I believe that from time to time, every entrepreneur wonders whether to continue the business they are doing or if it makes sense to change direction. Such thoughts come to the minds of both newcomers and very successful entrepreneurs who have extensive experience in a certain business and have been working for decades.
Our business accelerator has seen hundreds of companies, so I have a certain level of expertise. I see many companies that are well-organized and operate quite effectively. The team is focused and puts in great effort. For many, this is a special object of desire. However, they do not experience significant growth. And the truth is that sometimes it’s necessary to change the direction of the business. It seems that a person has built their company for a long time, honed it, organized everything, and perfected the processes.
There are situations when it’s necessary to radically change some part, and this is the only way out. Entrepreneurs do not like this. Especially if you have put a lot of effort into creating a team, the company no longer requires so much attention, and you finally start to see returns. The idea of changing something is not inspiring. Moreover, there is a principle: “If it works, don’t touch it”.
In this article, we will figure out what to pay attention to and which signs may indicate that changing direction would be a reasonable decision.
Sign №1
It’s easy to notice if the business owner pays attention to what’s happening in their industry. Not through communication with individual customers, not by rumors, but through regular analytics. But let’s be honest. Typically, entrepreneurs are so focused on their business that they rarely follow what’s happening in the industry. They simply do not have time for it, as it seems there are much more important things than collecting statistics.
I regularly conduct strategic sessions for business owners. Entrepreneurs who have already built stable companies and want to expand by acquiring their competitors come to me. I always start by asking them questions about their industry as a whole. Typically, they have no answers to these questions. Therefore, during these sessions, we dig, gather data, and even hire external analysts to bring in this information.
So, the first sign that you need to change direction is your industry is declining. This point seems simple and obvious, but few pay attention to it. And I believe that it’s the professional duty of a company’s founder to understand what’s happening with the market. Therefore, I recommend finding reliable sources of information about the market and constantly monitoring it.
Example
Online commerce is currently developing rapidly. It incredibly quickly devours retail. When I need to buy something from electronics, I would never think to go to a store and look for the item there. I will immediately go to an online store or to the manufacturer’s website and make an online purchase. Today, online stores have almost completely replaced physical ones. I personally order all food products online with home delivery. Because it’s much faster and more convenient.
What’s the next step?
For example, you work in the field of cosmetic medicine. And you see that your market is growing by an average of 13% year over year. At least, such is the situation observed in the United States. This indicates that there is no need for change.
But if you see that your segment is gradually declining, this is a serious sign. It indicates that competition will intensify, earning will become more difficult, the fight for the customer will become more aggressive, marketing will become more expensive, and so on. Most likely, your model will not work in the future.
I’m not saying that you should give up on your business, lock the door, and scatter. No, you need to strategically assess the facts and understand what can be done. Of course, apart from numbers, you can track what’s happening in the market in other ways. You may notice a gradual decrease in interest in products, an increase in marketing costs, and so on. But the problem is that when the owner is involved in management weekly, all these changes are imperceptible to him.
It’s almost impossible to track market changes if you’re constantly in operations. Moreover, the numbers themselves will never explain why this is happening. They never give you data on what needs to be changed; they just serve as a flag.
Sign №2
Imagine you have a business that has been operating for some time, bringing in profit, but the company’s profit per employee gradually decreases. We have been tracking this metric weekly for many years. Naturally, you can’t say anything based on weekly fluctuations, but long-term observation can tell you a lot.
If you see that the profit per employee is decreasing, this is a serious sign. This phenomenon may have a separate reason: the company is growing, the number of employees is increasing, and managers are not coping with management. In a nutshell,
with the rapid growth of employees, the efficiency of management decreases. This can also lead to a decrease in profitability per employee.
But in this context, I mean a situation where the company is relatively stable in terms of the number of employees and there is no rapid growth. Nevertheless, profitability per employee is decreasing. This indicates that the market is changing and becoming more complicated, new technologies are emerging, new challenges, new advertising methods, and your business model is no longer effective.
What to do?
When you see that profitability per employee is constantly decreasing, you need to rethink your business model. I have an empirical rule from my own experience. If a business cannot spend at least 10% of its income on marketing and customer acquisition, you need to urgently change strategy.
Sign №3
You have a strong and well-organized team. But at the same time, you have no growth. It sounds painful because owners take pride in their strong teams. But if there’s no growth, it means something needs to change either in the product or in the direction. A strong team has a downside. When something happens in the market, the business model no longer matches up, and something urgently needs to change.
But if you have a strong team, they will fight to the last. Meanwhile, they will get tired themselves. You will get tired. Eventually, people will be disappointed. And there will simply be no results from their work. Sometimes people try to revive a dead horse, perform artificial respiration, hire consultants for reviving dead horses, buy magic potions, and so on. But you just need to get off the dead horse.
Case from personal experience
For me, this point is associated with painful practice. Many years ago, my company had 11 physical branches. Naturally, each branch meant premises, branding, staff, staff training, many overhead costs, and so on. It was a complex model to manage because employees had to be trained, and branches had to be controlled. Large geography, different languages, different legislation, different countries, and so on.
It was a strong team, motivated and effective. They worked together and were focused on results. But at some point, the business stopped growing. When I began analyzing, it became obvious to me that we needed to change the way we provide services. Then we started switching to online. And today, we provide services online much more than we ever did in 11 branches. And we achieve much better results.
Our accelerator has many more residents, they get better results. And the team feels much happier. It is still just as strong and organized. Only directed at a different product.
Sign №4
This point is related to changes in technologies and industry standards that can make your business obsolete. Such innovations are definitely a signal that something needs to change, to adapt, and to act differently. Many companies that generate good profits simply sleep through this moment.
For example, in the USA, there was Blockbuster — the largest DVD rental chain in the world. It was a real empire with a large capitalization. But when streaming started to develop, the founders of Netflix came to Blockbuster and offered to invest in their project, to start cooperation. Which was, by the way, a fantastic opportunity for Blockbuster to use the power they had. But they laughed at the Netflix founder, and thus they slept through the revolution. And a little later, digital streaming displaced DVDs. And in 2010, Blockbuster went bankrupt.
Conclusion
It’s crucial to keep up with technologies and changes. Watch whether your industry is declining or not. Monitor how profitability per employee changes in the long run. This requires attention and time. It’s your duty as a business owner.
If you don’t have enough time for this, if you are too busy with operational activities, there’s a high chance that you will sleep through these signs. Therefore, it’s important to combine both routine activities and strategic analysis. This will help keep the business afloat and not miss the moment when changes are needed.
