Is It Time for Your Business to Change Course?

In an economy like this, it may take more than tinkering to turn your company around. But big changes carry big risks

Kim Matheson Shedrick Bill Wadman

By Ann Field

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Kim Matheson Shedrick had spent 16 years growing New York-based Natural Resources into a 15-person, $1 million company that advises developers of high-end spas. But in late 2008 no one was building much of anything, never mind pricey spas selling hot seashell massages and lavender-oil body scrubs. Matheson Shedrick decided the time was ripe for an idea she'd been kicking around since 2001—mySpaShop.com, which would offer products and wellness advice for less affluent spa aficionados. "I looked at how I could use all the contacts I have in the industry to target the customer who can't spend $500 visiting a spa," says Matheson Shedrick, who now makes $10,000 a month through the site. She also expanded the B-to-B side of her company, charging spa owners a monthly fee for advice on how to boost revenue. She expects the new line of work to bring in about 15% of her overall sales by the end of the year.

Sometimes, when business is bad, you can't just tinker at the edges—you have to make fundamental changes to your company. That might mean selling to a new market or changing your offerings. It might mean strategic changes in distribution or marketing.

But these changes can be risky. Botch the introduction of a new initiative, and you could confuse or alienate existing clients. Your new line of business may be less lucrative than the original, eating into your margins. Your employees might not be able to adapt to the new business model. And there's always the chance that your new business could end up cannibalizing the old one. "The concept of setting a different strategic course isn't something to be taken lightly," says Dennis Ceru, an adjunct professor of entrepreneurship at Babson College. You want to undertake a major repositioning only if you see no other choice. Ideally, your new brainstorm can be carried out by your current employees and is a logical extension of what you're already good at.

Then you'll still have to address the nuts and bolts of implementation, from employee morale to pricing. It may be easier to dip your toes in the water before trying to overhaul your entire business. Once the new initiative is launched, you'll want to review your numbers monthly, if not weekly. Should you find reason to reverse course, do it quickly. "In a bad economy, you don't have a lot of time," says Ken Gaebler, president of Gaebler Ventures, a Chicago business incubator and investor. "[A poor] strategy should die a pretty fast death."

CHANGE-RESISTANT?

How do you know if a repositioning is well advised? Start by examining key indicators such as revenue, profit growth, and market share; then consider other metrics. If it's taking longer to close deals, that could be a warning sign. If clients are paying every 90 days instead of the usual 30, that should also be a red flag. And, says Gaebler, "If your customers are leaving because they can't afford your services anymore, or their needs have changed, it's time to reexamine your strategy."

Then try to determine if you're being affected only by the economic downturn or if there are other, more fundamental issues at play. You may be able to ride out a bad economy, but if your industry has changed dramatically, you need to change with it. If your competitors are making adjustments, it could mean they're also seeing signs of a long-term industry shift.

Don't try to answer these questions in a vacuum. "The entrepreneur who makes a decision without consulting employees and clients is not going to make nearly as good a strategic choice as somebody who gets those folks involved," says Gaebler. Talk to plenty of suppliers in your industry to get their take. Then bring your employees together to hear their perspective.

When it's time to sound out your customers, start out with your best accounts, requesting an in-person meeting as a forum for serving them better. "You're asking, how can I help you during a time like this?" says Verne Harnish, CEO of Gazelles, an Ashburn (Va.) entrepreneurial consulting firm. He has been doing just this with his own clients. "

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