Don’t Just Survive - Dominate in a Recession
By John L. Mariotti
behave in contradictory ways during times of stress – like during a
recession. Too many managers in too many companies become paralyzed
by fear or indecision. Recessions are part of business cycles, just
like growth periods. Thus, managing during a recession is part of
a manager’s job— perhaps the most important part.
should managers do differently? The answer is “a lot,” but not
“everything.” If as a manager, you have managed through recessions
before, you may remember what to do, assuming you did the right
things. If not, consider this short story:
was walking along the street and as he passed a construction zone,
he fell in a deep hole, one with walls so steep, he could not get
out. He yelled for help.
first passerby 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.
next passerby 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.
third passerby was the man's best friend—and the man in the hole was
jubilant—until his friend jumped into the hole with him.
startled man asked his friend, "Why did you do that? Now we're both
in the hole.”
friend answered, "Yes, but I've been down here before and I know the
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.
word “recession” 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.
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.” 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.
secret is not to concentrate on “survival.” Instead, concentrate on
taking steps to dominate the competition. When the recession
ends and recovery comes, you’ll be on top. Coincidentally, those
same steps are the right moves to survive the recession, too.
the seven most important steps to take when “preparing to dominate”
Attack! By definition, a “recession” means negative growth, but
that doesn’t mean there’s NO business. There’s just less, and it
takes more, 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!
Customers: Sort customers in descending order of your annual
revenues and profits—also consider their potential. Get closer to
the 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 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.
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” them or drop them. Reduce the complexity drain of old,
tired products – dump them – and make room for new ones.
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, subscriptions, high-priced
travel, conventions, parties, FedEx, premium flights, expensive
limos, hotels, and meals out – at the company’s expense.
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.
Headcount: 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.
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—CFO, Treasurer and Controller can often be combined
into two jobs by reallocating work. Next, cut excess people added
in “good times.”)
Lower The Breakeven: Classify expenses as “Fixed” or “Variable.”
Variable costs (expenses) go into every product or service. Fixed
costs are determined by decisions about the business’ 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 as a
metric is dangerous; it excludes interest—a cash outlay.)
through a recession 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.
And 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.
Read other articles and learn more about
John L. Mariotti.
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