your business is generating just barely the minimum level of cash, on a week-to-week basis, the company is like in serious trouble and potentially heading for disaster. The same is true with liquidity; liquidity is the combination of available cash and available debt, usually a revolving credit line. When cash flow or liquidity problems emerge, it is time for immediate corrective action.
- Unfavorable trend in working capital ratios. A downward spiral of one or more working capital ratios usually means trouble. Unfortunately, most CEOs tend to either ignore the key working capital ratios, not understand them or do not place enough importance on them.
- Managerial Denial. You might say this is the opposite of the previous sign; ratios are analytical and absolute, denial is behavior and judgmental. When companies get into trouble, management usually is in denial of the realities of the business. The company could be disintegrating around them but they simply refuse to accept it.
- The downward spiral. In many cases, the first sign that things are going wrong is a continual decline in business profits. Most business owners cannot see downward spirals developing because they measure the wrong things and measure things wrong.
- Short-sighted planning. If as a business owner, you have no strategy or long term plan then you are potentially setting yourself up for failure. Worst yet you may think you have a plan but it sits on a self and there are no measures of accountability to execute the plan.
When trouble is on the horizon, time is your enemy – don’t wait for the depression or acceptance stages to arrive before awakening. If any one or a combination of many of the signs define your current business situation then you have to first admit you’ve been in denial and second have the guts and intensity to attack the critical issues as if your business depended on it. It Does!