Editor’s note: This article was first published in May 2010, at the height of the crisis in Spain’s construction sector. The current figures cited, including 36 and 432 workers, one company in insolvency proceedings and another expanding, describe the situation at that time.
With the crisis, many businesses have been forced to take measures. Some of those measures were based on mistaken ideas, because of a poor ability to make sound decisions.
It is very common to think that the easiest way to rescue a company close to bankruptcy is to take measures based solely on cutting staff, without stopping to think about what that staff could be doing instead or what other alternatives exist to save the business.
When a company is doing badly, you have only two options: the right one and the wrong one.
I’ll explain this with two examples of real companies that are very close to me.
Both companies were in the same sector: construction. Both had roughly the same number of employees (325–347 workers) and practically the same capital.
Company A started to notice falling sales when the crisis began. The measures it took:
- Cutting travel costs: Sales reps had to stick to nearby areas and try to support their existing customers so that they would sell more. But those customers were selling less and less, and most of them ended up closing.
- Laying off staff: Sales dropped so sharply that in two years the company went from 347 workers to the 36 it has today. This meant a large outlay for the company in severance and final settlements, so its situation only got worse.
- Changing managers: They waited until the ship was already sinking beyond rescue before deciding to hire professional managers.
- Pressuring workers to perform better: Of the 36 workers currently on the payroll, 11 are on sick leave with depression because of the changes and the way they are treated.
This company is now in insolvency proceedings (concurso de acreedores, the Spanish bankruptcy procedure) because it cannot pay its debts. Its imminent end is closure.
Company B started to notice falling sales because of the crisis. The measures it took:
- Expansion: It hired new sales reps in other provinces to cover a wider market. At the same time, it offered easier terms to its existing customers and ran an aggressive advertising campaign to win over customers from the competition.
- New business ideas: The company had a team that repaired and maintained its own computer systems. They decided to use those IT professionals to repair and maintain computers not only for the company but for the whole province, to the point that they had to take on more staff for their new computer repair business.
- Sales in the construction sector inevitably fell, but before laying anyone off, workers were moved into the newly created IT section to collect and deliver computers.
- They analyzed and studied the weakest companies and sectors in the group, selling some of them or merging with larger companies with more capital, which helped the company grow.
- Managers: No changes were needed, because they had professional management that not only avoided closure, unlike company A, but also achieved a considerable increase in sales, in the size of the company and in its capital.
This company is currently expanding. It has gone from 325 workers to 432 today, taking over a large share of the market left open by competitors that failed to take the right measures.
This is a real example of two real, present-day companies that illustrates topics we have discussed throughout our blog. Faced with the same situation, some entrepreneurs think things through, stay positive and surround themselves with professionals who have ideas, while others take only the wrong measures, guided by their fears. And that is what, in the end, forces them to close their business.
Further reading
- 5 ways to grow your business
- Common mistakes made by Spanish business owners
- Differences between Spanish and American business owners
- 10 business ideas with no investment
- The businesses of the future
Featured image: Bill Jacobus, CC BY 2.0, via Flickr.
