surviving the current economic downturn
   

Don't Just Survive—Dominate—In an Economic Slowdown

by John L. Mariotti


People behave in contradictory ways during times of stress—like during an economic downturn. Too many managers in too many companies become paralyzed by fear or indecision. Slowdowns in the economy are part of business cycles, just like growth periods. Thus, managing during a downturn is part of a manager’s job—perhaps the most important part.

But what should managers do differently? The answer is “a lot,” but not “everything.” If as a manager, you have managed through slow economic periods before, you may remember what to do, assuming you did the right things. If not, consider this short story:

A man was walking along the street, and as he passed a construction zone, he fell in a deep hole, one with walls so steep that he could not get out. He yelled for help.

The first passer-by was a doctor, who asked if he was injured. After answering that nothing was broken but he hurt all over, he saw a prescription float into the hole, and the doctor was gone.

The next passer-by was a minister. The minister asked if the man was all right, and when the answer was a reluctant “Yes,” a prayer on a slip of paper came floating into the hole.

The third passer-by was the man’s best friend—and the man in the hole was jubilant—until his friend jumped into the hole with him.

The startled man asked his friend, “Why did you do that? Now we’re both in the hole.”

The friend answered, “Yes, but I’ve been down here before, and I know the way out!”


The man in the hole felt frightened because he hadn’t been through the experience before, and didn’t know how to get out; fear of the unknown was natural. If you haven’t been through a weakening economy before, you may think of yourself as the man in the hole.

A slowing economy triggers fear of the unknown. How bad will it get? How long with it last? What should we do?

If these are your reactions, don’t feel bad. These fears are normal when facing unpleasant events of unknown severity and duration.

The biggest mistake you can make is to act too slowly, but it’s also important to act with carefully considered intent.

The second biggest mistake is denial: “This can’t be happening; it can’t get any worse.” Well, yes, it is, it can, and it probably will.

The third biggest mistake is to become defensive and reactive. When that happens, you will always be a step behind the competition—and a step late in meeting your customers’ needs.

The secret is not to concentrate on “survival.” Instead, concentrate on taking steps to dominate the competition. When the slowdown ends and recovery comes, you’ll be on top. Coincidentally, those same steps are the right moves to survive the slowdown, too.

Here are the seven most important steps to take when “preparing to dominate” the competition.

1. ATTACK!
A slowdown in the economy doesn’t mean there’s no business. There’s just less, and it takes more and better effort to capture it. That’s when “dominate” comes into play. If you read further down this list, you will know to choose the right customers and push the right products. Get out there, and get a larger share of the remaining business. Attack; don’t defend! Be proactive, not reactive!

2. CUSTOMERS
Sort customers in descending order of your annual revenues and profits, and consider their potential. Get closer to your top customers, and sell them more. Eliminate complexity added by bottom-dwelling customers; they cost more to keep than they yield in profits. There are some winners in the middle who need attention, and there are losers who need to go—now! Firing customers is always hard, but when the cost to serve them exceeds the profit they generate, money and time that could be used on better customers is wasted.

3. PRODUCTS
Sort your products the same way, in descending order of annual revenue and profit. First, consider the items at the top. Where are they on the “product life cycle”? New and still growing, or old and declining? Which have plateaued (neither growing nor declining)? Those will decline next. Now is the time to “rejuvenate” those product lines or drop them. Reduce the complexity drain of old, tired products—dump them—and make room for new ones.

4. EXPENSES
Quit spending! Cut all but truly essential expenses, but don’t cut spending on new products and marketing; those are your future. Get rid of all the nice-but-not-necessary things—temps, contract services, memberships, dues, travel, premium flights, conventions, parties, expensive limos, hotels, meals out, overnight shipping, and so on—at the company’s expense.

5. CASH FLOW
Watch cash flow like a hawk. Make a spreadsheet (you should already have one) projecting cash flow 13+ weeks out, in detail. Collect fast, pay slow; take only the big cash discounts. Use checkbook-style, open-to-spend processes, starting with how much you have and then deducting items as you spend. Stop spending before cash runs out.

6. HEAD COUNT
People are usually the largest cost (after purchased materials) in a business. People don’t just cost wages and benefits; they spend money and consume resources. Carefully evaluate your people. Sort them into four groups:
A – Great – these are the keepers, and tell them so
B – Good – you want to keep them, and tell them, too
C – Fair – questionable
D – Weak – under-performing or unnecessary, and you should cut them now!

Find the ones in the “Fair” group who can grow into “Good,” and work with them. Dump those who can’t grow, or won’t grow, along with the “Weak” ones.

NOTE: These groupings have nothing to do with organizational rank—a “Great” customer service rep might be far more valuable than a “Fair” senior executive. Weak or unnecessary people in high-paying positions should be cut first. Also, combine jobs to remove highly paid positions—chief financial officer, treasurer and controller can often be combined into two jobs by reallocating work. Next, cut excess people added in “good times.”

7. LOWER THE BREAK-EVEN
Classify expenses as “Fixed” or “Variable.” Variable costs (expenses) go into every product or service. Fixed costs are determined by decisions about the business’s structure and size. In a weak economy, expect volume to drop; this means you must cut fixed costs fast, and resize the business to the market. Pricing must recover variable costs and contribute to covering fixed costs, S. G. & A (sales, general and administrative costs), interest, and hopefully yield a profit.

(Note: Using EBITDA [Earnings Before Interest, Taxes, Depreciation and Amortization] as a metric is dangerous; it excludes interest—a cash outlay.)

Getting through an economic downturn is like getting in shape after gaining weight.
• Exercise—make the right moves.
• Eat properly—“feast on competitors”—by selling the best products, to the best customers.
• Don’t quit when the going gets hard. Running a business is supposed to be hard; if it weren’t, everybody would be doing it.

Now get out there, and don’t just survive. Attack and dominate! It’s a lot more fun than the alternative.

John L. Mariotti is the president, CEO and founder of The Enterprise Group, a coalition of time-shared executive advisors. A former president of Huffy Bicycle Company and Rubbermaid Office Solutions, he serves on several corporate boards, advises companies and does public speaking.

John Mariotti also is the author of eight books business books and hundreds of articles and columns. His newest book, “THE COMPLEXITY CRISIS—Why Too Many Products, Markets & Customers Are Crippling Your Company—And What To Do About It,” is available at Amazon.com, 800CEOread.com, and most leading bookstores.

He can be reached by phone at (614) 840-0959 or by e-mail at mariotti@usit.net. His Web site is www.mariotti.net.

 


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