Opting To Cut the Company Down To Save It
John Bell begins his book Do Less Better with the scenario of a troubled company — a regional player in 10 different categories, suffering through four consecutive years of losses, carrying higher than average payroll and inventory costs (the latter exacerbated by more than 1,000 SKUs), and starting to lose the support of impatient shareholders tired of pouring money into a losing cause.
What’s the next steps for a new CEO hired to turn around this sinking ship? If you’re like most new CEOs, Bell writes, you will do exactly what your predecessors tried to do: generate more revenues and cut costs. The difference is that you will do these things better. “You are kidding yourself,” Bell writes. “Strategically, doing more of the same… better is a pathway to incremental improvement, at best. Incremental improvement is never enough to fix strategically weak companies like the one I have described.”
The Greater Sacrifice
Instead of trying to do the same better, Bell believes a much more potent strategy is to make the tough decisions and cut the company down to a more efficient and focused size. Many companies are straining under the weight of their complexity and dispersion of resources, he writes.
He should know. The scenario above was real, and it was Bell who was tasked with saving the company.
Avoiding the incremental, top line-driven strategies described above, Bell and his team embarked instead on a no-holds-barred campaign to reduce activities and costs significantly. They did this by first eliminating the six poorest-performing product lines (out of 10). Even that, however, was not enough. A “greater sacrifice” was needed. “We didn’t want to do it,” Bell writes, “but we would have to divest two of the remaining sacred cows, two product lines with significant sales revenue and growth potential.”
The result was a company that went from 10 to two categories, from 1,000 to 35 SKUs, from more than 500 to 200 employees, and from $75 to $50 million in sales. However, the newly trimmed company was now focused almost entirely on its Nabob Coffee brand. Within three years, the company reached $100 million in sales (95 percent in coffee, 5 percent in tea) and would eventually boast 13 straight years of earnings growth before being sold to Kraft.
Cutting 300 employees and, probably more frightening for most CEOs, reducing the top line by $25 million was no small sacrifice. But as with gardens, courageous pruning, Bell argues, is what leads to growth. Many companies are hurting or, at best, stagnating because their leaders are afraid to, in the words of Bell, “kill their darlings.”
Bell offers one of his former clients, the Campbell Soup Company, as an example of a company that suffers from the refusal to cut loose a traditional business activity. Most consumers today are in the market for ready-made soup. There is not much call for condensed soup, although it has always been a staple of the company. Bell believed Campbell could break out of its stagnation, as other soup companies continue to grow around it, by stopping condensed soup and starting a brand new activity: soup bistros. There is a great market for gourmet soup cafés, inspired somewhat by the Starbucks chain of gourmet coffee shops, and Campbell would be the natural choice to start such a chain. The response from the Campbell Soup executive who listened to Bell’s idea was swift: “We aren’t in the restaurant business. Our mandate is to figure out how to bolster sales of condensed soup.”
For Bell, the first step to a new strategy is a new mindset from leaders, a mindset based on the courage to go small. It’s counterintuitive and may hurt in the short term, but for leaders considering such a move, reading Do Less Better is a great place to start.