What we can learn from companies in trouble

DURING THE unprecedented run of good times in the mid- to late-90s and into 2000, I couldnt help but get the feeling that the strong economy convinced a lot of men and women that they were really smart business people. Im not referring specifically to contractors here, but also to wholesalers, retailers, manufacturers and even energy providers. Regardless of interest rates and presidential scandals,

DURING THE unprecedented run of good times in the mid- to late-’90s and into 2000, I couldn’t help but get the feeling that the strong economy convinced a lot of men and women that they were really smart business people.

I’m not referring specifically to contractors here, but also to wholesalers, retailers, manufacturers and even energy providers. Regardless of interest rates and presidential scandals, the country kept perking along with plenty of business for everyone.

Now that the country has been in a recession officially for almost a year, we’re discovering that some of these men and women really are smart business people. And others were just fooling themselves.

We have witnessed the spectacle of a couple colossal business collapses. On a smaller scale, we’ve seen companies attempting to reverse business strategies that seemed to make perfect sense just a few years ago.

Last month in this space, we passed along what we considered good advice from firms that plan to come out ahead at the end of this uncertain 2002. This month, we thought it would be equally instructive to look at the flip side – a few of the traits and strategies that got other companies into trouble.

Fail to differentiate your company from your competitors, and your company is bound to fail. No better example of this road to failure exists than Kmart, which filed for Chapter 11 bankruptcy court protection in January.

Several analysts pointed out that the huge discount retailer did not provide customers a reason to shop in its stores. Cosumers perceive Wal-Mart to have lower prices and they consider Target stores to be more hip. Without a clearly defined niche in the market, Kmart saw its customers go elsewhere.

Kmart tried to lure back customers by cutting prices, which can be a difficult long-term strategy. Most customers, it seems, want quality and service along with low prices. Competing on low price is particularly tough when you’re up against a company with superior systems such as Wal-Mart.

Kmart did play one card to draw customers, and that was its line of Martha Stewart home-related products. The line has been so popular that some Kmart stores have had trouble keeping the products in stock. And so popular that one analyst suggested that the retailer emerge from bankruptcy as “Martha Stewart’s Kmart.”

Bad management can kill off just about any Golden Goose. Look no further than Enron to see the truth in this statement. To be fair, however, Enron has its mechanical contractors such as Limbach and Williard, just as Kmart has its Martha Stewart line.

The mechanicals that operate under the banner of Limbach Facility Services have held up remarkably well during Enron’s collapse, as our front-page story in last month’s issue attests. Much of their success can be attributed to their independence; they function with their own bank accounts, cash flow and vendor payments.

Bad management, though, has meant bad business in seemingly every other phase of Enron’s operation. Poor investments and questionable accounting practices have cost its employees their livelihoods and its shareholders millions of dollars, as other national media document daily.

If you diversify your company, do it very carefully so that you don’t lose your focus. Not so very long ago, diversification made a lot of business sense. By not being tied to one market, companies could avoid the business cycles that affect almost every industry. And no industry is more prone to these ups and downs than construction.

Some companies are discovering that the biggest drawback to this strategy is that they start to lose their focus. They tend to forget what made them successful in the first place, or they find out that what works in one industry may not work in another.

After losing millions of dollars last year, U.S. Industries is trying to reshape its business largely based on its kitchen-and-bath operations such as Eljer, Zurn and Jacuzzi. This is where USI has experienced success in the past, and some of these operations still are solid.

The businesses that USI has shed already, or is in the process of doing so, include tanning, textiles, footwear, plastics and gardening tools. Even with these divestitures, USI will have a tough road ahead, but it is improving its chances by sharpening its focus.

Most of the contractors whom I have spoken with have remained busy during the nation’s downturn, although perhaps not as busy as they had been previously. Even so, contracting companies that hope to remain successful must continue to differentiate themselves from their competitors, keep strong management at the helm and remain focused on their mission.