Mastering decline

Fundamental shifts in the strategic environment present leaders with deep challenges. How can businesses navigate a shrinking market? 

The textiles industry in the western world has all but collapsed. I have experienced its decline first hand, as chief executive for over 30 years of Liebaert Textiles, the company founded in 1887 by my great-grandfather Marcel. Our firm was very successful for over a century, but things changed drastically from the 1990s onwards: our sales dropped by 70% between 2002 and 2022. In our native Belgium, there were 1,000 textiles factories in the 1960s; now, only around a fifth remain. Yet we survived – and stayed profitable, year after year, through the decades of decline.

The story of how we navigated through these challenging years highlights the need for businesses to reinvent themselves on a day-to-day basis, especially when market conditions are tough. In my experience, six areas are key. 

Focus on the human factor 

Your employees are the lifeblood of your organization, so how you treat them is crucial. You may have to make difficult decisions, like job cuts, to ensure the company survives – but treating people with respect is non-negotiable. When your business is in a fight for its life, you need your people on your side. Being honest and transparent with them is crucial, even – especially – when it comes to hard choices.

It is equally important to build a diverse team that is inclusive of different genders, races and religions, as this strengthens your resilience. I advise favoring internal promotion. There are no longer any technical schools dedicated to textiles, so we have to hire people with no experience in our trade. We lose two years training them, then only 10% stay in the company for more than five years: it is hugely costly. But when one of our workers takes on a new position in the company, we know their abilities and they know our products. The only thing we have to invest is time. This approach has had an overwhelming success rate.

Do not neglect your other stakeholders either. Take good care of your suppliers, as they might become more important than customers in the future. But be wary of lawyers and consultants: if you know your business well, there is very little they can bring to the table in a declining business. 

Master your art

Too many managers focus on either finances or sales and marketing, and forget the importance of thoroughly understanding their whole production process. Knowing your cost price structure and your margins is paramount. When I entered our company in 1987, my first task was to salvage our business from bankruptcy. Sales were good, but we had been making huge losses for years. It took me a couple of months to analyze the whole production process and calculate precise costs and margins for every product. I came to the horrifying conclusion that over 50% of our sales were sold below cost! We had to put in place a whole new sales strategy, based on higher margins and profitable customers. It was key to saving the company.

You should also seek to benchmark your company against your competitors on a regular basis. Avoid fighting losing battles: if, in a certain field, you cannot beat them, don’t be afraid to join them – or throw in the towel. I also advise a skeptical approach to diversification. Some wise advisers will tell you that this is the solution to all your troubles, but it takes a lot of trial and error – and you could easily run out of time and money. I have tried to diversify for 20 years, conducting extensive studies into possible relocation to Asia, and investing in projects both inside and outside the textiles industry. They had various degrees of success, but we never found a Holy Grail that could fill the gap left by our melting turnover.

Build a multi-tool organization

A ship in a storm needs a good captain; your team expects and deserves one. I favor a very flexible structure, with a lot of independence between team members – but don’t forget to have a good control toolbox to guide people. 

Promoting horizontal flexibility is paramount – that is, team members should do different jobs and become interchangeable. Good, flexible generalists have the edge over one-dimensional specialists. In our company, hiring is based almost solely on personality and willingness to learn. Through our training program and emphasis on horizontal flexibility, our workers and managers learn different jobs, which enhances their motivation and allows us to use our workforce more efficiently.

If you have to restructure your company, start at the top and do it when you still have cash available, as it is an expensive process. Communicate, be as transparent as you can, be patient (but don’t waste time), and move on with a positive message once the downsizing is over.

Cash is king 

This fundamental truth is as relevant as ever. If you have to count on banks to bail you out, you might as well call it quits right now, especially when interest rates are sky high. To protect cashflow, always try to keep your production processes up to date, but only invest in assets that will bring you money in the short term. We aim for payback in no more than five years.

Know what you are worth

It is an absolute necessity to know the value of your company, and to do that evaluation yourself. In a declining market, the value of your company will be a mix of an asset-based evaluation and an EBITDA multiple. It is also handy to have a worst-case valuation that tells you the remaining value of your company in case of complete closure.

When it comes to managing the finances, there are endless pitfalls. Check everything thoroughly: from inventories to your customers’ payment capacity, your suppliers’ viability, and so on.

Know your environment

Finally, understanding the complex web of laws, rules and regulations that confront your business can be invaluable. Don’t leave this in the hands of third parties. Doing your own homework will give you precious independence and might save the day when you’re confronted by a legal issue.

Liebaert Textiles has defied the odds. We have traded exuberant growth for corporate efficiency and adapted to changed circumstances. Fortunately, new opportunities are around the corner. We are better prepared than ever to seize them. 

Alain Liebaert is chief executive of Liebaert Textiles, and author of Mastering decline: Stories and lessons from a company making profit against the odds (LID Publishing).