It
is here. The recession that many hoped would never come, or prayed they
would not have to deal with, has arrived. Others can carry on debating
how and why it has happened. Business leaders will want to know what
they need to do now.
The usual cycle of responses to a huge shock
or upset – denial, anger, bargaining, depression and finally acceptance
– is of limited use. Cut straight to acceptance, and then action. But
what kind?
In downturns, it is extraordinary how quickly managers
rediscover business virtues that appeared to have been forgotten in the
good times. Today the cry is “preserve cash”. Cut unnecessary
entertaining. End business class travel and five-star accommodation.
Get out of the taxi and back on the bus.
First steps on the
road back to profit
● Preserve cash. Not all expenditure can be halted but tougher tests need to be put in place at once to prevent waste.
● Reality check. How bad could things get, really? Plan for the worst, even while hoping for the best.
● Differentiate.
Tap into unexploited revenue streams by thinking afresh about your
existing customer base. They are not all the same. New customer
segments might offer new profit opportunities.
● Innovate.
Just working harder at what you are already doing probably won’t
produce a different outcome. Do something different. It has got to be
worth a try.
● Lead. This is no time to hide
in the bunker. Be visible, upbeat, energetic. If you can’t be, get out of the way and let someone else take over.
● Don’t give up. Take
a pay cut. Freeze all new hires. Go to a three-day week. Grant unpaid
holiday. There are many ways to keep the bankers from the door. Just
keep the show on the road. Something might turn up
But
few businesses shrink their way to success. So, even now, smart
companies will be trying to plot a path back to profitability.
In
a new paper for the Boston Consulting Group, David Rhodes, Daniel
Stelter and Shubh Saumya argue that well-run companies can be ready to
make big, recession-combating structural changes only four to six weeks
after beginning their analysis of the situation.
Managers need to
start by considering the worst-case scenarios. “Even for many
still-healthy companies, a drop in sales of around 20 per cent is
sufficient to turn profits into huge losses and to send cash flow deep
into the red,” they write.
Once the top team has grasped the
possible severity of the situation, there are four priorities: “To
protect the financial fundamentals, to identify ways to protect the
existing business, to manage for the long term and optimise the
relative valuation of the company.”
If you do not already have
one, produce a weekly report on your cash position, BCG says. To
protect the existing business, consider your pricing points. In the
1930s companies innovated around cheaper product ranges. The McDonald’s $1 menu or Danone’s Eco-Pack yoghurt in France are current examples of this. General Electric first developed its financing business in the Depression, helping customers purchase refrigerators with credit.
For
the long term, BCG echoes the advice offered by Intel’s Andy Grove.
Downturns are the best time to invest in research and development and
product innovation, he used to say. Boldness now will help create new
products that are ready for the market when it starts to recover.
With
asset prices so low, acquisitions should also be possible, at least for
those companies with relatively healthy balance sheets. “It’s time to
go shopping,” Caroline Firstbrook, Accenture’s European head of
strategy consulting, told a recent “dealing with the downturn” seminar
in London.
Getting some of these core challenges right – pricing,
products and M&A – is essential. But perhaps companies also need to
grasp something more fundamental about the way the rules for business
will change during and after this recession. Umair Haque, director of
the Havas Media Lab, a consultancy, recently wrote a provocative
article for Business Week magazine which declared that “traditional
recession strategies are doomed to fail this time”.
He argued that conventional business models – big industrial beasts pushing out more and more product – are doomed. He had Starbucks in his sights: “Starbucks tried to grow by selling us more junk we don’t need – music, mugs and mouse pads,” he wrote.
“What do we need in the 21st century – not just as brain-dead
consumers, but as global citizens?” Mr Haque continued. “We need
opportunities to grow and amplify our capabilities. For Starbucks that
might mean, instead of hawking mugs and chocolates, training baristas
to teach classes in coffee-making, letting communities use Starbucks as
a venue for local government, or, at the limit, training local
suppliers from developing countries as baristas in developed ones. How
cool would that be? Very.” (But how profitable? It is not quite so
clear.)
That critique may sound a little too flaky to business
leaders who want quick wins now, simply to survive. For more practical
ideas consider Adrian Slywotzky and Richard Wise’s sensibly titled book
How to Grow When Markets Don’t
The authors have some simple
suggestions that might just work. They ask a basic but important
question: are all your customers really the same? On closer inspection
you may have different customer segments lurking there that need to be
served (and charged) differently. This offers the possibility of
boosting revenues.
Do you have any special (and lucrative)
customer relationships? Perhaps you are adopting specific approaches
with these customers that could be copied and profitably introduced
elsewhere. And are you really charging the right price for some of your
valuable goods and services? Maybe there is concealed value in a bundle
of services that are currently being offered at one price. Budget
airlines have found a large number of ways to charge more for goods and
services which customers used to enjoy for free. It can be done.
Finally,
there is you, the boss. What about your own personal recession-beating
strategy? Times like these will place enormous pressure on business
leaders. Physical and mental health are valuable assets. You will need
to be at your fittest if your leadership is not to suffer.
Peter
Shaw and Steve Wigzell, executive coaches at the Praesta consultancy,
have written a guide for senior managers leading teams through tough
trading conditions. Leaders should understand how closely their
behaviour will be scrutinised. “As a leader, be conscious that
everything about you gives a message to your organisation; not only
your words, but your posture, facial expression, tone of voice and
appearance,” they write.
“The perception of your mood will spread
like wildfire and will often become distorted through gossip. When one
CEO asked his chairman what was the single most important thing he
should be doing, the reply was: ‘Smile’.”
Smiling will not be
enough to steer your business through the next few months. And as the
Praesta coaches point out, when you are highly visible to others
keeping up a cheerful act is exhausting.
The businesses that do
make it through to calmer, post-downturn times will have basic balance
sheet strength. They will stem all unnecessary outflows of cash. They
will price their goods and services keenly, but also imaginatively. And
they will continue to plan for the future, remembering that all
downturns come to an end.
Simple, really. What is everyone getting so worried about?
Even connecting at first with a buyer for a larger retailer can take time and multiple 
Discuss how you and your product fit in with the retailer's culture.
"The people behind the product and their mission are just as important
as the product itself," says Harvinder Singh, a regional local products
forager for 
Even
better than suggestive terms are arbitrary names that comprise common
words, but when used to identify particular products, do not suggest or
describe a significant ingredient, quality or characteristic of the
goods. For example, Amazon has no meaning other than trademark
significance when applied to book selling, much like Apple for
computers and Camel for cigarettes.
