When a business with 188 years of history enters voluntary administration, it gets attention. But for SME owners, the more useful question is: what can we learn from it?
David Jones entered voluntary administration in November, with its 38 stores and online business continuing to trade while administrators and receivers assess what comes next. Rising costs, its retail footprint and supply chain challenges were among the factors cited by receivers.
It would be easy for an SME owner to look at a business of this size and think, “That couldn’t happen to us.” The scale is different. Many of the pressures aren’t.
Changing customer expectations. The challenge of staying relevant. Margin pressure. Rising costs. New technology. Legacy structures. Stronger competition. And one of the hardest questions in business: when is it time to change course?
Earlier this year, David Jones was publicly talking about its turnaround. It reported improved EBITDA, lower costs of doing business and growing online sales, even as reports pointed to substantial pre-tax losses.
There’s an important lesson in that. One improving number rarely tells you enough.
You need to understand what’s happening across your business, what the numbers are telling you together and, most importantly, where they suggest you’re heading.
Here are eight questions we think every SME owner should be asking.
Is your business still relevant to your customers?
A strong reputation is valuable. But being well known and being relevant aren’t the same thing.
One useful way to think about relevance is through three things: awareness, desire and loyalty.
Awareness means customers know who you are and understand what you offer. That might come through marketing, referrals, word of mouth or simply years of being in the market.
Desire gives them a reason to choose you. It might be your product, expertise, service, convenience, quality or price. Whatever it is, customers need to value it enough to choose you over the alternatives.
Then there’s loyalty. That’s what keeps them coming back. It comes from consistently delivering what customers expect and maintaining their trust.
The strongest businesses connect all three. Customers know them, want what they offer and trust them to deliver.
But relevance can change.
A business can have enormous awareness and decades of history while the desire or loyalty that once drove its success starts to weaken. New competitors emerge. Technology changes expectations. What once made a business distinctive becomes standard or simply less important to customers.
Retail makes this particularly easy to see, but it’s not just a retail issue. HLB’s retail research found that sustainable relevance comes from consistent quality and customer relationships, rather than relying on discounting alone. The same principle applies to an SME in almost any industry.
Ask yourself: do customers know what we stand for? Do they still want what we offer? And are we delivering consistently enough to keep them coming back?
If one of those starts weakening, it deserves attention.
Do you know what your customers value now?
Relevance changes because customers change.
Competitors change. Technology changes how people research, compare and buy. The reason customers choose your business ten years ago may not be the reason they choose it tomorrow.
That applies whether you employ 20 people or 20,000.
Ask yourself: why do customers choose us today? Is that changing? What do they expect from us now that they didn’t five years ago?
Don’t assume yesterday’s successful proposition will be tomorrows.
Are you looking beyond revenue?
Revenue can look healthy while problems are building underneath.
In April, David Jones pointed to a 325 per cent increase in EBITDA for the first nine months of the financial year, although no base figure was provided. Reported pre-tax losses for the previous financial year were $95.5 million. Months later, the business entered administration.
For SME owners, turnover is only part of the picture.
Gross margin, operating margin, cash flow, debt, working capital, debtor days and profitability by product, service or location can tell you much more about the health of your business.
Growth matters. Profitable, sustainable growth matters more.
Do you know which costs create value?
Keeping costs under control is essential, particularly when wages, rent, finance and other expenses are rising.
But not every cost is simply a cost.
Cut too deeply into the things customers value and today’s saving can become tomorrow’s problem. If fewer people means slower service, cheaper materials affect quality or reduced marketing makes your business harder to find, the saving may come at a much greater commercial cost.
There’s a relevance question here too. If service, quality or convenience is part of the reason customers choose you, cutting into it can weaken the proposition you’re trying to protect.
Strong cost management isn’t about cutting everything. It’s about understanding where every dollar works hardest for your business.
Is technology solving the right problem?
Technology can transform a business. But investing because everyone else is doing it isn’t a strategy.
David Jones reported 10 per cent growth in online sales earlier this year following significant investment in its Vision 2025 strategy. Digital growth alone, however, wasn’t enough to address the broader challenges facing the business.
For SMEs, any significant technology investment should begin with a commercial question.
Will this improve the customer experience? Reduce costs? Give you better information? Increase capacity without increasing headcount at the same rate? Reduce risk?
Start with the problem. Then find the technology that helps solve it.
Are you watching the competitors you can’t see yet?
Your biggest competitive threat might not be the business you’ve always watched.
Department stores aren’t only competing with other department stores. They’re competing with specialist retailers, online marketplaces, global brands and direct-to-consumer businesses.
The same thinking applies to SMEs.
Instead of only asking “Who are our competitors?”, ask: “What other ways can our customers solve the problem we solve for them?”
Then ask another question: what are those alternatives offering that customers increasingly value?
It could be price, convenience, speed, technology, expertise, service or a completely different way of delivering the same outcome.
It’s a simple exercise, but it can uncover both risks and opportunities early.
What are you holding onto because it worked in the past?
David Jones entered administration with 38 stores, and its receivers have indicated that reducing its retail footprint is likely to form part of the restructuring process.
For an SME, the legacy might be different. It could be an unprofitable product, an expensive property, an outdated system, an old pricing model or part of the business you’ve invested years building.
Past investment alone isn’t a reason to keep investing.
Sometimes the difficult decision isn’t fixing something that has failed. It’s recognising that something which has worked well for years may no longer suit the business, market or customer you have today.
One question can cut through the noise: if we were starting this business today, knowing what we know now, would we make the same decision?
If the answer is no, it’s worth exploring why.
Are your numbers telling you what could happen next?
Historical accounts tell you where you’ve been. To make good decisions, you also need a clear view of where you could be heading.
A profit and loss statement from three months ago won’t necessarily show you a cash flow squeeze six months from now.
That’s where forecasts, budgets and scenario modelling earn their place.
What happens if sales fall 10 per cent? If wages or input costs rise? If a major customer leaves? How much cash headroom do you have? Which parts of the business remain profitable under pressure?
And what happens if customer behaviour changes? If customers buy less frequently, become more price-sensitive or move towards a competitor or alternative product?
These aren’t questions to save for when cash gets tight.
David Jones’ administration followed unsuccessful negotiations with key landlord Westfield, while receivers cited rising costs and its retail footprint among the factors contributing to its position.
For an SME, forward-looking information creates choices. The earlier you can see pressure building, the more options you’re likely to have to respond.
The bigger lesson: act while you still have choices
David Jones is an iconic Australian business, and voluntary administration doesn’t necessarily mean its story is over. Its stores continue to trade while restructuring, recapitalisation and ownership options are explored.
For business owners, the bigger lesson isn’t simply about avoiding failure. It’s about recognising change early enough to do something about it.
A strong brand, loyal customers and years of success are valuable. But they don’t replace a clear understanding of your numbers, your customers and where your market is heading.
Relevance rarely disappears overnight either. Customers might buy a little less often. A competitor becomes more attractive. Price becomes more important. A product or service that once stood out becomes easier to substitute.
Individually, those changes may not look significant. Together, they can tell you something important about where your business is heading.
The businesses that navigate change well aren’t necessarily the ones that avoid disruption. They’re the ones that spot what’s changing, understand what their customers and numbers are telling them, and act while they still have choices.
So rather than only asking, “How did we perform last year?”, there are two more useful questions to ask:
“Why will our customers keep choosing us?”
And:
“What do we need to change today to put this business in a stronger position tomorrow?”