From the November 1997 issue of Entrepreneur

Is your company headed for trouble? Long before a business fails, you can count on warning signs to start flashing. "If you have your eyes open and know what to look for, you can anticipate and avoid big problems," says Fran Lipson, a vice president and managing director with Boston-based Burke Strategic Consulting Group who specializes in turning around businesses that have hit a wall and are nearing collapse.

Although there's no disputing the role of shaky finances in small-business failures, there are other issues that may be equally important. "Human issues--problems in the corporate culture--can play a big part, too," says Lipson.

When a company's culture--its internal belief system, values and methods--turns sour, productivity tumbles. "The culture in trouble is one that's turned away from the common, collective good and focused on egocentric concerns," says John Nirenberg, Ph.D., business consultant and executive director/chair for the department of doctoral studies in business at the University of Phoenix. Put more plainly, in a company that's going bad, workers stop putting out any effort on behalf of the business as a whole; they do what's required to get by in their jobs and nothing more. "That's not an attitude that spawns business growth," says Nirenberg.

Even so, discovering this before the disease turns terminal may be difficult for an entrepreneur because the desire to succeed can be so powerful, it overwhelms the ability to perceive trouble spots. "Entrepreneurs just don't pay enough attention to [their company's] developing culture. By the time they notice what's occurred, the culture has fully formed and it can be very hard to change," says Ron Riggio, director of the Kravis Leadership Institute, a leadership research organization at Claremont McKenna College in Claremont, California.

Fighting the tendency to ignore problems and seeing problems when they're still small enough to be quickly and easily remedied is crucial. So how do you monitor the business on an ongoing basis? "Stay in synch with your employees," says Lipson.

"Get out among your employees and listen," agrees John Peterson, managing director of the Los Angeles executive search firm Greger/Peterson. "A CEO told me, `Every good decision I made, I was out in the field; every bad decision I made, I was sitting at my desk in my office.' Talk to people at every level in your organization. And listen hard to what they're telling you."

Warning signals

Following are some signs that your corporate culture--and your business--could be in trouble:

  • Increased turnover. "Are employees jumping ship?" asks Lipson. "This is quantifiable and easy for a business to monitor."
  • Difficulty in hiring "A" players. "Good employees evaluate a business before taking a job offer," says Peterson. "When the candidates you want to hire say `no thanks,' this is a big sign of trouble."
  • An empty parking lot. When the company parking lot promptly empties out at 5 p.m., that's a red flag, says Gregory Dess, a business professor and the chair of leadership and strategic management at the University of Kentucky in Lexington. It's vivid proof that workers are there only for their paychecks.
  • Lack of clarity about the company mission. Collar one of your workers, and ask him or her to tell you what your business's mission and goals are. "If they don't know, how can they be behind the mission?" asks Peterson.
  • An "us-them" mentality. Do workers think "We're all in it together," or do they see themselves on one side, with management on the other? "When a small business divides into two camps, it can break you," warns Peterson. "To succeed, you have to all be pulling together and in the same direction."
  • More "Dilberts" show up on your desk. If one of Scott Adams' "Dilbert" strips is anonymously pushed under your door, it's nothing to fret about. Get heaps of them, and it's no longer a laughing matter. "When you're the target of caustic cartoons, you're in trouble with your employees," says Dess.
  • Falling customer satisfaction. "Are complaints increasing? Are customers leaving you for competitors? If so, you're on a road that will lead you nowhere good," says Lipson. That's because the likely underlying factor is a drop in quality, she explains. And when workers no longer put out top effort, it's proof they have stopped caring about the company's future.
  • Low attendance at company events. Have workers stopped showing up for company picnics? When attendance at off-hour events falls, says Dess, "people are doing only what they have to do to get by."
  • Lack of honest communication. "This is a sign you cannot ignore," warns Nirenberg. When employees begin lying to you, their co-workers and customers, you'd better address this problem--fast.

Just how many signs must be present before you should consider your business to be in trouble? "The question isn't the number but the intensity of the problems," says Dess. "Just one sign--rapidly increasing turnover, for instance--can be enough to warrant a close look at the underlying problems." The bottom line: If any of these warning signs sound familiar, it's time to take action.

Solving the Problem

"The worst mistake a leader can make is to avoid [addressing] the problems," says Dess. When management shuts their eyes to the warning signs, they're rushing the business down the path toward collapse.

How do you renew a culture that's in trouble? A first step is to reaffirm the company's missions and goals--to get back in touch with why the business exists and what its ultimate purpose is.

Next, become more open with employees. "Gather them together and [listen to] what's on their minds," says Dess. "Admit you don't know everything and that you need their help in finding out what the problems are and how to fix them. That's the main step."

You probably won't be able to fix all their concerns in a single meeting--or even two or three--but when a channel for direct communication is reestablished, it's a big step toward healing what ails your business and putting it firmly on the track to good health.

Robert McGarvey writes on business, psychology and management topics for several national publications. To reach him online with your questions or ideas, e-mail rjmcgarvey@aol.com

Contact Sources

Burke Strategic Consulting Group, 1 Gateway Ctr., #601, Newton, MA 02158, (617) 244-2779

Greger/Peterson, 321 12th St., #210, Manhattan Beach, CA 90266, (310)546-8555.