Phoenix by jurvetson

Since the recession began, I’ve seen an increase in the number of business phoenixes. A phoenix happens when a business closes down one day, and then opens the next day as a completely new company, but with the same staff, directors and customers. You can usually tell this has happened by a slight change of name, a different bank account, and the directors looking exhausted but relieved.

Businesses usually phoenix (if we can use it as a verb) because they are in trouble and have big debts around their shoulders. Ethically, the difference seems to be that some businesses phoenix because they would not survive otherwise with their huge debts to the banks and some businesses phoenix in order to avoid paying their suppliers. You can tell the difference because the second category (the unethical ones) phoenix again and again. They’re the ones where the directors have taken all the money out of the business before closing it down – you can recognise them when the director is driving a Lexus but telling you that they can’t afford to pay your invoice.

In essence, creating a phoenix company is fairly simple. You put one company into liquidation and open a new company at the same time. The new company now does whatever the old one used to do for the same customers, with the same staff, and a very similar name and brand. Quite often you don’t notice the difference – you could be sitting next to a phoenix right now.

Pros and cons

If you’re thinking that this might be a great way to ditch some of the hassles of business life, such as that troublesome loan which the bank seems to think you will pay back, or that useless member of staff, then do think carefully.

A phoenix strategy has some things going for it, but there are also some serious disadvantages.

• A phoenix has to be done properly and legally otherwise you’ll end up still owing the money but you won’t be able to pay it back because you’ll be in prison for fraud. Get the right advice, from an accountant who has done this before (many accountants haven’t) or preferably an insolvency specialist.
• A phoenix has major long term consequences. You could have that bird around your neck for the rest of your life. If you put a company into liquidation, you are unlikely to ever get a loan again and you’ll have difficulty getting personal credit, even for small items. Some people who have been through this have had difficulty opening bank accounts or setting up online payments, even years after the event.

When you might have to

I’ve worked with three businesses in the last year who have phoenixed. They all tried everything they could to keep the original business going but, when the banks withdrew credit, the directors had no choice. The only alternative was to close down the business for good, and make everyone redundant with no severance pay and walk away. The phoenix was the lesser of two evils.

When it’s bad

A bad phoenix, like most bad actions, has a malicious motivation. When a business owner does this because they have been reckless or greedy, paying themselves big wages when the company isn’t paying suppliers, spending money on lazy, crazy marketing activities such as PR to promote the owners’ egos rather than the products or buying expensive things like cars, or in one case I saw, a giant fish tank for the office when staff hadn’t been paid that month. The company’s assets get sold to the owner’s mum for a fiver at liquidation, and you see Mr Dodgy driving his (sorry, his mum’s) sleazemobile a week later.

How you can make it better

If you’re in a bad situation, and are thinking about phoenixing, or you’ve done it and are feeling morally icky about it, there are some things you can do to make it better.

Firstly, protect the little guys. If you owe your suppliers, and can’t pay them, unless you talk to them they will hate you. Make sure you know that the small companies you owe money to know that they’ll get their money later. A client once paid me the last part of the fees she owed me a whole 5 years after I’d done the work, and I respect her for taking the trouble to do this.

Secondly, ensure that your staff know what’s going on. Staff always have a good idea of what’s going on, and if you tell the truth it will usually be better than the worst case scenario they’ve been imagining. If you’re intending to take staff with you to the new company, this is especially important as you don’t want them to jump ship.

Although I work with many different types of businesses, there are several issues which clients experience time and time again, and I’m going to share these with you so you can apply them in your business.

Sometimes I’ll find myself saying this one several times in one day to different people.

“You might find it helpful to set some targets for your business.”

Now of course this sounds completely obvious (like many things I find myself repeating) but it surprises me how many businesses have only the vaguest targets.

Without a set of targets, you’ve no idea whether you’re doing well or not.

If you haven’t aimed for something, you don’t know if you’ve hit the right thing. Imagine a darts player just throwing the darts at the wall of the pub, with no dartboard. You’d imagine that he’s a madman, just throwing darts randomly – surely that’s dangerous?

