Thursday, March 11, 2010

Business Behaving Badly

or, how to guarantee you lose at a takeover.

Merging continues to be the new business growth model of choice. The new global mantra now heard is something like: “be ‘too big to fail’ and nobody will let you.” Unfortunately this is affecting smaller businesses and corporations especially at the local level who have taken on a slightly different version to create their own mantra: “If we look too big to fail nobody will notice we’re actually shrinking.”

Recently a local group of related businesses merged, both together and with a larger regional corporation. The former local units still operate in their former capacities and markets but the top leadership of each was gutted and replaced; although a few were merged. This was announced in the media as a new phase and a growth move to benefit the business(es) and the market.

These individual businesses have scores of subcontractors (could they have too many, maybe but that’s not the point for the moment). None of the subcontractors was notified of the changes until they read about it in the media. That would be bad behavior number one.

The new leadership never introduced themselves to the subcontractors or relayed any information about who the new points of contact would be. That would be bad behavior number two.

The first memo the subcontractors received from the new leadership did not come for ten days and it bluntly, without introduction, informed the subcontractors that their work would no longer be paid for. But if they would like to donate it things can continue as usual; they just wouldn’t need to send in the invoices in the future. This is bad behavior number three.

The rationale for de-funding the subcontractors was the budget. If you don’t have the products the subcontractors supply – which the staff did not have the time or resources to do before and definitely will not be doing from here forward – but your market and customers want those, they will go elsewhere. And what will fewer customers do to the budget?

The truly incredulous part though, the aspect that took such massive gall, was that they asked hardworking people to donate the results of their efforts to support the business like it was a charity. If the business wants to reorganize as a 501c3 maybe some wouldn't mind donating their work but the subcontractors can’t even deduct their operating expenses from their taxes if they don’t get paid because the business is not a recognized charity.

Nobody can operate at a loss, that’s a reality. Arbitrarily treating a faithful cohort of subcontractors like they were the primary, if not sole, problem and readily pumped out with the ballast is not good business. And, since the only people talking seem to be the now out-of-work subcontractors, the public relations fallout will likely be a disaster.

Note: No, I don't usually sally into the realm of business and this is a rare exception. This is about a local event but Seth Godin wrote about the general problem of businesses and shrinking in his post Death Spiral!

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