How to recognize a business crisis and the need for anti-crisis measures

Contents:

• Lack of growth in financial indicators
• The business has no USP
• Ignoring current business trends
• Lack of desire for development in the team
• Lack of delegation skills of the business owner
• Key indicators of potential difficulties in business: 4 main aspects

Elena Filippova, a business consultant and former strategy director at IKEA Russia, reported alarming symptoms.

Behind a company's apparent success, serious difficulties sometimes lurk. The ability to identify these problems at early stages is key to preventing them from escalating into a major crisis. This is especially true before starting the scaling process, as it may not live up to expectations.

In this publication for the Skillbox Media "Business" editorial team, I will highlight five key signs that indicate potential serious difficulties:

• financial results remain stagnant;
• the business has no unique selling proposition;
• the business does not pay attention to current trends;
• the team is not striving for growth;
• the owner is unable to delegate tasks to others.

Lack of growth in financial indicators

The desire to expand a business often arises in owners when they feel the stability of operational processes and are confident in their ambitions. However, external indicators do not always correspond to internal data. When a company's revenue begins to decline and sales volume declines over several months, a crisis awaits it instead of growth.

The owner of a business with revenues of approximately 5 billion rubles sought to identify new opportunities for expansion. The idea came from the owner himself, who demonstrated significant interest and was willing to devote resources to the company's development.

However, financial analysis indicated that the company was rapidly moving toward losses. Continuing on the current course could have serious consequences for the business, so the owner was forced to take anti-crisis measures: optimize the portfolio, reduce non-core activities, and conduct a partial asset sale.

The business lacks a unique selling proposition

Another key indicator of business problems is a lack of a unique selling proposition (USP, also known as CVP – customer value proposition). If an organization is unable to clearly define what exactly it offers its customers and how its products or services differ from those of its competitors, it risks losing its competitive edge in the market. Although a business may continue to operate, maintaining current sales levels and retaining its team, it may nevertheless gradually lose its stability and potential for further growth.

Companies operating in highly competitive environments, such as HR outsourcing, distribution, or small-scale food production, are most vulnerable to change. The absence of a unique selling proposition makes a business less protected from external factors: customers can easily switch to competitors who offer clear positioning, convenient service, or clear products.

The lack of a clear proposition is especially noticeable in traditional mid-sized businesses that emerged in the early 2000s. However, in the current environment, this is no longer a viable approach. Without a clearly defined unique selling proposition (USP), it is impossible to develop an effective strategy or achieve a competitive advantage.

The most dangerous situation is when financial results are declining and a clear strategic basis, such as a unique selling proposition, is absent. In a crisis, the likelihood of saving such a business is significantly reduced.

Ignoring Current Business Trends

One of the common reasons why businesses face problems is a delayed response to changes occurring in the industry. If a company fails to stay current with key trends, especially in dynamic sectors, it may lose its market position and become less competitive.

One example is a large IT company with annual revenues reaching 10 billion rubles. Despite having a strong team and a stable market position, the organization faced difficulties in reaching the next level of development. The main obstacles were the restrictions imposed by the business owner, who categorically rejected the idea of ​​integrating artificial intelligence into the product, despite persistent requests from customers.

In the field of information technology, artificial intelligence has long established itself as an integral part. It helps automate various processes, improve customer service, and reduce costs. If companies do not implement such technologies, their products quickly lose relevance and appeal. As a result, they may find themselves at a disadvantage in the market, losing ground to competitors.

Even experienced and stable companies face the need to change. A striking example of this is the story of IKEA, which in 2017 discovered that its profits were declining by 5-10% every year. The main reason for this phenomenon was changing consumer habits: people began to increasingly choose online shopping and stores located closer to home, abandoning trips to large hypermarkets located outside the city. In response to these challenges, IKEA revised its business model and began opening stores in urban areas. This move allowed the company not only to restore growth rates but also to regain its market share.

Lack of desire for development in the team

Despite a carefully developed strategy and stable financial results, a business can stagnate if the team is not ready for change. Most often, the most vulnerable part is the management - both top managers and key employees. Their internal motivation, openness to change and willingness to embrace new things play a decisive role in a company’s ability to develop.

A striking example is a family business engaged in Distribution. This company has been in business for over twenty years, and during this time, a cozy, almost home-like atmosphere has developed: employees interact with each other like family, celebrating important dates and holidays together. At first glance, everything seems fine, but any attempt to change work processes is met with active resistance. External consultants are perceived as a threat, and their advice is seen as an intrusion into the established order. In such an environment, even the most minor changes prove difficult.

When we stop developing, we risk losing our position. This statement is true not only for individuals but also for organizations as a whole. Without internal motivation for progress, a desire to experiment and implement innovative methods, companies face a stagnation in their development. If a team lacks both the desire and the strength to change, this can lead to stagnation and, ultimately, to gradual disappearance from the market.

In startups, teams actively generate ideas, debate, and test their hypotheses. This internal activity contributes to their development. In more mature companies, this energy can be maintained by creating a culture of change within the organization. Therefore, having a strategy is important, but so is the team's commitment to implementing it.

Lack of delegation skills in the business owner

Another common challenge is the owner's reluctance to delegate responsibilities to others. This type of owner takes on all aspects of the work: they personally conduct negotiations, participate in presentations, develop the product, and are involved in every important process. However, this management style makes the company overly dependent on a single person, which increases the risks to its stability and development.

The owner of a major logistics company, faced with market changes in 2022, decided to transform his business and develop an IT product, building on his previous experience. However, he found it difficult to delegate some of his responsibilities to his team, and so he often handled multiple tasks himself.

When a business depends solely on one person, it creates a serious vulnerability for the company. The performance of the entire enterprise is closely tied to the resources of its owner. As long as the owner is full of energy and can devote time to the business, the business continues to operate. However, if their interest wanes, work stalls. In such a structure, the team has no chance to show initiative. A lack of trust hinders development.

When delegation of tasks becomes difficult, it makes sense to seek support from an external mentor, consultant, or coach. This can help you reconsider your own functions and begin to form a system in which the business functions as an independent unit.

Key indicators of potential business difficulties: 4 main aspects

• Expanding a business in the face of declining revenue is a risky strategy. When profits begin to fall, it makes more sense to focus on stabilizing the situation: optimizing costs, preserving important assets, and getting things in order.
• When an organization is unable to clearly communicate its value and advantages over competitors to customers, this is a serious cause for concern. In the event of any external changes, customers may prefer more understandable and convenient alternatives.
• Markets and consumer preferences are transforming at great speed. If an organization fails to respond to these changes—failing to integrate modern technologies and update its products—it risks losing its competitive advantage.
• When a business is entirely focused on the owner, it becomes dependent on their personal resources. If the team is passive and unwilling to embrace change, this can lead to stagnation. To develop successfully, it is necessary to build trust, delegate responsibilities, and promote an atmosphere of change within the company.