Why a Business Analysis Is Critical to Business Success
It has been said that there are only two ways to learn from mistakes: you can learn from your own mistakes or you can learn from the mistakes of others. And, it is a lot more expensive to learn from your own mistakes!
More importantly, having an objective, third-party analysis of the business is a proven, cost-effective way to minimize one’s own mistakes in business. A business analysis not only gives the business owner an opportunity to gain valuable insight into his own business so that he can avoid making costly mistakes, but at the same time it gives the business owner the opportunity to learn from the mistakes of others. A highly trained and experienced business analyst will be able to show the owners of small and medium-size businesses, the systems and controls which the best companies use to avoid many of the costly mistakes made by those who have failed as business owners.
Business analysts and consultants are trained to provide business executives an objective view of the business, devoid of the subjective biases which can prevent business executives from clearly seeing the vulnerabilities which exist in their business.
Most everyone is familiar with Hostess Cupcakes, Hostess Twinkies, Dolly Madison Cakes, and, for many older adults, Wonder Bread. The baking company which owned the Hostess brand until March 2013 was Interstate Brands, before selling the rights to the iconic snacks as it dissolved the company in bankruptcy. The entire snack industry has revenue of $60 billion a year, and is dominated by the top 50 companies which control 90% of the market. The executives at Interstate were among the best. The business executives had baked their business into a huge operation with 60 bakeries throughout the United States and accumulated $1.6 billion in assets. The executives at Interstate Brands were incredibly talented and smart. Their hard work and skill got them to the top of the snack mountain for baked snacks with annual sales over $3.5 billion for the company.
Their brands were well known, their sales were among the best in the business. They clearly knew what they were doing…..or so they thought! Yet, it was their failure to see one of the biggest changes in the food industry in decades which resulted in Interstate falling all the way down the mountain into bankruptcy. These executives failed to see, failed to recognize, and failed to respond to the changing consumer preference for healthier snack options. If this failure to recognize important marketplace changes can happen to these very successful business executives, it can happen to any small business owner.
When the company filed for bankruptcy in 2004, it claimed in its announcement to the news media that it had fallen victim to the change in consumer preferences to low-carb snacks. Newsweek found Interstate’s excuses hard to swallow, writing: “Truth be told, Interstate’s story is really one of lost opportunities. ‘Low-carb is the least of their problems. It’s like blaming the weather,’ says Robert S. Goldin, executive vice-president at food consultant Technomic in Chicago. Indeed, like the quaint nostalgia that its core
brands evoke, Interstate had continued to inhabit an outdated world that consumers had moved out of.”
“Overriding all this was Interstate’s seeming inability to keep its brands alive. ‘To not innovate is a death sentence, and nostalgia won’t carry you through this,’ says Rick Bozzelli, merchandising manager for McCaffrey’s Markets, a regional supermarket in Langhorne, Pa. Mired in its past glory, Interstate never really reinvented itself. It continued to flood the baked-goods aisle with its low-priced Wonder Bread even as consumers turned to fresh-baked supermarket or specialty breads.
“As for Twinkies, Interstate’s other iconic offering, they’re now viewed as junk food — a sugary snack few adults would indulge in and one lacking in appeal to a generation of children who snack on Gogurt. ‘I look back on Dolly Madison and Twinkies fondly and romantically from my childhood, but a lot has changed since then, and the company had a difficult time keeping up with the times,’ says Wendell Perkins, chief investment officer at Johnson Asset Management. (The firm owned Interstate stock in the past but had sold it prior to its recent troubles.)” September 23, 2004 Newsweek
A marketing research company for the food industry also took note of the changing consumer snack preferences: “Healthier fare is certainly not the only trend in packaged snack foods, but it is by far the most important and widespread one, driven in large part by a heavy national focus on children’s health. Although sales of packaged snack foods in the U.S. topped $61 billion in 2005, this is up only 6% over 2001 sales, since good returns from ‘healthy’ categories like yogurt and fresh fruit have been mostly offset by losses in ‘less healthy’ categories like candy and cookies. Whereas some marketers are well positioned to ride the health wave, others have been rushing to come up with nutritionally enhanced products, while also scrambling to show how even not-so-healthy snacks can still fit into a healthy diet. Health-related trends that continue to gain momentum include portion control, high fiber/whole grains, cutting unhealthy ingredients (trans fats, processed sugar, fat, etc.), and natural/organic, even as product portability and convenience remain a top priority across all categories as more Americans graze more frequently on-the-go. Because kids snack even more than adults do, it is critical that snack makers maintain a hold on this young demographic, and attracting consumers of all ages to healthier snacks without severely cannibalizing sales of more traditional, not-so-healthy ones will be the fine line that marketers will have to walk in the coming years.” Marketreseach.com July 2006
Another research company, Report Buyer, published a market research report which found that “the majority (61%) of European and US consumers have sought to improve the healthiness of their snacking in 2007. After all, snacking, despite its historically bad reputation and negative health connotations, remains an important component of consumers’ daily eating and drinking behaviors. It is therefore crucial to understand what influences shoppers’ choices for this growing occasion. For daily snacking, healthy options have emerged as the leading choice to satisfy hunger between meals, while less healthy snacks are reserved for more indulgent treating occasions. More than a third (36%) of Europeans and Americans overall consume healthy snacks once a day or more.”
What this shows is that the information needed by Interstate’s management to make changes in its business before it hurdled into bankruptcy was available from outside sources. However, the executives failed to take action because they failed to see the warning signs others saw so clearly. How could executives who were smart enough to climb to the top of the mountain miss the biggest change in the food industry in decades to respond to the demands of consumers for more healthy options? The answer is quite simple: They lacked objectivity!
Business owners who incorporate bringing in outside experts to analyze the business are engaging in best practice methodologies for business improvement. Moreover, it is an inexpensive way to ensure that the owner is not so insulated from the world around him that he is missing a point of view which will be critical to his long-term success.
On January 11, 2012, Hostess filed for a second bankruptcy reorganization. And, on November 16, 2012 Hostess announced that it was not able to emerge from bankruptcy and would be going out of business entirely. Hostess failed because it failed to reach out beyond itself to seek an objective, third-party point of view.
On March 12, 2013, it was announced that Hostess Brands agreed to sell, which was approved by the bankruptcy court, the rights to its Twinkies, Ding Dongs, Ho Hos. Sno Balls, and Dolly Madison Zingers to two investment firms with a shared history of corporate turnarounds—Apollo Global Management and Metropoulous & Company. The new owners were able to put the Hostess branded snack treats back on store shelves on July 15, 2013. However, one of the most interesting things about the return of the Hostess brand in the marketplace under its new owners was a statement by its new President Rick Saben to the Associated Press that the company is also considering rolling out some “healthier options” such as 100-calorie snack packs, low-sugar snacks, gluten-free and low-sodium cakes to meet the growing concerns of consumers for healthier snack choices. The new owners, who brought to the snack business a fresh perspective, saw that for the brand to survive it needed to expand its offerings to include healthier choices for consumers. It was this failure to see and recognize the importance of changing consumer preferences for healthier snacks by the previous management which spelled the doom of the company.