As a consultant, I get a kick from watching reality TV shows like Rescue Chef, Hotel Impossible, Restaurant Impossible, and Bar Rescue.
These shows basically follow the same premise. Each episode features a particular business struggling with problems and not living up to its full potential.
Professional expertise is offered in order to save the business from closing. The expert examines every aspect of the business to determine its operational and service weaknesses. Results are discussed and recommendations are made for physical, cosmetic, or procedural changes needed to achieve profitability.
Interesting is the epilogue. According to data for Bar Rescue, only 55 percent of the businesses featured were able to overcome their challenges.
In most cases, the biggest problem turns out to be the business owners themselves. Of course, these are TV shows. In real life, dysfunction within a family-owned and operated business is usually not the biggest challenge to overcome.
Instead, we find operators grappling with issues such as access to capital, new competition, COVID restrictions, etc.
These are externalities that impose costs (reduce profits) over which car wash operators have no direct control.
For example, consolidation in the banking industry has eliminated many local banks making it more difficult for mom-and-pop operations to borrow money. These lenders are physically distant, many lack understanding of the local market, and have made credit scores, debt coverage ratios, and years of profitability key drivers of decision making.
Consolidation within the car wash industry has changed the competitive environment for some operators. This may include someone building a new store too close to an existing store, or building a store in an area where the population is already being served efficiently. Some operators face declining customer bases as firms and people relocate to areas that have more economic freedom.
Consider recent moves of Oracle, Tesla, and a host of others from California to Texas whereas, on the east coast, Florida is fast becoming the second home for Wall Street and tech companies.
Situational analysis is a crucial aspect in finding a practical solution to a problem statement. Purpose of this analysis is to evaluate the internal and external environment to gain an understanding of a company’s capabilities, its customers, and the marketplace.
There are a number of formal methods to accomplish this such as 5C’s, SWOT, PEST, and Porter’s Five Forces.
However, if deconstructed, situational analysis can be as basic as answering three questions. Where are we, where do we want to go, and how are we going to get there?
For example, if the problem statement is a new market entrant, “where are we” is going to require an analysis of company finances (i.e., balance sheet, P&L), operations, facility, equipment, the competition, and available market opportunities.
Here, an appropriate objective strategy would depend on the results of this analysis and how risk adverse the operator is.
If the decision is to preparefor battle, “how to get there” may involve an attempt to create a competitive advantage by means of differentiation, niche, or cost strategy.
Conversely, if the decision is to surrender, an exit strategy will need to be defined, related to the industry model, and potential buyers identified.