The Four Categories of Small Business Health – And Their Strategies

7 September 2009

As I’ve talked with small businesses recently, they’ve generally fallen into four categories of health. The differences in health that show through in those categories have significant implications for the strategies that they should focus on. Similar to Maslow’s Hierarchy of Needs, less healthy businesses should be focused on more fundamental business issues, while healthier businesses should be focused on higher-level development.

Growing Businesses

Growing businesses are aligned with the forces of the new economy, and are experiencing positive business dynamics. Growing businesses should be pressing their advantage – which sounds easy, but when times are good and you’re managing growth, it’s often hard to recognize weaknesses or motivate people to change. (Just ask the leaders of businesses that are experiencing a downturn, and wishing that they’d improved their businesses when times were good.)

Sustaining Businesses

Sustaining businesses are about break-even with where they were before the downturn, and are holding their own, probably because part or all of their business addresses a basic need or aligns with the dynamics of the new economy. Sustaining businesses should be identifying which of their markets and offerings are healthy, which should be cut, and what new opportunities they should be investing in – to get them into the growing business category.

Weak Businesses

Weak businesses are meaningfully, but not critically, below where they were before the downturn, and are likely in the process of assessing how deeply their business model, focus, structure, and/or team need to change. Weak businesses should be figuring out their new business model, focus, structure, and/or team right now, so that they can act on the changes – to get them into the Sustaining Business category.

Failing Businesses

Failing businesses are in the process of changing their business models. Failing businesses should be identifying what assets and resources they have to build a new business on – their operating value has essentially stopped, and the question is what value to mine from the remains to form a new way to create value.

Positioning for 2010

I believe there is a strong case that the economic weakness will continue through 2010. Management teams cannot afford to hope that outside forces will make it easier to deal with any challenges they see. (An owner I talked with last week has a sign in his office with a line through the word “hope.”) The only way for those challenges to get easier – in fact, to turn into opportunities – is for management teams, as early as possible, to actively assess and plan how the business will handle those issues. If you wait to assess and plan key issues, it will increase your risk and reduce your options – a terrible combination if 2010 turns out to be another tough year overall.

Believe it or not, September is the time to start planning for 2010, so that when your planning meetings arrive in November or December, you’ve identified the right issues to focus on, assessed those issues, and prepared adequately for the discussions. A hastily-prepared discussion of a strategic issue rarely accomplishes what the leadership needs it to.

So, if you want to be ready for 2010, look at the business categories, assess honestly where you are, and start now to work on the issues I’ve outlined above.