Is your business a zombie? Here’s how to tell

I’ve been frequenting a local frozen yogurt shop for a couple of years now. It’s a wonderful break, especially during the summer. But they’ve been through rocky times, with changes of ownership and rebranding.
 
Ordinarily this would make me optimistic, but in this case the company seems to have lost its way. Honestly, I’m surprised it’s still in business.
 
This isn’t about a company’s size. I know of many successful, sustainable, one-person businesses. There’s many wonderful shops around town which have been in operation for years and years, building a strong reputation.
 
How would you know if your business is no longer viable? I don’t begin with the numbers, because that’s just a reflection of the true company. I start first with the customers:
Do you have enough customers to survive? If not, then your customer base must be growing, or you’ll be out of business as soon as you run out of investment capital.
 
Are your customer turnover and repeat sales higher or lower than your industry average? Customer loyalty is your key asset for whether the business will grow or shrink.
 
What is your reputation with your target customer base? Even with people who aren’t your customers right now, they need to have an image of you which is positive and reasonably accurate, otherwise they’re working against your success. In some cases, you might even have a substantial portion of your target market which is creating negative referrals, driving people away from making contact.
 
Next, you want to look at the sustainability of your expenses. Some businesses are structured so that investors, suppliers, partners and other obligations are sucking out the lifeblood every week and every month. Much of this is just the cost of doing business, but I find that there’s often many opportunities to improve cash flow by reducing, restructuring, or even making intelligent investments.

Yes, the seasonality of your business might dictate that you’re profitable in some months and not in others. That’s usually a matter of how you save up money, rather than a fundamental problem with the business model. But there’s sometimes things you can do with the business model, adjusting your product offerings or the agreements you have with employees and contractors.
 
When I examine the health of a company, I usually spend a lot of time looking at the leaders and employees. I’ve yet to find a business where employees truly are interchangeable and the quality of their work doesn’t matter. Most often, customer satisfaction is highly dependent on employee motivation, which is directly related to the company leadership and culture. Many times this is the key variable controlling customer loyalty, employee productivity and market reputation.

In the case of my (formerly) favorite yogurt shop, I’ve had a chance to talk with many employees over the course of these years. I’ve learned that the owners are largely absentee, that employee turnover is high, and that training is minimal. I’ve even had the experience of having to leave when the new cash register software crashed.
 
Is it any wonder that customers have a bad experience with this? To me, it’s miraculous that they’ve survived this long. I suspect that it’s a money pit for the owners, but I haven’t been able to find out more because they’ve ignored my repeated attempts to contact them.
That, perhaps, is one of the biggest signals of a company which is among the living dead. Sure, we all have problems and things we’d like to improve. But when it becomes so painful that you stop communicating with the outside world and are hiding information from your employees, that’s a powerful signal. You’re avoiding reality, and are no longer building a business which will be around for years to come.

Carl Dierschow is a Small Fish Business Coach based in Fort Collins. His website is www.smallfish.us.

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