Stratford Managers Blog: 12 Early Warning Signs of a Business at Risk

If your business is not growing, odds are it is slowly dying. In my years as a CEO, I’ve seen the early warning signs of both scenarios.

  • Differentiated product(s) in a large market that values the differences.

  • The ability to fund investments in operations, sales, marketing and customer service including broad geographic coverage.

  • Hiring the right people and empowering them with a positive customer-first attitude.

In the low growth, “slowly dying” case, the reality is more grim:

  • The product is rarely as differentiated and as valuable as you believe.

  • Top people are hard to find.

  • You face tough competitors, particularly incumbents that may be able to invest more R&D, and potentially leapfrog your technology or features.

  • If you aren’t growing but are still profitable, a ‘good enough’ mindset that interferes with taking the risky steps needed to re-energize growth.

12 Early Warning Signs Business Risk

As a CEO, along with predictable financial indicators, there are at least a dozen early warning signs (EWS) that flag the need to redouble your focus on growth. Ask yourself and your management team these questions about your products and your marketing and sales activities:

1. How differentiated are our products?

A problem with product differentiation is one of the first early warning signs (EWS) of lack of growth especially if you operate in a growing sector. But it’s hard to maintain objectivity when evaluating our own products. Feedback from customers, partners and industry meetings is valuable, but it’s not much good if you aren’t meeting as a management team to discuss it (EWS).

2. Where is our R&D investment directed?

R&D spending largely addressing customer requests may work in the short term, but you run the risk of your competitors’ innovations leapfrogging your technology (EWS).

3. Are we regularly discussing customer satisfaction?

Do we generate regular reports from our customer service efforts? Do we act quickly and effectively on problems? Does the CEO get involved when needed? Lack of feedback from the customer service desk does not mean your customers are happy! It’s more likely an early warning sign (EWS) that you are not actively engaged with your customers. Customers always have options and you may not see it until they just stop buying.

4. How well do we reach potential clients?

Are we adding new customers regularly or are our revenues largely from existing customers (EWS)?

5. How strong is our sales management?

Do we provide effective sales compensation plans to attract good salespeople? Are we hanging on to under-performing sales people too long? A sales team that’s not consistently producing is an obvious early warning sign (EWS) but too often we just hang on because sales people are difficult to replace and typically pretty good at explaining why lacklustre results are not their fault.

6. Are we spending enough time out of the office?

Significant B2B sales occur by developing personal relationships.  You don’t make these by hiding in the office!  A simple metric to look at is your sales team’s travel records. The same analysis should be done for the CEO and the executive team. You need to get in front of your customers and partners. Not doing so is a very clear early warning sign (EWS) of trouble.

7. How effective are our channels/distributors/OEM’s?

Do we have a regular communications strategy with these important partners and, as with our direct sales people, are we managing them or simply letting them free run? Do you meet your channel partners regularly to ensure they are giving your products more then their fair share of attention? Lack of regular executive communication is an EWS that they may not be putting their full efforts into your business.

8. Do we discuss lost business reports (LBR)?

What can we learn when prospects choose a competitor? If the LBR is not discussed regularly you’re not trying to learn from your failures – and that’s an early warning sign (EWS) of stagnation.

9. Where do we get our leads?

If you are not active in your industry, that’s an early warning sign (EWS). Although the right way to engage depends on the product and sector, what is true is that you cannot invest too much time networking within your industry. Trade shows – perhaps. Speaking engagements – yes. Participation in industry meetings – always good if not too often. It is in these venues that competitive intelligence is collected, partners are engaged, talent is recruited and prospective customers are found. Again, you mustn’t be hiding in your office!

10. Do we understand the price elasticity of our product/service?

How would the market respond to lowering our price? Would increased volume outweigh a loss in margin? If you have distributors or channels, have you consulted them? They too have a vested interest in maximizing their prices but also in achieving volume. Channel partners often sell competitive products so have good insight into what products and prices sell. Along with pricing, consider other techinacea such as complimentary service offerings. If you’re not considering pricing and packaging options as a means of growth it’s an early warning sign (EWS).

11. Do we have an easy to navigate website and clear marketing materials that effectively communicate our Unique Value Proposition?

Or is it covered in marketing hyperbole and therefore as clear as mud? If you’re not generating leads from the website or the news section is getting stale these are pretty strong early warning signs (EWS) of a low growth future.

Do any of these early warning signs look familiar to you?  If you’re just too busy with day to day management then consider getting objective outside help so that growth can be restored.  Your management team must be continually monitoring and discussing your business then taking appropriate action.

And maybe that’s a final early warning sign (EWS) to consider:

12. Does our management team meet regularly and constructively?

Not just to discuss operational issues, but around the meaty but difficult growth questions! If not, you need to start. Consider bringing in some coaching for your key executives. It is essential to have a strong diverse team that actively participates in the strategic plan and then aligns to execute it!

Mike Pascoe, CEO, Interim Management and Advisory Services

With over 30 years of experience leading technology firms, Mike has a diverse set of technical, management and financial skills honed in a variety of companies and locations. As President of Newbridge Networks Inc (US Subsidiary) he participated on the Executive Operating Committee responsible for one of Canada's top technology success stories. That led to several technology company CEO roles, both private and public, in California and Canada, with M&A activities both as buyer and seller including the sale of PairGain Technologies for $3.2B (10X revenues). 

Mike is a strong believer that the CEO succeeds when the management team is highly motivated towards successful execution against a thoroughly vetted operating plan and as a
result he has spent considerable time in the field of team dynamics, conflict resolution etc. Experience (good and bad) has taught him the risks of the being too optimistic and committed to a plan without the value of independent and objective analysis. 

His CEO advisory role with Stratford Managers is directed towards bringing this objective view to other CEO's to help ensure they make the best decisions possible and create the team environment most likely to succeed.