HOW TO TURNAROUND FAILING TOY COMPANIES
The nature of our industry is such that one bad selling cycle can adversely affect our ongoing stability and even threaten the survival of our businesses. Anyone who has had the experience of working in, with or even owning a failing business can tell you just how quickly the rails can come off. However, there are usually certain underlying issues that have a negative effect which builds over time. Poor stock management, betting the house on product launches (when we know more products fail than work!), failing to hire & motivate good people etc.
The most important thing about a failing business though is to recognise how much emotion and inertia play their part. Logically it is obvious that if certain practises got you into a great deal of trouble, then a significant change is likely to be needed to turn things round. Easier said than done perhaps, but critical nevertheless.
Here’s some suggestions to help if you happen to end up in a failing toy company headed for the wall:
Cut Your Cloth Accordingly – one of the things which struck me most about the comparatively recent change in management at Tesco in the UK was that the new broom coming in got rid of the company jets…if there was ever a symbol of a bloated corporation it’s a whole separate company owning the corporate jet fleet! But it isn’t just massive companies that allow themselves to get soft around the edges over time. So the first thing I advise struggling toy companies to do is to actively reassess what’s critically important and what can be cut.
Slash the red pen – the next level after cutting the cloth is to start slashing. if your company is in real trouble and it’s very survival is in the balance, then you are best to cut hard and fast. What can you cut? People, premises, products, marketing, stock. All of which leads to very difficult decisions, none more so than looking at headcount & potentially letting some valued and/or long standing staff go. For some companies, the hardest decisions relate to stock. Let’s be really clear – nothing kills toy companies more than excess inventory. Over stocks tie up cash, incur warehousing costs, reduce efficiency and cause sales teams to lose focus on selling good products. The major global players in the toy industry have stock holding targets for every month of the year, and above all for year end. If you ever wondered how on earth a really strong product ended up in clearance channels, it’s probably because the executives in charge didn’t want to lose their annual bonus due to being over the year end stock level budgeted. All the excuses will come out – the customers won’t like it (they won’t, but in practise all retailers accept it as part of the game, and their number one focus is their own stock levels), that’s good product we can sell again (maybe, maybe not, but you can always manufacture it again…if you can clear out at close to cost, do it!) and the best one of all – “but I really like that product” (sounds ridiculous, but is the reality in many cases with smaller owner managed companies!). Take those tough decisions now, or else the administrator will soon be along to make them for you as you’re shuffled out the door with nothing!
Introduce robust processes for everything involving spending money – when you work in a global corporate company you find that everything is driven by process, when you work for a smaller company, often you find very little is driven by process. And frankly it isn’t that process is fun, it isn’t – it can be very boring, repetitive & can sometimes stifle the life and energy of a company if taken to excess…BUT if your company is in trouble, then either you didn’t have enough process or you had ineffective processes. Investment decisions (yes, launching a new product is in essence an investment decision) should be scrutinised. If you don’t have the structure to scrutinise in house, it’s not too hard or costly to buy in some expertise to add an outside voice/provide some devils advocate to ensure the product or marketing plan has been well thought through/considered (my company can help, email for more details!). Moreover, if you are ordering stock (the biggest cost item a toy company has by far), you had better have stringent processes…have you analysed/considered last years ordering pattern? How firm are those retail commitments? How soon can you get a read on EPOS data etc.
Skilful cashflow management – this is one of those things you have to learn the hard way – a sale is not a sale until the money is in the bank, so make sure your accounts receivable is up to date and aggressively but constructively managed/chased. For creditors, every business has come across customers in tough times who aren’t paying on time. The trick is to negotiate payment delays versus just not paying anything. A dose of honesty, humility and a later payment date met will create good faith you can take forward versus constantly screaming creditors taking up management time ongoing.
Lowest hanging fruit product lines – this is not the time to bet on a major new risky product category. A consolidation year with potentially dull ‘bankable’ products is the way to go. Speak to your retailers and ask them what they want, then deliver it. Relaunch old favourites left in the vaults for a while, or extend an existing proven product range/brand, as getting it listed is going to be easier/less risky. Bottom line – play it safe for a year or two to rebuild the foundations and security.
These few tips may help to a degree, although they don’t go anywhere near recognising how traumatic business failure can be, but the bottom line is that facing reality and taking (often tough) action accordingly is the only way proven to work.
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com, a leading Consultancy to toy companies around the world, which helps companies with product reviews & awards, find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world.