How to judge whether the company is in decline?

Every company has its own life cycle.

From the entrepreneurial period, to the mature period, and then to the transition period, this is the objective law of enterprise development.

There has never been a sustainable operation in this world. The so-called sustainable operation means that every major transition period can be transformed again and enter a new round of life cycle.

What if the transformation is not successful?

If the transformation is not successful, the company will decline.

How do you judge whether a company is in decline?

There are three signs of a company’s decline.

The first signal:

 target erosion. What is target erosion? When we couldn’t reach the goal, everyone began to accept it calmly, and even thought that the goal was set high, and then kept lowering it. There may be special reasons for lowering the target once or twice, but continuously lowering the target is called target erosion. Once the goal is set, there will definitely be objective factors that are conducive to achieving the goal, but there are also objective factors that are not conducive to achieving the goal. We can’t just accept the favorable factors and we are happy when the goal is achieved, but we don’t accept the unfavorable factors. After a period of time, the goal was not completed, so I went to find the next objective reason and lowered the goal again. Lowering goals constantly will cause us to always rationalize what we haven’t done. But the market, it will not give you a chance. Rationalization will not keep your company alive. then what should we do? Your only solution is to change the part that you can change, to deal with some possible external unfavorable factors. Never adjust the target lightly. Once the goal is eroded, although everyone will be psychologically balanced, the company will decline gradually.

The second signal: Distorted behavior.

What is behavior distortion?

You should have taken the big road, but for various reasons, you started to take the small road and take shortcuts.

For example, your goal is to be customer-centric and give customers the best experience. But due to performance pressure, you start to charge customers high fees.

This is behavior distortion.

It is a good thing for a company to get an investment.

The essence of investment is to discount the money that may be earned in the future to today to speed up growth.

But from the perspective of investors, investors invest money in you to get greater returns. 

Relatively speaking, his goals will be shorter than yours.

An investment fund may recover its investment in five, seven, or even ten years.

Then he will require the companies he invests in to grow rapidly, obtain greater valuations, and speed up listing.

In this way, the investment can be recovered earlier.

But as a founder, your goal is to make the company bigger and longer. Your goal is more long-term.

Then when you are making long-term plans, you are willing to accept a certain short-term loss to achieve long-term growth.

However, investors may not necessarily accept it.

At this time, the founders of the company may behave distorted in order to gain the support of investors.

Some listed companies may also behave distorted under huge performance pressure.

Once the behavior is distorted, although it may appear to be no big problem in the short term, it will continue to damage the company’s values and long-term interests.

In essence, it is drinking poison to quench thirst.

So, a company began to behave distorted, which means that it may start to decline slowly.

The third signal:  the weak of the strong.

What is the weak of the strong?

For a company, if the strong are not fully motivated, the income gap with the weak will become smaller and smaller, and the income of the weak may even be higher than that of the strong. This is called the weak of the strong.

Let me give you an example.

In the early stages of some startups, because they do not fully understand the ownership structure, it is easy to allocate a lot of equity to their employees.

For example, give out 30% of the equity to early employees.

A few years later, the company has grown stronger, and many early employees have lost their pockets, and the value created is getting smaller and smaller.

However, the company has no more stocks to distribute to new talented employees.

The abilities of these outstanding employees are more suitable for today’s business and today’s environment, but they cannot share more benefits.

At this time, there was a phenomenon of the weak being strong.

Once the weak are strong, the weak occupy the optimal resources, and the strong cannot be motivated.

Bad money starts to drive out good money, and the company will decline.

At last

Target erosion, distorted behavior, the weak of the strong.

These are the three signs of a company’s decline.

Use these three signals to judge. Do your company start to decline?