Michael Jackson, the chariman of Elderstreet Investments and Sage and an expereinced entrepreneur and investor, writes in Business XL about the eight tell-tale signs that a business is on the way down. Following his list, we summarise and add our own observations.
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Greed is good: except not when the management team puts personal status and pleasure before the well-being of the company. Watch out for a sudden increase in the number of Porches on the parking lot. In a company with wich we worked, it was a batch of shiny new Apple computers for the leadership team that signaled the demise.
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Air Miles multiply: It is OK if the sales director is travelling, but if the CEO is constantly in the air then he is probably avioding the real issues of the business.
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Meeting marathons:
Well-run companies don’t need a catalogue of one-day strategy meeetings or else the business has a real identity problem.
And probably several other problems as well. -
Funny financials: Look for any gaps in the accounts or unexplained changes in accounting practices. The latter is, in our expereince, a big red flag.
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Directors’ dealings: With public companies you have additional signs like unexpected tradings by directors.
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Long leaderships: Non-executive directors are supposed to last no longer than nine years, but how long has the management team been in place? If the answer is twenty years, what are the chances that the company is still ahead of the business curve? (We appreciate Michael’s sentiment but would caution against assuming experienced manangers are always “ossified”.)
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Founders fallout: Disputes in your management team are bad. Especially when it concerns the founders. Watch the body language.
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Steamy sex: Sex in the workspace is almost always bad. The CEO having sex with someone in the company is very bad. The CEO having sex with someone younger in the company is very, very bad. Find a new CEO or a different investment.
(Just to clarify: Mr. Jackson’s wordings are more subdued. The above text is ours, except where clearly quoted.)