If you want to talk about the cost of not paying attention to warning signs, dig this story…

When an explosion rocked Apollo 13 on April 13, 1970, astronaut Jack Swigert said, "Houston, we’ve had a problem". A problem? That turned out to be a giant understatement. As soon as one problem was solved, another one emerged that the astronauts and the NASA crew on Earth had to overcome. They stopped oxygen leaks, wrote new procedures, dealt with power losses, water shortages, sleep deprivation and carbon dioxide build-up … all the while figuring out how to get the astronauts back to Earth alive.

After the crew landed safely in the Pacific Ocean, the mission was classified as a "successful failure" because the crew was rescued. When the command module was analyzed, NASA determined the explosion was caused by an oversight during adjustments made several years earlier to the permissible voltage to the heaters in the oxygen tanks. Making matters worse, warning signs during testing before the launch went unheeded. The "oversight" didn’t become apparent until the explosion occurred 200,000 miles from Earth, when it created a crisis that put the astronauts’ lives in severe danger.

O.K., so maybe it’s not the stuff movies are made of, but it’s like that when businesses fail. Poor planning, under-capitalization, and bad decisions produce early warning signs that, if left unheeded, will lead to crisis and failure. It’s like business owners / executives all of a sudden wake up one day and say, "Wow! My business is going to hell in a hand basket!" Now, if they would have had their eyes open, they would have recognized at least one of these thirteen warning signs:

1. The Omnipotent Ruler: The company depends too much on one person who does everything. A classic Type A personality, this person is an autocratic manager who controls every decision and can’t delegate authority or train new management. The result is over-extended management, unclear lines of authority, and a dictatorship (not necessarily benevolent).

2. The Black Box: Nobody knows what anybody else is doing. Knowledge is perceived as power, so nobody wants to share it! Communications between departments, management, and employees are ineffective or non-existent; meetings are unnecessary or ineffective; and interdepartmental coordination is poor.

3. The Revolving Door: If management is spending a lot of time with "help wanted" ads and training new employees, the company probably has excessive employee turnover. If turnover is caused by management’s neglect of employee morale issues and ineffective compensation / incentive programs, there’s a disaster waiting to happen. High employee turnover results in decreased productivity and, ultimately, lost business … then you’ll be the last one out the door!

4. The Rudderless Ship: The company is operating without a strategic and/or business plan. Or, if there is a plan, the corporate goals are not understood, achieved, or communicated to employees. When this happens, companies become reactionary to customer wishes and competitive factors, losing sight of their core business. Particularly if it is a family-owned business, the lack of a succession plan and careful grooming of a new president can be dangerous. And, the business plan should take into account the company’s financing needs at each stage of growth to ensure sufficient capitalization.

5. The Dogs Won’t Eat It: Have you heard the story about the dog food company’s sales meeting? The chairman was standing at the podium in front of 500 sales people from across the country. He asked, "Who has the best packaging in the world?" The audience answered with a resounding, "We do!" "And who has the best looking dog food in the world?" "We do!" "And who
has the most highly compensated sales force in the world?" "We do!" "And who has the best marketing in the world?" "We do!" "Then, let me ask one more question --- why aren’t we selling more dog food?" Silence. Then, the young, frail-looking sales person from Gary, Indiana raised his hand. "Yes, you over there?" said the chairman. The sales person stood up and said in a rather shaky voice, "Sir, it’s because the dogs won’t eat it."

If the company is experiencing declining business from established customers or the company’s core market, it is out of touch with its customers and its market place. This problem is made worse if the company is dependent on a single customer that accounts for more than 70 percent of the company’s business. Also watch for an increase in returned goods and customer complaints and late or slow delivery of products.

6. Looking Through the Rear-View Mirror: Lack of timely and accurate financial information results in poor decision-making. Managers must have timely financials --- and not just a monthly profit and loss statement. If management doesn’t operate from an up-to-date cash flow statement, they’re just driving while looking through the rear-view mirror.

7. The Habit of Losing: Vince Lombardi, the famous Green Bay Packers coach, is quoted as saying that winning is a habit, but unfortunately, so is losing. If the company has a history of failed growth strategies due to lack of cash, management expertise, or poor market analysis, this is a sign of trouble. These failures will have drained the company’s cash, wasted time, and bruised employee morale, which often create reluctance for employees to embark on new expansion plans.

8. The Failure of Success: Uncontrolled growth in one area of the business (usually sales) causing management to focus only on that aspect of their business and neglect other supporting functions such as quality control or operations. Or, a company growing out of control can quickly become unmanageable with existing information systems and management skills.

9. The President’s New Mercedes: Profits aren’t put back into the business, but are spent on luxuries or deposited into the owner’s retirement portfolio. It’s tempting to enjoy quick profits, but dangerous to the long-term health of the company’s business if machines and technologies aren’t at least keeping pace with the competition. An autopilot management style will cause the company to fail to adapt to new technologies or change with market changes.

10. Banker Hide-N-Seek: If the president is avoiding the banker’s phone calls, there’s probably a problem somewhere. It’s natural to clam up when there’s bad news to report, but the result is only an adversarial relationship. Remember that it is in a banker’s best interest to work with his or her customer. Bankers usually will extend loan terms if the customer can show they have a clear plan to over come their problems.

11. Titanic Governance: (Oops … that’s a different movie.) Too many boards argue over what sheet music the band should play, as opposed to focusing on the fact that the ship is sinking. Failure of the board of directors to diligently oversee the company’s strategies means no one is, ahem, steering the ship. If board meetings have become routine and boring, it’s time to shake things up. Don’t just give reports about how great management is doing; engage board members into serious discussions about the company’s operations and its future. Believe it or not, conflict at board meetings can be good.

12. The Vendor Squeeze: No, this is not a new yuppie drink; I’m referring to when the purchasing manager’s hair is turning gray prematurely and his phone is constantly ringing. That’s a sign that the company’s cash has been getting tighter and bills are going unpaid, resulting in increased trade credit difficulties and restrictions. If the company is C.O.D. with its vendors, the death spiral may have begun.

13. The Cold Molasses Pace: Delays in returning phone calls and delays in submitting financial statements to banks, lenders, suppliers are signs of trouble. Distressed managers are either too busy handling customer complaints or are too far into denial and depression to handle simple things like returning phone calls and doing routine reports.

It’s easy in our break-neck speed world of business to rationalize or ignore tell-tale signs of trouble. But, unless you want a "successful failure" on your hands, you best pay attention to the early warning signs of trouble. I can assure you that if you don’t, you too will feel like you’ve experienced an explosion 200,000 miles from Earth… but you won’t have the help of NASA.