Stage I :
The Stagnation Stage
One of the first signs that a business may be dying is not when things are going bad but when they are simply just “not going”! When your business performance is simply holding steady it is time to begin looking at some rebounding strategies. Stage I could be considered the deadliest stage for this reason: Business owners and executives tend to get complacent and settle for simply “not doing bad” or “just keeping the doors open”. Complacency in business is deadly.
3 Indicators of Stagnation
1. Net Profit Margin fluctuates between 0 – 2% for 6+ months
There is a reason I chose net profit rather than revenues as an indicator of Stage I Stagnation. The reason is because you can have increasing revenues and still be stagnant. How is this possible? Well if your revenues increase by 30% and your expenses increase by 29% you have only realized a 1% growth in net profit margin.
And remember that growth rates that fluctuate between 0 – 2% are considered as stagnant if this continues over a 6 month or longer period.
But be careful not to make the mistake many business owners make: they confuse cashflow with profit margins. Confusing these two business concepts: cashflow versus profit; could result in a false sense of security. Having a positive cash flow and lots of money in your bank account does NOT mean you are profitable. And your business could very well be in stage 1 of dying even with a “pocket full of cash”!
See one of our courses that explains the difference between cashflow and profits.
2. Achieving all your business goals.
It’s a paradox in business success that success can be an indicator of Stage I Stagnation. How is this even possible??!!
Success can breed complacency. There are two possible reasons why you could be reaching all your targets successfully:
- Your business operations aresuper-efficient or
- Your goals are too low.
Quite often it is the second reason many businesses seem to enjoy continued success uninterrupted by any failures. I have a mantra that embodies this:
- If you’re not losing, you’re not truly winning, you can’t truly succeed until you have truly failed. If you’re not falling, you’re not flying”.
3. Hierarchical Organizational Culture
An organization or business, (even a business of one where you are a sole owner and chief of everything) where everything is “by the book” or “company policy” probably has ahierarchical organizational culture.
Having sound structure and company policies is very important and you must have both structure and policy if your business is to succeed. But hierarchical organizations take structure and policy to extreme levels. In these organizations structure and policy stifle out creativity. There is a high aversion to risk and everything and everyone must be predictable and compliant.
This type of business culture can exist even if you are the only person in your business.
CLICK Here to Ask us how to get your organizational culture assessment to determine your organizational culture. (Clan, Market, Adhocracy, Hierarchical).
Businesses with a Market organizational culture very rarely if ever suffer from stagnation. What is your organizational culture?
In our course on how to change your organizational culture to grow your profit and maximize business performance we will give practical easy to implement strategies to change your culture to a market culture.
Google encourages employee risk taking and innovation. How is this done? When a vice president in charge of the company’s advertising system made a mistake costing the company millions of dollars and apologized for the mistake, she was commended by Larry Page, who congratulated her for making the mistake and noting that he would rather run a company where they are moving quickly and doing too much, as opposed to being too cautious and doing too little. This attitude toward acting fast and accepting the cost of resulting mistakes as a natural consequence of working on the cutting edge may explain why the company is performing much ahead of competitors such as Microsoft and Yahoo!