Safeguarding Entrepreneurial Success with the “Early Signs of Change” Predictive Analysis

What do you need to do to ensure continued success and safeguard your achievements? The Talmudic Sages defined the wise person as “the one who sees and anticipates the consequences of his behavior.” This would seem easier said than done. However, based on years of experience and analysis of companies’ performance, I have developed a predictive analysis for entrepreneurs to recognize early signs of change.

These signs generally are visible to you before they can be perceived by others—a great advantage. Note also that these are not the typical indications of distress. The signs of change precede such indications and are fundamentally different. Responding to indications of distress is reactive and defensive—the business is already in decline. Signs of change, by contrast, are earlier, more subtle and enable you to be proactive. If you learn how to discern and understand the significance of these signs, you will be able to alter course without diminution of value.

The signs of change may be divided into two categories: operational and psychological (or attitudinal). Regardless of the categorization, however, these signs are intimations of your company’s mortality and should be addressed as soon as possible.

The examples provided are not exhaustive. Each company demands individual analysis and when assessing a client’s business, we weigh the indicia and tailor our advice accordingly.

Operational signs include:

• Appearance of new competitive companies/products/solutions
• Alteration in buying or sales trends
• Increased importance of payment timing
• Deferral of capital expenditures
• Lack of innovation in products or methodologies
• Loss of key personnel
• Over reliance on an officer, supplier, customer, channel, or trend
  

Conceptually underpinning the operational signs is an awareness of the inherent instability in business and the concomitant need to survive via a strategy that, at least initially, addresses directly the immediate problem. Sir Lawrence Freedman in “Strategy” (a book I would recommend to every business leader) explains: 

So what turns something that is not quite strategy into strategy is a sense of actual or imminent instability, a changing context that induces a sense of conflict. Strategy therefore starts with an existing state of affairs, and only gains meaning by an awareness of how, for better or worse, it could be different. This view is quite different from those that assume strategy must be about reaching some prior objective...So the first requirement might be one of survival.

In addition to operational signs of change, there are also psychological (or attitudinal) signs. These include:

• Stale Management: no new blood in key management positions; lack of fresh ideas. 
  
  
• Personal Distractions: health concerns of the entrepreneur or family member; family discord; marital issues.
  
  
• Ennui: entrepreneur wants new challenges or a different lifestyle.
  
  
• Ambition or Capability Deficit: lack of financial resources or talent to meet business challenges or to take the company to the next level; disinclination to pursue new deals or enter new markets.

The psychological signs are more subjective than the operational signs and therefore are harder for you to discern. Trusted advisors can assist you in this respect. But you need to retain the right advisors and confide in them—challenging requirements for entrepreneurs. 

Entrepreneurs are often not well served by their advisors for two primary reasons. First, some advisors act in their own self-interest. For example, many investment bankers push their clients to an M&A transaction regardless of the merits. Secondly, most advisors are specialists and tend to see every situation through the prism of their narrow experience. They are like surgeons who for every malady instinctively reach for their scalpels. You need to choose trustworthy advisors who take a multidisciplinary and comprehensive approach. 

Once you have found the right advisors, you must confide in them. Clients often fail to share all the issues. This may be due to shame, a desire to keep down costs or the entrepreneur’s instinct to keep things close to the vest. Regardless of the reason, it is a mistake. It is like going to a doctor and not telling her all of your symptoms. Amusingly, clients often ask me “how did you know that?” I respond that my insight was based on my experience but, now that they realize I know what I am doing, it is advisable to share everything with me!

You should never stop analyzing and planning. As Dwight Eisenhower said, “plans are worthless but planning is everything.” Circumstances are in constant flux so fixed plans and an unwillingness to respond to change are a recipe for business disaster. In the concluding chapter of his book, Lawrence Freedman writes: “The strategist has to accept that even when there is an obvious climax...the story line will still be open-ended...leaving a number of issues to be resolved later. Even when the desired endpoint is reached, it is not really the end.” Consistent with Lawrence Freedman’s approach, the “early signs of change” predictive analysis is iterative—you need to apply it on a consistent and repetitive basis. 

Capital is readily available in today’s market so you have a plethora of choices provided you identify and realize the significance of the signs of change. The “early signs of change” predictive analysis can save you both from complacency and despair. Use it wisely to protect and increase your hard-earned success.