Crippled CEO Blog #139:
One of the major goals of the drowning prevention community is to dispel the misconception of what drowning looks like. Most people think that drowning looks like what we see on TV — arms flailing about, frantic splashing, and calling out for help. I (and others) call this the Bay Watch drowning and, like Pamela Anderson’s breasts, nothing is real about this depiction.
The reality is that drowning doesn’t look like this at all. When someone starts to drown, an automatic reflex takes control of their body, and there’s nothing they can do about it. Typically, a drowning person will be just beneath the water, their eyes may look glossy, and their arms will either be out to the side or they will look like they are trying to climb an invisible ladder under the water. Because the body is focused on trying to breathe, they are physically incapable of calling out for help. Drowning is actually silent. There is no splashing, flailing, or yelling. In fact, this drowning reflex is so strong, that one way to tell if somebody is drowning is by noticing that their hair is in their face. Nobody likes their wet hair in their face, so if somebody is fine, they will just move it out of the way. However, if somebody is drowning, they can’t do this; so, if you see someone just beneath the surface with their hair in their face, you need to take action — they might be drowning.
Just like there are nonobvious signs that somebody is drowning, there are also nonobvious signs your business is in trouble. Here are four canaries in the coal mine that are easier to miss.
1) More and more “crazy“ or “unreasonable“ dissatisfied customers. Every now and then, you are going to get someone who is nuts and cannot be made happy. These exist. However, if you find yourself starting to describe a growing percentage of your customers this way, that is a sign of trouble. Either you are getting burnt out and starting to resent your customers, a drop in quality is making more people upset, or — and this is the most likely — a combination of both. We briefly used a company whose products started breaking, sometimes as soon as the customer started using them, and other times just during the shipping process. Over and over, the owner of this business said the issue was user error. He thought customers were installing them wrong. Oddly enough, this “user error“ wasn’t an issue for the competing brand that we switched to. Low quality is a problem, but the inability to own it and take responsibility is an even bigger problem.
2) You lose more than one excellent employee in a short time span. Sometimes people choose to move on and it isn’t your fault, but if you have more than one GOOD person decide that they are better off somewhere else, that’s an issue. Your good employees are going to be the ones with the most opportunities trying to pull them away. They have options. Because of that, they will be the first to go if things seem to be headed in a bad direction, or changes have made them unhappy. An inability to retain top tier people is a very bad sign. To make matters worse, this can create a downward spiral. If problems in the business are making good people leave, then eventually, all you will have left are employees who can’t find another job. You are left with just crappy employees. This is going to make your problems even worse, making it even harder to keep good people — and good customers.
We used to use this IT company for technical support. They were pretty solid, with a number of good technicians. They had one guy, though, who was awful. He was just the absolute worst. Something changed either in the business or with the owner, and from what I’ve been told, he started treating the staff really harshly. Eventually, the only employee he had left was the terrible one. Because he sucked, he didn’t have any other options, so he was more willing to put up with the abuse. It didn’t take long for us to switch to a different IT firm. I doubt we were the only one. We had been a customer for many years, and when we canceled our contract, no one ever even reached out to ask us why.
3) You have resorted to trying to be the cheapest. Some companies, like Walmart or Amazon, can succeed by always the being the lowest price, but chances are, that can’t work for you long term. The problem with making your low price your most salient benefit is not just that you are working with smaller margins, but you also don’t have any loyalty from your customers. If they can find it cheaper somewhere else, that’s where they’ll go. This creates a price war — a race to the bottom — and if you’re not careful, you might win.
4) I’m going to touch on the most obvious signs in a moment, and one of them is definitely cash flow. If you don’t have the money to make payroll, pay rent, or pay suppliers on time, you know that you’re in trouble. A more subtle warning sign before your bank account is empty is this: if your bank account balances + your accounts receivable are lower than your payables, you are about to be in trouble. You need to start clearing inventory, trying to borrow money, and trading cash for pre-orders yesterday.
I don’t think I need to go over the obvious signs — you can’t pay your people/bills, unplanned, sharply declining revenues, ongoing negative profits, etc. If you’re not making payroll, you don’t need me to tell you things aren’t going well.
But those are a few of the less obvious indicators that your business might be in trouble. If you can catch them early, you have a better chance of righting the ship before it’s too late.
And now you also know what drowning looks like. That was just a free bonus. Just for you, no charge.
(Do you know who’s good at spotting red flags? Not your mom. Your mom also gets a text from me every Sunday with a link to the latest blog post. Send a text to 561-726-1567 with the word CRIP as the message to get a link to the blog as soon as it’s up.
Did you know that I have a YouTube channel now? I do! I am putting up two videos every single week. Go search for Crippled CEO and you’ll find me. I would appreciate it if you subscribed.)