There’s something strange about the act of setting targets for your business. When you set a target, as long as it’s realistic, you’re pretty likely to achieve it. Some people who have discovered this effect have thought that there’s something magical about it, something caused by the power of thought. But there’s nothing magical about it –

You’re more likely to achieve an explicity target if it looks like you’re not going to reach the target, you’ll do something about it.

If you’re selling shoes and you’ve been told that each day you need to sell £500 worth of shoes, and by 2 o’clock in the afternoon you’ve only put £65 through the till, you’ll know that you’d better be nice to the customers and sell some shoes. You’d pay attention. But if you think of your job as just standing around and making sure that no one steals the Jimmy Choos, it will be a different story.

Setting targets focuses your attention on what you need to do.

If you know that you need to do more networking, set yourself a target for how many networking meetings you’re going to go to each month, and how many catch up coffees you’re going to have with people who might send business your way. If you know that you need to get more clients of a particular kind, make that your target. If you have something which consistently gets pushed out of the way because other things are more important, then make sure it’s on your target list.

I’ll write another, more technical, article soon about how you set targets, and how to monitor them, but get thinking about what targets your business needs to set and reach.

I wrote recently about the businesses I can’t help, so I thought it was only fair to write about whom I can help.  It’s tempting to write this as a sales pitch, but I’ll resist temptation and try to be more objective instead. My strap line is that I help small businesses who want to be bigger businesses.  I specialise in businesses with less than 30 employees because the smaller businesses are the sexy exciting ones. The businesses where I can make the most difference are the ones where the owner is committed to growth, and knows that he or she needs some help and support to get there.  Where the owner wants to get to be a bigger business, but doesn’t really know how to go about it. Imagine a two-person design partnership.  They’ve developed some demand, and have some good clients, but they are uncertain how to move from doing all the work themselves to being able to manage other people doing the work.  If you’ve read any of Michael Gerber’s Emyth books then you’ll know that there’s a key growth stage in stopping doing the work yourself, and getting others to do the work, while you become responsible for developing and running the business.  The temptation for our design company is to carry on doing all the work themselves, getting more and more worn out by servicing clients, or by not spending any time on marketing, they risk running out of new business.  Or both. In this situation I can:

• Identify what sort of work the lovely designers need to go after
• See what how they need to price their work to remain competitive, but have enough to be able to afford to pay other people to do the production and improve their profits
• Help them work out what marketing activities are going to work best for them
• Refocus them on marketing, so they can attract new clients
• Make sure they do the marketing, by being there and reminding them of what they promised to do

Of course, my lovely designers could do all of this themselves, but what do they get extra by paying me to help them? I’d say they get:

• The courage to charge more money
• Some fantastic new ideas about marketing, which they maybe wouldn’t have been able to come up with themselves, because I spend all my time seeing what works and stealing other people’s tactics
• Someone to be accountable to – so they can’t just slip back to their old habits, but are reminded that now we’re doing business in a different way.
• Someone who gives a damn.  This sounds obvious, but how often do you have someone who actually really cares about whether you succeed or fail, and have that person be someone who knows what they’re talking about.

Let’s take another scenario, this time of a bigger business.  Here’s a company which has been running for a while.  They have 12 staff, so they’ve got over the delegation issue, and they’re nicely profitable.  But, the director knows that she doesn’t want to spend the rest of her life running this business – at the moment it’s still fun, but she wants to sell up in 3 years time.  And, she wants to have enough money to do something else after that, or to do nothing at all for a while.  In fact, she knows that she wants to sell for upwards of £1.5m. Why would she want to get the woman with the curly hair and glasses in? Our director (we’ll call her Alice) needs some help to achieve her target of a sale in 3 years with a price tag of £1.5m.  Where I can help is:

• Assessing how much turnover and profit she needs to bring in to make the business worth that million and a half, and make sure that the business is working in a way which will maximise the sale value.
• Working on a much bigger marketing strategy to build up the business
• Helping with the recruitment of a really hot sales director to bring in the big sales which are going to add up.
• Supporting Alice in all the little problems that come with growing a business, so she’s got someone to go through things with her.  Again, this is about giving a damn, and getting help from someone who has been through this themselves.

That should give you an idea of the sort of businesses I work with and how I make a difference.  If you would like to talk about how I can help, you know where I am.