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Weathering the Economic Storm

As a business owner, executive or manager how will you navigate your business through the current downturn in the economy? Are you seeing this as hard times or an opportunity? Are you caught up in the negativism? Is your business more susceptible to economic cycles than others? 

There is no doubt that certain firms will find their markets virtually dried up. These companies will find new markets or will have to shut down. This may not be the fault of the firm, but a reaction by their customers to the negative media. Most companies though, will persevere.  

It is my contention that the publicly traded companies will experience the biggest challenges as a result of the recent fall out from the US sub-prime mortgage situation and the downslide in the stock market. Many of these companies have been focused on producing quarterly dividends for the shareholders rather than investing in long-term infrastructure designed to sustain the business. These firms will now trade their short-term gain for long-term pain. As we have already seen, a number of publicly traded companies are short on operating capital and have done massive share deals at close to fire sale prices to obtain sufficient capital. 

I believe that the privately held corporations and the entrepreneurial firms will find it easier to sustain themselves and may in fact grow. These companies will be better equipped to quickly respond to the changes in the market place. It is more likely they will have a long-range vision in place and will be able to stay the course. Organizations where senior management has been primarily focused on the bottom-line will have the biggest challenges. This focus on the bottom line will cause them the most pain and will erode their profit potential most quickly.

It has been my experience that most large organization’s first response to economic slowdowns is to cut costs. Cutting costs in of itself is not bad. It is the manner in which costs are cut that will have the greatest impact on long term profitability. Logically one would do a cost benefit analysis of all the perks, operating expenses, production and overhead costs to determine where non-essentials can be eliminated, and where more efficient and cost effective ways of doing business can be implemented. Typically, though, the usual response is to cut staff. I would argue that in many corporations there is some deadwood that should have been moved out the door a long time ago, however no one had the gumption to take the necessary action. Those firms are left with no choice but to act. This is good for the firm and bad for the employee who will be out of work in uncertain times. What is not good is the layoff of quality, typically frontline, staff. These ones actually do the work, know how to get things done within your corporate culture and have the talent to keep the business going. I am not talking about the executives here. I am talking about staff at all levels that service the company or your customers.

It is also a great time to review management at all levels. Are their actions consistent with the corporate vision?  How can they become more efficient? What can they do as a team and with their teams to improve the top line?  What can be done to make this team a slim, trim, marketing and innovation machine? 

In many cases it is expected that all staff will simply have to just hunker down and get to work. Training and mentoring programs are cut.  Staff development takes a back burner in hopes that the storm can be weathered.

The question becomes; is it better to weather the storm or to face it? I suggest it is better to face it so that a new course can be set, leading to greater potential for profits. Although it is critical to look at the bottom line, it is equally critical to look at the top line. It appears than many large corporations have ignored the top line for some time because the economy was good and consumers were spending. 43% of Americans spend more than they earn each year. The money they spent boosted the profit of many corporations. These corporations fell into a gravy train mentality. They focused on profits for their shareholders and lost site of where the gravy was coming from. What am I alluding to? I am alluding to significant slips in customer service, and possibly in quality control. Corporations have lost site of the customer because they were only focused on the customers’ wallet. Due to the public perception of the current economy, consumers are changing their buying habits. They are going to be more selective as to where they spend their money. Will they choose your business? Why would they choose your business?

If you are not absolutely clear about it, now is the time to find out how your customers feel about your business. Will they stay with you during tough times? What needs to change to retain and grow your customer base? Truly successful business have systems in place to make sure a consistent product or service gets to the customer in a timely manner, in a way that appeals to the customer. Do your systems work? Do they need updating? McDonalds works not because it sells hamburgers. McDonalds works because they sell systems that provide consistency. Whether or not they like the product, customers know they can depend upon it to be the same in every location. What they expect is consistency, consistency, consistency. This is important for a customer’s piece of mind.

 Now more than ever is the time to make the corporation more effective and to ramp up customer service. Some of the best tools are implementing and maintaining standards with checks and balances to ensure they are being followed. The best ways to do this is through training and coaching staff. Coaching as a training tool substantially outperforms any other method of training when it comes to implementing new standards and systems and ensuring the desired long term affect of the training. Now is the perfect time to spend training dollars on staff development with a focus to improve customer retention and with an eye to gain more customers. At times we need to be reminded that a loyal customer is usually worth so much more to a company than finding a new customer. Customer retention must be a priority. 

Finally, there needs to be a focus on Innovation. Innovation in all areas of the company and its operations including the areas mentioned above. It is the innovators who will best ride out an economic storm. Innovation does not necessarily mean spending more money, or changing your product. Innovation is about looking at everything you do to see if there is a better more effective way to do it. Asking, “Why are we doing this? or Why are we doing it this way? could produce some surprising or shocking answers by digging deep enough. Because we have always done it this way is a deadly trap. Know your whys and correct your path. The ride to new profits can be fun and very rewarding!