The Right Way To Wind Down A  Business Unit

While new items are normally launched after huge promoting efforts, research shows it is frequently the similar items that keep on driving income for organizations. This implies numerous items (or administrations) must be stopped or discontinued for an organization to keep on succeeding. However, you cannot just “turn off the light switch” – wind downs are confounded and should be treated thusly.

What is a wind down?

At the point when a specialty unit or product offering no longer fits with an organization’s general procedure, an organization will decide to wind it down. Notwithstanding, this choice has numerous ramifications for workers, clients, agreements, sellers, and producers.

There are three principle reasons an organization may decide to wind down an item or service:

1. An acquisition did not work out – the acquirer might be left with a business unit that is not reaching its potential and is problematic and after an acquisition.
2. Change in market value – changes in a business unit’s market value due to changes in the market consequently, causes a downfall in its revenue.
3. Change in strategy – the overarching strategy of the company must have changed. Hence, it must refocus its resources and energy, often leading to a shut down in one of its business units.

However, companies often taken into consideration divestitures as an option before they can move ahead fully with a wind down strategy.

What is the best plan/approach for a wind down?

There are factors to consider while planning how fast the wind down will take place and how it is going to be handled. The starting point is based on the answer to the question, “What is most critical for your company to begin with?” Perhaps the answer is customer obligations; in other instances, it might be contract restrictions.

The factors include:

1. Finances – financial benefits of the wind down clearly need to  be discussed and analyzed.
2. 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.
3. Customers – Even though your company is winding down a business unit, you are still a functioning company and maintaining a good reputation is key.
4. Contracts – are there contract restrictions you must be prepared to work within?
5. 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).

It depends upon the company’s long term goal on how to prioritise the above factors

What functions & resources are involved in a wind down?

Just like Mergers & Acquisitions, winding down a business unit involves the whole gamut of functions, such as HR, IT, sales, marketing, finance, and legal. Usually the last function workplace services function, it is the one to “turn out the lights.”

What are the assets you should try to protect during a wind down?

1. Employees and customers
2. Intellectual property
3. Inventory and stock

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:

1. Legal pitfalls – the legal team should review everything; failure to do so will result in more issues.
2. The inability to plan for everything – the current pandemic is a prime example of this.

Conclusion

It can be a very sensible strategic decision for companies to wind down, though they do not often get the same attention as other Mergers & Acquisitions activity. They are not a neat playbook, however, knowing what to focus on and the importance of proceeding carefully can make it successful.