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REFOCUSING AFTER LOSS OF MAJOR ACCOUNT

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Background and challenge

For 15 years, company grew from 0 to $35M in revenue and 65 employees, providing high level conceptual design, structure design and project management services.

Throughout the first 10 years, profit increased constantly, trailing the growth in revenue. However, with time, though company increased revenue, the bottom line stopped going up and profit levels dropped.

When the company lost a major account, it was caught vulnerable and not prepared and for the first time in its history, produce a loss.

 

Analysis

When learning an analyzing the company’s history and current performances, we identified the following:

1. With time, the company kept hiring at a faster pace than its revenue growth. Efficiency and employees production dropped leading to falling revenue and profit for head ratios.

2. Competition leading to lower gross margins.

3. During the 3-4 years leading to the loss, the company strayed away from time to time from its core business. That included two main situations –

– Bidding on deals, and taking on deals, with components the company had no experience with.

– Launching a new line of service the company had no previous experience with.

These attempts not only led diminishing gross profits as the company did not know how to  service new opportunities efficiently, but also used tremendous amount of management  resources and attention, that was needed for the company’s core business.

 

Solutions

We created a restructuring plan that included the following components –

  • Redefinition of the company’s core business and decisive decision to take only deals that fall within certain criteria

  • Spin off of the new line of service the company had launched.

  • Redesign of Organizational chart including analysis and new definition of job description.

  • Internal operational processes improvement and designing

  • 35% work force reduction

 

Results

It took about 2 months to learn the situation and come with a plan, and then another 2 months to get board members, management and other key employees adopt our recommendations.

It took another 5 months to complete restructuring, painful work force reduction and spin off.

We were able to avoid another loss at that year and generated minimal profit. Revenue increased in the following year and profit level got back to normal.

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