Yesterday, United States President Barack Obama told American automaker GM what most of us have known for at least the past several months: right now, the beleaguered automaker is in no shape to stay in business.

GM's CEO Rick Wagoner stepped down at the request of the Obama administration and the company has little time to prove to the US government that it can right the ship or it will not be given the additional government aid it can't survive without.

You can be sure that business schools around the world will study the downfall of GM, which at one point was the most powerful automaker in the world.

Unfortunately, the reality is that many businesses both large and small make many of the same mistakes GM has been making for years. The only difference: they don't make them on such a grand scale.

Is your business making some of the mistakes that have brought GM to its knees? Here are some of them that you should recognize and avoid if you don't want to follow in GM's footsteps.

Don't bury your head in the sand. It's human nature to ignore negative facts and inconvenient truths. Everyone wants to believe that things will work out eventually. Sometimes things do work out, but more often they don't. Without correction that is. That's why it's important to recognize problems and challenges that are having an impact on your business sooner than later. By doing this, you can find ways to deal with them before it's too late.

Study your competition. The events that led to GM's demise started decades ago when GM's foreign competitors started making inroads into its markets. GM's hubris blinded it to the possibility that its competition was a real threat and consequently GM failed to study its competition. Good companies are always looking for ways to stay ahead of the competition. What can you learn from the competition? What vulnerabilities does the competition have? You won't know if you don't pay attention to it!

Build for the bad times. GM was in almost all aspects built for good times. It seemed almost oblivious to the possibility that its operational structure and costs were not sustainable and that they'd be absolute company-killers if there was an economic downturn. Smart companies plan for the best and prepare for the worst. If your market tanks, how will you survive? If a major customer leaves, will you be able to make payroll? If you have to, how easily can you scale down? If you're not asking these questions, you should be.

Know when it's time for a management change. There are lots of reasons why a company might need a management shakeup. Perhaps top executives aren't performing. Perhaps the current CEO is the founder and was better equipped to manage the company during its formation, when the job duties were different. In all cases, good companies recognize when fresh blood is needed at the top and they take action to make sure that it gets there.

Have the courage to make tough decisions. GM buried its head in the sand for a long time but it wasn't completely clueless until yesterday. One of its biggest problems: it wasn't prepared to make tough decisions. If your business is to succeed, you need to be because making tough decisions can mean the difference between success and failure.

Know when to fold 'em. Sometimes it just doesn't work out. Lots of businesses fail. But don't fail spectacularly. If you find yourself in the undesirable position of having a business that is failing, you can often do a lot of good by facing up to the fact sooner than later. By reading the writing on the wall, you may be able to sell off the business or parts of it, save jobs and prevent total shareholder loss. That's not only the smart thing to do for everyone involved, it's the right thing to do.

GM is on the brink of going down as one of the most tragic corporate failures in the annals of business history but make no mistake about it: it chose this path. You don't have to.

Photo credit: richardefreeman via Flickr.

Patricio Robles

Published 31 March, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (4)



Your advice is good but the thing is will those business schools be pointless in a country that controls business. I see now that Barney Frank is seeking a bill to limit how much any employee recieves in the companies that received financial aid.

It was interesting to watch yesterday how Wall Street reacted to the news of Wagner’s government led extortion force out. I was watching gold too with the widget and even it bumped up in what I figured was fear of what this new government control meant.

The whole idea of the government going in to the auto warranty business nearly made my head explode when Obama was talking about it. Can you imagine the paper work to get a car serviced? It’s crazy. It’s just adding to the deficit.

I think the next shoe to drop is going to be the commercial real estate market. Banks are in a big way in that market so, I’m looking for that to be the next big crisis.

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I think the next shoe to drop is going to be the commercial real estate market. Banks are in a big way in that market so, I’m looking for that to be the next big crisis.

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