Running a business is all about innovation. Whether you're a biotechnology upstart, a cutting-edge technology company, or a large-scale retailer, innovation is paramount to a business' success. Without innovation, companies run the risk of complacency and getting passed by competitors -- or, even worse, folding up shop altogether, like Circuit City did a couple of years ago.

No company gets a "free pass" when it comes to adapting its business plan. When push comes to shove, we need to ask ourselves: Will this company innovate or die?

Today, let's take a closer look at Sirius XM (Nasdaq: SIRI) to determine whether the company can adapt to rapidly changing consumer demands, or whether it will be pushed into the background.

What's wrong with Sirius XM?
First off, I do indeed raise my right hand, put my longtime biases aside, and agree to look at Sirius objectively.

From a shareholder standpoint, there is nothing wrong with Sirius. Since being rescued by Liberty Capital (Nasdaq: LCAPA) (Nasdaq: LCAPB) from a brush with bankruptcy two years ago, the stock has been a daytrader's dream. Unfortunately for staunch buy-and-hold advocates, the stock has been a nightmare -- perhaps less of a nightmare of late, but nonetheless a portfolio eyesore.

The two worries that most investors, including myself, have with Sirius are its very large debt load and its ability to retain customers. Being heavily levered to the tune of $3.1 billion in debt places the company's debt-to-equity ratio at 10.35. Putting this into perspective, companies with debt-to-equity ratios greater than 3 are usually a red flag. To succeed, Sirius must also retain customers who join the service with a free trial upon purchasing a new satellite radio-equipped car or truck.

Getting Sirius XM back on track
I'm not the CEO of Sirius XM, but for a moment, let's pretend I am. As I see it, there are three things Sirius XM needs to tackle to get its business moving again:

  • Address the debt: Sirius XM would have made Houdini proud with the slight-of-hand debt swap it pulled last year. The company was able to issue $700 million in new notes at a rate that was 362 basis points below what it was paying before, and push its maturity date out to 2018. Still, complacency in paying off its debt load nearly broke Sirius' back in 2009. The company needs to find ways to pay off its debt now, rather than waiting until the last minute again.
  • Focus on the conversion rate: Sirius has never had a problem getting users to try its service, especially when purchasing a new vehicle. But getting them to keep the service when their free trials end is another story. Until recently, Sirius's conversion rate was trending higher, but this trend has reversed of late. Its most recent quarterly filing showed that only 44.7% of its users kept the service. Sirius will need to fix this, and find new ways of entering the auto market, to thrive.
  • Get aggressive: CEO Mel Karmazin fought hard to get the Sirius and XM merger past the FCC, but he hasn't differentiated his company as a better choice than Pandora, or even Apple (Nasdaq: AAPL), which is making its iTunes platform increasingly cloud-friendly. Sirius needs to take it to Pandora and Apple's playground and show them who rules in streaming media.

What's the verdict?
Sirius never ceases to amaze me. At one time, I didn't ever feel it'd be profitable. Still, shareholders must be concerned to see the company's conversion ratio falling, and I have to wonder how willing consumers will be to accept higher subscription rates. I no longer feel Sirius is on deathwatch, but given its still-massive debt load, I still think its future has considerably more clouds than rays of sunshine.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that even shock-jocks would appreciate.