What a Giant’s “Non-Core Sale” Reveals
LVMH is moving forward with selling off its non-core businesses. Reports indicate that the restructuring, centered around Louis Vuitton, is accelerating the streamlining of its subsidiary brands.
You might wonder, “Why would a growing company sell assets?” However, this move is by no means a sign of weakness. Rather, it represents the ideal form of “returnable management.”
LVMH is known for its long-term strategy of nurturing acquired brands over a decade. At the same time, it possesses the ability to calmly discern which brands to cultivate and which to let go. This dual focus on “nurturing” and “letting go” is precisely what small and medium-sized enterprises (SMEs) should learn from.
Why “Deciding to Sell” Is So Difficult
Many SME managers take on the challenge of diversifying their businesses. They launch new ventures, aiming to create multiple pillars of revenue. However, the problem lies in the decisions that follow.
“We’ve already started this business,” “We have employees to think about,” “We need to recoup our investment first”—for reasons like these, countless opportunities to exit are missed.
LVMH’s brilliance lies in the fact that they decide on the conditions for “letting go” right from the start, alongside “nurturing.” At the time of acquisition, they set a rule: if results aren’t achieved within a certain period, the brand will be sold. This is the very core of “returnable management.”
The Three Conditions of “Returnable Management”
The “returnable management” I advocate for is based on three fundamental principles.
The first is to look at the process, not the person. When problems arise, instead of blaming individuals, question the business structure.
The second is to prioritize observation over fixation. Rather than immediately locking in systems and structures, leave room to observe how things go on a provisional basis.
The third is to design with failure in mind. Set evaluation periods and exit conditions from the very beginning.
LVMH’s restructuring embodies this third condition. They establish exit conditions at the moment of acquisition, such as “If this brand doesn’t show results within 10 years, we will sell it.”
“Reversible Design” That SMEs Should Practice
So, what specifically should SME managers do?
First, decide on your exit conditions before starting a new business.
Set objective indicators, such as “Exit if sales fall below XX for three consecutive years” or “Exit if recovery of the investment amount seems unlikely.” This allows for calm, rational decision-making, free from emotional sway.
Next, clearly define evaluation periods. Set regular review points, like “Review after one year” or “Mid-term evaluation after six months.” The key here is not to fix the evaluator. Create a system that ensures objectivity, such as involving a third party.
Organizational Design for “Returnability”
Furthermore, it’s crucial to design the organization itself to be “returnable.”
For example, when assigning someone to a new project, instead of making them a permanent employee for that role, assign them on a project basis. This makes it easy to return them to their original department if the venture is exited.
It’s also important not to make business processes dependent on specific individuals. If certain tasks can only be done by one person, exiting becomes difficult. By creating manuals and systems, ensure that anyone can take over.
In LVMH’s case, each brand operates under an independent management structure. This makes it easier to separate the organization when a sale occurs. Even for SMEs, if you create a system to track independent profit and loss for each business unit, you can expect the same effect.
A Mindset That Turns “Exit” into Success
The idea that “exiting is a defeat” is outdated. LVMH’s example teaches us that exiting is actually a stepping stone for the next growth phase.
By selling non-core businesses, they concentrate the capital gained into their core business, Louis Vuitton. This is a classic strategy of “selection and concentration.”
The same applies to SMEs. By letting go of unprofitable ventures, you can focus management resources on your main business. As a result, your competitiveness increases, ultimately enhancing the company’s value.
In my own experience as a consultant, I’ve supported many clients through exits. What I’ve learned is that the longer you delay the decision to exit, the greater the loss. If you can trigger the exit conditions early, the scope of what you can “return to” also expands.
A Practical Example of “Returnable Management”
Let me share a client’s story. He was the manager of an SME running both a restaurant business and a staffing agency. While the staffing agency was growing, the restaurant business was consistently in the red.
Following my advice, he set exit conditions for the restaurant business: “Exit if we’re in the red for three consecutive fiscal years.” When the third year’s financial results confirmed the loss, he made the decision to exit without hesitation.
By concentrating the freed-up capital into the staffing agency, the company’s overall performance improved significantly. He said, “Because I had the exit rule, I could make a calm decision. I wasn’t swayed by emotions.”
In this way, setting exit conditions in advance frees managers from emotional bias and enables rational decision-making.
Conclusion: Make Reversible Management Decisions
While LVMH’s restructuring is noteworthy as a giant corporation’s strategy, its essence is applicable to SMEs as well.
The key is to decide on the conditions for “letting go” from the very beginning and to design an organization that allows you to “return.”
“Returnable management” is not about fearing failure. On the contrary, it’s about assuming failure, learning from it, and creating a system to apply those lessons moving forward.
Why not start setting exit conditions in your company today? That is the first step toward “returnable management.”
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