Concurrent increases in demand, revenue and business failures seem contradictory. Not so.
The causes for the latter do not necessarily relate to the current marketplace or economy.
“Zombie” companies (the living dead) have been artificially propped up since the onset of COVID19 in early 2020 by expansionary government initiatives, including record low interest rates of 0.01% per annum, Job-keeper, and Job-seeker payments as well as substantial outlays on infrastructure projects.
Changes in policies and the Federal government withdrawal of those stimulants and short-term sustaining forces, weakened already inadequate capital, structure and productivity enhancing systems. That meant attrition among these “Zombie” companies was only a matter of time. In many cases that equated to two, three and four years.
Look no further for the primal causes of current liquidations and administrations. Prevailing factors like the costs of doing business, cost of living constraints, widespread discounting and the consequences of rising costs within fixed-price contracts simply compound the longer-standing causes.
The fundamental lesson for all governments is that all decisions and actions have consequences – not all are positive – in the intermediate and longer terms.
OBJECTIVE ANALYSIS
It is well established that more, small to medium sized enterprises falter and fail during periods of growth than they do in the face of aggressive and direct discounting by competitors and substitutes.
Growth requires capital, investments in resources – premises, inventory, people, systems and time. There is often considerable lag-times in the receipting of financial returns. Under-capitalisation inevitably leads to a running out of time. When business leaders run out of time they typically run out of business.
LOOK AT THE FUDNAMENTALS
It is important to recognise, isolate, analyse and respect three driving forces at play in the marketplace at this time.
INCREASED DEMAND
Many sectors including aged care, health, international air-travel, hospitality, tourism, building sub-contracting and the replacement/maintenance of past purchases are enjoying buoyant demand, foot traffic and consumer/client presence. Individual performance is mixed and variable.
Price sensitivity among consumers is high because of the cost-of-living pressures. This is compounded by widespread and repeated competitor discounting. Creating expectations can be revenue draining.
Accordingly, most margins are squeezed and under pressure because of increases in utility services, including power, electricity, gas, government services and most significantly insurance premiums.
It’s a fine line between satisfying immediate demand, facilitating growth and sustaining debt ratios and financial viability.
Beware rapid growth in any key metric.
INCREASED REVENUES
Revenue is a measure of topline performance. Often it is a single simplistic indicator.
Stability and measured growth are virtues in the prevailing complex economy and marketplace. Particularly now, income must exceed outgoings that can be, and typically is a restraining, if not a constraining factor. Liquidity is figuratively and literally bankable. Some opportunities may need to be forsaken, because of prudence. They may not be lost, just delayed.
Patience is a virtue and can be profitable.
INCREASED FAILURES
Failures within a sector, region or locality need not contaminate the images, profiles, desirability and preference for alternative companies, brands, products, services and applications.
Consistency, continuity and communication are essential to provide and capitalise upon peace-of-mind marketing.
Rationalisation in industry and professional sectors can, and typically do provide a template for more reasoned value-driven presences.
Therefore, reinforce, reassure and reconnect with existing, prospective and past clients and customers.
Avoid the temptation to retreat to constraining and reduction strategies.
Many failed and failing entities (including zombie companies) have been or are the victims of past circumstances, possibly emanating from the 2020-2022 COVID19 pandemic peak period.
It well may be timely to look within, rather than to analyse external circumstances. The fundamentals of sound capital structures, manageable debt ratios, balanced and current inventories and an integrated workforce of experienced, qualified, enthusiastic team-members who possess extensive product knowledge and a commitment to clients, customers and employers.
They want to be and need to be involved, informed, recognised, respected and celebrated. No magic bullets there. Likewise, no evidence of failure characteristics.
Maintain a tight focus on those positives, acknowledge the presence of zombie companies and at all times orient the companies, products and services to the established purpose.
THE NEXT STEP
The ongoing and increasing failure of zombie companies can be distractions and disruptions.
Remedial actions implemented now may be two, three or four years too late, and will most likely not adequately address the causal factors.
Therefore, maintaining discipline, positive self-belief and reasoned expectations are important. In many cases more pressing than originality, creativity and innovation.
This is a fundamental set of questions and propositions which need to be addressed by business owners, Boards of Directors, advisory board members and external consultants.
An emphasis on strategic and structure issues need to pre-empt and predominate those related to shorter-term operational considerations.
It will enable some to fill the voids being created by the unfolding and terminating presence of zombie companies.
Barry Urquhart
Business Analyst
Marketing Focus
M: 041 983 5555
E: Urquhart@marketingfocus.net.au