Turning around fortunes of an imploding business

Implosion: A sudden failure or collapse of an organisation or system. An instance of collapsing violently inwards. One slight turn of the steering wheel and that would end it all.

From living the cappuccino good life in London as a bond trader at investment banker, Goldman Sachs, Mercy was now back in Kenya facing the stark reality of small business.

When she first heard the news that she had inherited her father’s furniture business, Pear Tree Designs, Mercy was thrilled. She remembered wandering around the messy shop floor when she was seven, fascinated by how the carpenters were able to turn pieces of rough wood into objects of polished beauty.

In a mess

While her dad had been strong on creativity and imagination, the business was a mess, now facing bankruptcy. The once friendly bank was calling in its loan. Mercy had 60 days to turn the situation around. And, the worse part of it all, was that her father had secured the loan three years ago, based on using the title deed of the family tea plantation in ‘fifty shades of green’ Tigoni.The 

Crown jewel of the family was the 49 acres purchased one year after Kenyan independence in 1963. Now that way of country life, that essential asset risked disappearing.

Going for long daily walks with the dogs in the serene rolling beauty of the tea fields was the only thing that was keeping Mercy half sane. Worrying about how to revive a 40-year Industrial Area old small manufacturing business, with 30 anxious staff looking to her for direction was becoming overwhelming.

Thanks to a donor scholarship, after doing a BCom at the University of Nairobi she was able to get a respected degree. But despite having an MBA in finance from the University of Chicago, and working as a bond trader, knowing about the esoteric elements of diversification, volatility and nominal yields, she really felt lost and confused, when it came to running a business day to day.

Pear Tree Designs made 31 types of beds, 15 versions of dining room tables, nine types of bedside tables and the list went on and on. Altogether the company made 91 types of furniture and accessories. Intuitively, she imagined that some version of the 80/20 rule applied, 80percent of the sales, and what used to profit came from a small percentage of furniture, but what was this?

In an age of platforms, like Jumia and Amazon, the old-fashioned pipeline business had relied on its own three storefront locations, only one of which in the CBD was now open, plus selling through distributors. Everything about what seemed like a straightforward enterprise now seemed complex, confusing and convoluted.

Solution is out there

Strange thing was, the answer had to be out there, she thought in her more optimistic moments. What information was not on the internet, she loved watching YouTube clips. The problem was not that there was not enough instruction on how to run a business, the problem was that there was too much.

As a first step, a month ago she turned to a persuasive marketer who promised her the world. After an enjoyable two-day workshop at the Kentmere Club, with tasty lunches, Pear Tree Designs had an elaborate wordy, vision and mission statements, plus a set of values and an action plan on the next steps.

In retrospect, in the bright light of day, despite the best of intentions, it was fluff, just words on paper. Solid more analytical facts and figures diagnosis of the business was absent. One step forward, ten steps back, this only made Mercy more depressed. The clock was ticking, the family home and farm risked being lost forever.

Hail Mary – Do just three things

Implosion was imminent. Somehow she kept thinking about Occam’s Razor, wisdom from a monk from centuries ago which could be interpreted as The simplest solution is usually the best one.

Mercy decided to cut through all the abundance of bad advice, muddled fuzzy thinking. In a last-ditch-hail Mary manoeuvre, she decided to do just three things: simplify, create a strategy, and constantly evolve – adapt – with a sense of urgency.

Being in action helped cut through the foggy sense of impending doom. Step one, to simplify one had to begin with an analytical root cause diagnosis. One of the first moves, with the accountant, was to do a quick analysis of which products were profitable, making money, and which ones were making a loss.

Turns out that that just nine products had margins of over 30percent, and were in demand by the younger middle-income set. In practice, roughly 10 percent of the products were generating 80percent of sales keeping the company barely afloat.

Making sure that none of the staff were left high and dry, they closed the Industrial Area location and shifted to a smaller cheaper space in Ruaka, and moved to more of a platform business model, sourcing furniture from independent carpenters and craftspeople.

Gone was the heavy clunky construction, shifting to lighter more elegant designs, an African funky version of Ikea. Identifying who the ideal customer was, Pear Tree Designs went wild on social media, including Instagram showing how to furnish an apartment or home on a tight budget, yet appear elegant.

Pear Trees Designs under a ‘more with less’ overall approach, came up with a portfolio of strategies, constantly being ready to change, pivot in a period of days, if it looked liked something wasn’t working.

Despite being like a doubting Thomas, the bank and credit risk managers could see momentum, and imagination in motion, showing up in increasing sales and cash flow in the company accounts. “We see movement, looks like things are turning around for the better. The bank has decided to give you another six months grace period, at which time we will re-evaluate the situation” said the now more friendly bank manager. Implosion averted.

“Take the first step in faith. You don't have to see the whole staircase, just take the first step” said Martin Luther King Jr.

Before he passed away, Mercy’s father had given her a book of T.S. Eliot, and highlighted:

“We shall not cease from exploration, And the end of all our exploring, Will be to arrive where we started, And know the place for the first time, Through the unknown, remembered gate.”

David Abbott is a director at Catalyst Consulting