3 Signs that your business is Fragile

We, people, have a innate quality that brings us to ignore the fact that we are mortal. We live with that, and not just accept it, but mostly live as if it can never happen to us. This is a quality, because it allows us to live our lives without being preoccupied with that fact and thus not losing attention to what we cannot (most likely) change. However, it is also a deficiency as it also leads to ignoring signals that may indicate we are getting closer to that end faster than we would have anticipated and not too rarely when we react to these signals the required intervention is radical, and may not be as effective. Even though we live as if we are immortal, we are still mortal.

One critical way we have developed over the years to allow us to feel even more confident in living this way is immunization. We use immunization to equip our body with the mechanism to protect us from serious diseases and enhance our health and endurance.

It turns out, we carry this behavior not only in regards to our personal life but also to our social life whether it is in our business, family or society. In the business world we run our businesses as if they’ll exist forever and as if bankruptcy cannot happen to us. Again, quality as well as deficiency. In physical health it is somewhat easier to see/ feel the signs in comparison to the social health. But the fact we may not easily see/ feel the signs does not mean the signs are not there. Similar to our bodies, if we fail to acknowledge these signs and react too late to them, the intervention required is radical and may not suffice to save us.

Like with our body, our business is exposed to attacks coming from the external environment that weaken our business immunization system and exposes it to health deterioration. These “attacks” are a result of decision and actions taken by other entities (such as: government, competitors, tax authorities, suppliers, customers, social organizations, unions etc.) that have a meaningful effect on the business. Every such attack affects the business immunity system, sometimes positively and at other times negatively. Eventually the business ability to take advantage of the positive effects, and absorb the negative ones is dependent on how well is the business immunized.

And similar to our bodies, immunization is the answer. We need to inject into our businesses the mechanisms that will protect the business from serious diseases and enhance the business health. But, before we talk about the immunization, let’s identify the signs that indicate our business is not as healthy as we thought it is.

How would we assess the immunity of our business? There are three indicators for that:

  • The business top line rate of growth – if your business rate of top line growth is equal to, or lower than the average of your market (on an ongoing basis, not one quarter/one year), your business immunity is weak.
  • The business Profitability – If your business profitability (net profit divided by sales) is equal to, or lower than the average of your market (on ongoing basis), your business immunity is weak.
  • The Free Cash – If your free cash is less than 6 months of operating expenses, your business immunity is weak.

And if all of the above co-exist, your business is fragile and subject to severe risk to its survival. Ignoring that, is similar to ignoring that your white blood cell count is extremely low. When all the three signals, indicate low immunity you need to immunize the future of your company, urgently.

 

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