In The Walking Dead, Rick Grimes offers hope amidst the apocalypse: “If we start tomorrow right now, no matter what comes next, we’ve won.”
This rings true not just for survivors in a zombie-infested world, but also for businesses teetering on the edge of becoming zombies themselves.
Zombie companies are businesses that, for three years or more, have failed to make enough profit to cover their debts. They survive solely on external funding—their only lifeline is their ability to borrow money. While they might appear stable from the outside, they’re merely covering up deeper operational or financial issues.
Rates of zombie companies have surged in recent years—roughly 10% of companies in the U.S. are now considered “zombie firms.” This concept gained prominence in 1980s Japan, when, during a period of economic upheaval, the government allowed companies to defer debt payments. Instead of using this cash influx to restructure, companies maintained the status quo. They ignored profitability, efficiency, and changing consumer needs. When the grace period ended, these zombies were in even worse financial shape.
An Associated Press analysis found that zombie numbers have soared to nearly 7,000 publicly traded companies around the world — 2,000 in the United States alone. If we limit analysis to companies that existed a decade ago, zombie companies have jumped nearly 30%.
Just look at Chinese real estate giant Evergrande Group. After being crowned the globe’s top real estate firm by value in 2018, Evergrande found itself teetering on the brink of collapse just three years later. Despite falling sales and massive debt, they survived through constant restructuring and government aid. When the aid finally stopped, Evergrande’s collapse sent shockwaves globally.
Or consider Sears Holdings. Once an economic powerhouse, Sears failed to adapt to changing markets and avoided addressing fundamental issues. The brand that shaped a nation went bankrupt in 2018, which led to more store closures and asset sales. Once again, corporate executives opted to treat the symptoms, not the root cause.
But what about zombie companies whose financial struggles may not grab headlines? They pose systemic risk to the entire economy, too. Their inefficient use of resources creates a ripple effect that hinders growth, stifles innovation, and distorts markets. When capital is tied up in unproductive firms, it starves healthier businesses of the investment they need to expand and create jobs. The artificial competition for labor can drive up wages, making it harder for thriving companies to attract and retain talent.
With so much at stake, then, how can you identify if your company—or one you’re considering as part of a corporate partnership—is exhibiting signs of becoming a zombie company?
Recognizing the Signs
Financial instability is often the most obvious sign. Look for high levels of debt relative to equity, with the company struggling to service it. Frequent refinancing, persistent losses, and very low profit margins are all red flags. If your company can’t generate enough revenue to cover interest payments and operational costs, it’s treading in dangerous waters. Cost-cutting measures like layoffs, salary freezes, or reduced benefits also suggest the company might be struggling to stay afloat.
Poor performance metrics are equally concerning. For publicly traded companies, watch for consistently poor stock performance or a declining share price. Declining sales, shrinking market share, or failure to meet revenue targets are also indicators of potential trouble.
A lack of innovation can be just as damaging. A stagnant product line with minimal investment in research and development, or consistently losing ground to competitors and failing to adapt to market changes, can signal a company’s struggle to remain relevant.
Don’t overlook human factors. Low employee morale, high turnover rates (among employees and/or management), and a lack of transparent communication from leadership about the company’s financial health or future plans can all point to underlying issues.
Finally, consider external indicators. If your industry as a whole is in decline, it could be affecting your company’s stability. Keep an eye on news reports and industry analyses that might provide insights into your company’s financial health and overall market position.
If you’re noticing several of these signs in your company, it’s time to take a closer look at its financial health. For employees, it might be wise to update your resume and explore other job opportunities. For leaders, it’s a clear signal that significant changes are needed to avoid becoming another cautionary tale in the business world.
The Path Forward
If your company is exhibiting zombie signs, all is not lost. Here are some steps you can take to breathe new life into your business:
- Consider your priorities. Would you rather be a $200 million company losing money, or a $100 million company making money? When it comes to priorities, profit must be king. This requires hard conversations (and even harder choices), but profitability is essential to the health and longevity of any company.
- Conduct a root cause analysis. Cash flow problems are symptoms of a deeper issue. What is the root cause? Are you spending too much? Are you not pricing properly? Is your manufacturing inefficient? Is your shipping too expensive? Do people not want your product? Are you offering too many products and losing value on low-performing SKUs?
- Sync with your customers. Understanding your customer is crucial, and it’s an ongoing process. You need to constantly measure your customer interactions, get feedback, and change. Syncing is not one-and-done—it needs to become part of your company’s DNA. Consider how you can leverage data mining to chart a path that follows your customer.
- Ensure operational efficiency. Use Lean Six Sigma practices to make sure you’re operating as efficiently as you can. Eliminate redundancies and non-value added work.
- Commit to fixing issues—and strap in. If you’ve been a zombie company for three years, a quarter’s-worth of intervention will not solve all issues at hand. A commitment to change and patience to ride out the recovery process are essential.
Companies that respond in this way have the power to change their trajectories. I once worked with a food manufacturer that was facing shutdown due to its inability to cover costs. The company generated $120 million in annual sales but was losing $7 million each year, and the lender had reached its limit.
We changed operations to make it more efficient. We shifted how the company went to market to improve sales and margins, and we conducted a product profitability analysis. This led to the elimination of nearly $40 million worth of unprofitable product sales. The result was transformative: While the company shrank from a $120 million “zombie” to an $80 million entity, it went from losing $7 million to making $8 million annually. And while ownership initially grappled with the reduced size, they ultimately realized that a healthy company makes all the difference.
As the characters in The Walking Dead learned, survival isn’t just about making it through today—it’s about building a sustainable future. By starting “tomorrow right now”—by recognizing problems early, taking decisive action, and committing to the long haul—companies can rewrite their own stories and contribute to a healthier, more efficient economy.
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