Renee’s Rule™: Two sick companies don’t make a healthy one.

August 4, 2009

When revenues decline, and profits are non-existent, companies often believe that if they buy or merge with another company, the increased revenues will solve their profitability problems.  In my experience, however, these “solutions” often exacerbate the problems.

To be successful, all companies need the essentials:

  • A capable leader
  • A carefully conceived plan
  • A system for ensuring accountability

When these pieces are missing, a joining of two financially and operationally troubled companies is destined to fail.

An example from one of my clients:

  • Company A was in an FDA-regulated industry
  • The industry was experiencing both intense pricing pressure and consolidation.
  • Company A, with multiple manufacturing and distribution facilities, was not only losing money but was also experiencing both product contamination and delivery problems.
  • Company A, which was bleeding cash, bought Company B, which was also bleeding cash.
  • Neither company had any of the three essentials listed above.
  • After the acquisition, the expected “economies of scale” did not materialize; costs for the combined entity actually increased as a percent of revenues.
  • The already stressed delivery system was now even more stressed.
  • Expected  revenues did not materialize because frustrated customers switched to other suppliers.
  • Chaos ensued.

We were able to save the company, but it was a close call…..a very close call…..

Two wrongs don’t make a right, and two sick companies do not make a healthy one.

2 Responses to “Renee’s Rule™: Two sick companies don’t make a healthy one.”

  1. August 9, 2009

    Your ‘capable leader’ bullet made me think of the book ‘Good to Great’ and the 4 or 5 attributes the CEO/leader had in each Good to Great company. Ego seems to be one attribute of managers and leaders that unfortunately seems to get in the way to often.

  2. September 10, 2009

    @Max,

    Some more reading for you…

    http://bobsutton.typepad.com/my_weblog/2008/12/good-to-great-more-evidence-that-most-claims-of-magic-are-testimony-to-hubris.html

    Not trying to be snarky. Just another interesting opinion.

Leave a Comment

Your email address will not be published. Required fields are marked *

By submitting this comment, I agree to the Terms and Conditions of the website.