The Big Idea

Long ago, coal miners would put caged canaries in their tunnels. If the little birds fell silent or dropped, this would alert the miners of the presence of poison gas. This way, many miners were able to escape unhurt. The business environment you live in is very much like those treacherous mines. Hundreds of employees are laid off everyday and more and more companies are filing for bankruptcy. As a manager, you must learn how to detect threats to your business before disaster strikes.

Corporate canaries are exactly like those real-life birds that saved hundreds of miners from certain death. "Canary" ? warnings will tell you whenever your business is threatened, enabling you to stop the bleeding even before it starts.

There are five canary warnings:

Canary Warning # 1 - You Can't Outgrow Losses

A lot of businesses fail because management chose to chase after sales, instead of focusing on making profit. What you must realize is that getting more sales is only secondary to making sure that those new sales add new profits.

Few people fail to realize is that every new sale that comes in means added expense to the company. As a result, a new sale does not automatically mean an increase in profit. In fact, it could very well be the other way around.

Before a company can think of getting bigger, it must get better. It would be more ideal to cut overhead costs to fix a company's profit margin than to take on an influx of new customers.

Canary Warning # 2 - Debt's a Killer

Most companies are in debt. Although a little debt can't hurt anyone, a lot of corporations who borrow excessively should be made aware that they are putting their companies at grave risk.

In a healthy economy, companies often make more than enough money to pay off the interest rates on their loans. Unfortunately, there is just no guarantee how long an economy can stay healthy. In fact, even the smartest person from Wall Street can not predict for certain how the market will react tomorrow.

Canary Warning # 3 - Fools Fly Blind

If your company has no control over costs, then trouble lies ahead. Most people mistake this idea with the concept of cutting costs. Control has nothing to do with cost cuts. Rather, controlling costs means having an adequate understanding of all the factors involved.

You must understand where your profits are coming from. You must understand what matters. A thorough understanding will enable you to make masterful decisions in advertising, representation expenses, and the acquisition of new technology. When you understand costs, you are able to make decisions based on what is profitable for the company.

Canary Warning # 4 - Any Decision Beats No Decision

Confusion can be a source of tremendous problems in any organization. You must remember that a clear sense of direction promotes efficiency throughout the company.

Canary Warning # 5 - Markets Grow and Markets Die

The market is continuously changing. The products that were the craze some years back are now considered obsolete museum artifacts. A company must learn to evolve or must be ready to give up its place in the industry and die.

One of the first things you must learn is that it is impossible to fix a dying market. As a manager, there is nothing you can personally do to resurrect what is soon going to become obsolete.

The Big Lesson: Defense Matters Very much like in ball games, both offense and defense matters. You must watch out for the five canary warning mentioned above. By utilizing a strong defense and watching out for signs of trouble, you will be able to execute a better offense.

About the Author:

Gary Sutton is an author, top-rated speaker, and veteran business turnaround expert. Over his acclaimed twenty-year career, Sutton has taken over and revitalized troubled businesses, turning these money-losing companies into cash generators. Sutton sits on twelve boards today, and he has been a highly rated speaker at the MIT Forum for fifteen years. He also has appeared on MSNBC, CNNfn, CBS News, and NPR. He's been covered by or written for the Wall Street Journal, BusinessWeek, and Fortune, and cover stories on him have appeared in Fast Company and Directors & Boards.