While new products are regularly launched behind large marketing campaigns, research shows it is often the same products that continue to drive revenue for companies (i.e. Nestle, P&G, Johnson & Johnson just to name a few). This means many products (or services) must be discontinued or wound down for a company to continue to succeed. However, you cannot just “turn off the light switch” - wind downs are complicated and must be treated as such.
What are some of the reasons a company might wind down a product or service?
There are three main reasons a company might choose to wind down a product or service:
- An acquisition did not work out - after an acquisition, the acquirer might be left with a business unit that is problematic and not reaching its potential and, therefore, it will choose to wind it down.
- Change in market value - changes in the market lead to changes in a business unit’s market value and, consequently, a decline in its revenue.
- Change in strategy - the company might switch its overarching strategy, which means it must refocus energy and resources often resulting in the winding down of one of its business units.
Here we should note that before moving fully forward with a wind down, companies often consider divestitures as an option.
How do you best plan for/approach a wind down?
Wind downs do not come with a playbook or a templated task list, rather there are factors to carefully consider when planning how soon the wind down will take place and how it will be handled. The starting point is based on the answer to the question, “what is the critical path?”, "What is most critical for your company to begin with?". Perhaps the answer is customer obligations; in other instances, it might be contract restrictions. Overall, these factors include:
- Contracts - are there contract restrictions you must be prepared to work within?
- Customers - it is paramount to “do good by” your customers because you might work with these customers again and/ or desire your customers to transition to a new product or service. Even though your company is winding down a business unit, you are still a functioning company and maintaining a good reputation is key.
- Employees - employees are a major component of a wind down; labor laws also come into play here (since labor laws are country and state specific, you must take a careful view).
- Data/IP - the data and Intellectual Property associated with the business should be carefully reviewed. You will need to decide how long the data should be kept and if there is any IP to harvest.
- Finances - the financial team obviously has a prominent say in the wind down decision and process; the financial benefits of the wind down clearly need to be discussed and analyzed.
Again, when it comes to prioritizing the above factors, it depends upon the company’s long term goal.
What resources and functions are involved in a wind down?
Just like in M&A, winding down a business unit involves the whole gamut of functions, such as sales, marketing, HR, IT, finance, and legal. Usually the last function involved during a wind down is the “workplace services function.” Workplace services is the one to “turn out the lights.”
What are the assets you should try to protect during a wind down?
The following are assets you will be trying to protect during a wind down:
- Employees and customers
What are some obstacles companies face when winding down a product/service?
Unfortunately, while the structure and involvement of functions are similar to M&A during a wind down, the excitement is not. This means you and your teams must tread carefully. Common obstacles revolve around:
- The inability to plan for everything - the pandemic is a prime example of this; wind downs bring many implications with them - they touch many groups and, therefore, while you can do your best to plan thoroughly, new obstacles often arise.
- Legal pitfalls - it is important to have a strong legal team during a wind down, and this legal team should review everything; failure to do so will result in more obstacles.
What should customer communication look like during a wind down?
Again, two of the biggest assets you will be trying to protect during a wind down include your employees and customers. Customer communication best practices for a wind down include:
- Bringing in the sales people who best know the customer and the specific products and services tied to each customer.
- Prioritizing top customers with your sales team and taking a “white glove” approach since you cannot have the same plan for all customers. This means being transparent about who you are and why, and what the future might look like.
- Helping the customer through the transition. How can you reduce the pain of the transition for the customer during the wind down? Perhaps you can provide enough product to get the customer through the transition or maybe you can offer a discount on the product that will be wound down.
Ultimately, being empathetic when it comes to the customer experience during a wind down will work to maintain a positive relationship and reputation.
How can you reduce media induced panic during a wind down?
Headline and media coverage can shift the public perspective of a wind down; therefore, you want to take a similar approach to the media as you do with your customers. Leading with honesty in your press release (which should cover where you are, what you are doing, and why) is important; if you do not include the “why,” the media will often spin the wind down into a “ship is sinking” narrative. Moreover, it would be a mistake to try to avoid the media by not releasing a press release.
What should companies know about legal entity planning?
Legal entity planning should revolve around the following questions and actions:
- Have you integrated the legal entity?
- What are the dependencies?
Once you determine the dependencies, you must consider what will be done with them. Remember the legal entity is cross functional, and actions must remain focused on what is in the best interest of the company.
What are some big picture best practices when winding down a business unit?
Again, every wind down will be different, but a summary of best practices includes the following three:
- Providing clarity on what you are trying to do - from the CEO or President, or whoever is in charge.
- Assembling a strong team; while this is not earth shattering, having the right people involved makes the process more efficient and thorough.
- Putting a robust communication plan in place; everyone on the team must be on the same page, and again, this must be clearly communicated to customers, employees, and the public.
Without the above, there will surely be more “learning on the go” and obstacles throughout the process.
Wind downs can be a very wise strategic decision for companies, though they do not often get the same attention as other M&A activity. They cannot be forced into a neat playbook, but knowing what to focus on and the importance of proceeding carefully can make for a smoother process.