Death Spiral

Spirals

Death spiral, also known as graveyard or suicide spiral, is a borrowed term from aviation.  The original meaning is a disoriented pilot that depends more on his/her senses than the panel instruments as the plane heads in a downward to death. Investigators believe it was these conditions that caused the death of John F. Kennedy, Jr.  Experts have approximated the pilot has only 148 seconds to correct or die.

This is a somber analogy, but applying it in the business sense, the concept can have the same effect.  And, although we have more than 148 seconds to correct our course, the outcome could be similar if proper strategies are not placed.  In cost and managerial accounting, the term death spiral is applied to the repeated elimination of products resulting from spreading costs on the basis of volume, rather than their root causes. 

An organizational death spiral it a long, declining process of a company and within that context of losing life, employees are grasping at straws for survival. We've seen this happen in large corporations like Sears, JC Penneys or Best Buy. Often the result of a larger competitor, we've seen the opposite happen with WalMart and Amazon, who overshadow the smaller businesses because of lower prices or convenient shopping.

The second type of death spiral can occur with a lack of strong leadership. Those remaining will follow anyone who appears to be in control, blindly following  the leader off the cliff...much like the old video game of Lemmings.

Survival

Some companies will have the foresight to close gracefully. Merging, selling or liquidating will take place and everyone walks away a little wiser for having endured the situation.  In the case of companies based in the heydays of the early 20th century, we're seeing a slow decline due to newer, better products or they've become obsolete.  

In today's world, analyst's attribute lack of focus or doing too much at once as the contributing factor in the death spiral.  However, many companies are learning to survive because they've remained open to change, partnering with larger companies.  Smaller companies are taking a look at their #1 marketing opportunity and focus completely on that. There's a wise saying, "Jack of all trades, master of none", emphasizing if you can do one thing well, it's better than doing 4 mediocre.

I could go on and on about this, but if your business is struggling, do a quick review to see if any of these situations apply.

You've got this!

Matthew

 

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