more-arw search

When Should You Walk Away from a Business Initiative?

Photo courtesy of StockFreeImages.com

Knowing when to say when during Happy Hour is one thing, it's quite another when it comes to business. Knowing when to pull the plug on an initiative – be it a new product or service, a technology system, a new business partnership, or a major purchase – is an inexact science. But there are indicators for helping you determine when to delicately, yet decisively, walk away.

Numbers Don't Lie
Negative operating cash flow that leads to excess borrowing and financial losses, is a telltale sign it’s time to move on. “How long can you hit yourself on the head with a hammer?” says Craig Nelson, CFO and treasurer/controller for Hupp Electric Motors. “Negative cash flow is often rationalized as an investment in the future, but the limits both in cash and time should be defined up-front very carefully and monitored with quick course corrections.”

When major checkpoints on a project have been missed or changed and the initiative has stalled, it's likely the ruby red slipper doesn't fit on your company's foot. Worse still for the initiative’s future is if the playing field has changed for reasons beyond your company’s control, such as related governmental regulations or changes in the overall economy.

Quite simply, says Rita Gunther McGrath, associate professor at Columbia Business School, “if you look at the returns you're getting and you're starting to get pressure on margins, don't dismiss it as a softening or that it's just a bad quarter.” Take note and start to evaluate what is going wrong.

The biggest mistake is a delay – continuing down the same path and expecting a different outcome, says Roger Kohl, a partner with B2B CFO, a provider of CFO services.

In fact, a quick kill of a project is better than dragging it out, if it’s going to come to an end anyway because it’ll limit the damage done. “A dragger hauls folks with it, drowns morale, and imperils good operations,” says Jim Grew, president of The Grew Company, a leadership consulting firm.

Lack of Buy-In
The leadership necessary to get a significant initiative off the ground is usually huge. Direction and motivation must be provided by the CEO, top managers, and implemented by key players. If they're not showing an avid interest, actively cross-selling the new line to existing customers, or finding new ones, for example, something needs to change. Be concerned too, if the board of directors no longer shows enthusiasm for a project they had previously rallied around, cautions John Allison, a former CFO and currently a consultant with Corvette Consulting.

Initiatives steal time from “regular work, so they are a tough sell on a good day,” says Grew. “The workers must have a compelling drive for success, or the initiative must be pulled.”

Do You Have to Coax Buyers with Cheap Prices?
If your company is actively marketing the initiative, yet finding the only way to get purchase orders it to cut prices, then it's not really sustainable, says Nelson. “If the budgeted sell price can't be maintained, then you're obviously not the preferred vendor,” he says. “Someone with a core competency can make money doing it with a lower price. Face reality.”

Also take another look at the marketplace if you're seeing competitors from places you didn't expect. “Have customers decided that they will go for cheap, instead of your higher quality product or service?” asks Gunther McGrath.

Take a Reality Check
While the executive believe the company is selling the Next Great Thing, do your own employees believe it too? “At one point a Ford executive looked around the company garage and there were no Ford cars. If you can't get your own people excited, that's really bad news,” says Gunther McGrath.

As the CFO, you are in a position to ask the tough questions that perhaps no one else is asking. Is the initiative making money, saving money, reducing pain and frustration? “If you cannot get a firm yes, walk away,” says Christine Comaford, author of SmartTribes: How Teams Become Brilliant Together. Also question whether the initiative causing division and divisiveness in the company's culture?

It's particularly prudent for CFOs to be the purveyor of common sense when it comes to mergers and acquisitions. “CFOs have every obligation to ask marketing, sales, or other executives, and especially the CEO, as to the due diligence that has been done around the deal,” says Mark Faust, author of Growth or Bust! “What efforts have been made to triangulate the information? For example, who has interviewed what number of customers from the other party's customer base? Who has checked the references provided? Did they go the extra mile in asking for proof and extended references?”

Realize that in most cases, the most successful initiatives are related product lines of interest to existing customers, says Nelson. Less successful initiatives require a lot of new overhead without initially having any revenues, and not knowing what inventory items are going to have high turnover.

How to Exit
Making the decision to call it quits isn't easy—especially if you’re the first naysayer. “A CFO will be viewed as too analytical – not being able to gather information to decide and move on, or worse, be seen as only a 'bean counter' who doesn't have a broad strategic perspective,” cautions Comaford. “Beware of both of these traps,”

Once you've come to grips with the fact that the company should shutter the project, how best to proceed?

Very few companies have a good process for constructive disengagement, says Gunther McGrath. “People are not comfortable with the process,” she says. Who are the key stakeholders, internally, and externally, like suppliers or customers? “Ask yourself who might be hurt in some way by this change, and what can you do to contain their disappointment,” she adds.

But also look on the bright side. “See if there are opportunities to capitalize by utilizing property or people skills gained during the initiative,” says Gunther McGrath. “For example, maybe the technology that you're getting rid of is useful to someone else. Look for ways to transfer value.”

What you don't want to do is pull the plug and lose track of those freed-up resources. “If you're no longer spending money on X, be sure that money gets redirected to an area targeted for growth,” says Gunther McGrath.

Lastly, says Allison, “Be direct, do not vacillate. Determine the reason for the failure and learn from it; do not dwell on it. Proceed quickly to the next issue.”

Sheryl Nance-Nash is a freelance writer specializing in personal finance, small business, general business, and career-related topics. 

Comments

Roger Kohl
Title: Partner
Company: B2B CFO
(Partner, B2B CFO) |

If your CFO is "not ... able to gather information" or "doesn't have a broad strategic perspective" I suggest that you don't have a CFO except by title.

Products and Companies: