Here in Chicago we have a convenience chain called White Hen. The stores have been a fixture in Chicago for 4 decades. But they are about to all disappear. That is, the remaining ones. Although the chain is being bought by the much larger 7-11 chain, there is no premium being paid for the company. On the contrary, investors are losing money on the sale. Sold in 2000 to Clark (a gas station operator) for $80million, the company went bankrupt and was acquired by management in 2002 for $45million. Now, 7-11 is paying $35million. So what happened?
During those 6 years, White Hen shrunk from 245 stores to 206 in Chicago. This may not sound like a huge problem, but for a debt-laden acquired company losing 16% of capacity is enough to drown it. In short, the management of White Hen spent too much focus on trying to generate fast profits, and not enough recognizing the need to grow. They kept trying to cut size and cost to create more profits, and in the end they simply cut cash flow and killed the company.
White Hen is a microcosm of what we see in far too many companies today. They forget that either you win, or you lose. You can’t simply "mark time" and try to tweak the profit model. Competitors today won’t let you do that, they are too smart and too capable. Today, you have to keep innovating, meeting Marketing Challenges, creating new Success Formulas — or you lose. There is no tie. You win, or you lose. And the leadership of those companies trying to follow the example of White Hen (such as Sara Lee and Sears) should take note of this example.