Ah, recession…it fulfills my motto in life, “Not always fun, but never dull.”
In some ways a recession can be defined as that period of time in which you find yourself wishing you had done three years ago the things that would be making a difference in what you’re experiencing now. Sadly, success hides a multitude of sins. It is in the difficult times that we learn what really works and what doesn’t, what we can really live without and what we can’t. Ultimately, we have to assess the structural changes that have taken place in our markets and adapt.
The worst thing to do is hunker down and assume that if you wait long enough, things will return to the way they were. Don’t count on it. If you have a business that is dependent on cheap, readily available credit, for example, don’t hold your breath waiting for the days of easy credit to return. Probably not in your lifetime.
The good news is that a recession is like gravity. It pulls everyone down equally. The question is what you do with it. The little illustrations show what I mean.
Our little alien finds him (her?) self drawn inexorably into the sun with the inevitable result being toast. Not a good strategy. But, our little alien, being a good astrophysicist, knows that gravity can work for you as well as against you. It’s all a matter of trajectory.
With a small course correction, our alien friend has used the power of gravity to slingshot back into space at even greater velocity. Clever alien.
Can we be that clever? How can you use the pressures that are arising from the shifting tectonic plates of the economy?
I’m not suggesting there are easy answers. People are cutting back, in many cases out of necessity, in some cases out of fear or just being conservative until things level out. In either case, the world a year or two from now will look different from how the world looked a year or two ago.
What to do?
The business equation is pretty simple. Money in, money out. More money in, less money out. That suggests that we should be focusing on two things right now: marketing and process improvement. As I pointed out in a previous post (Saving Your Way to Oblivion), there is a limit to what you can do with traditional cost cutting. Process improvement, on the other hand, can have a significant impact on cost. The only problem with it is that it can free up a lot of production capacity, which requires more revenue to support. (Kind of hard to ask your employees to learn a bunch of new ways of working so they can work themselves out of a job.) On the other hand, as your costs come down, you’ve got more margin to play with in the marketplace which you can use to bring in more business.
Let’s start with marketing. Most smaller companies tend to be relatively sales driven. Nothing intrinsically wrong with that, but one of the symptoms of a sales-driven culture is the customer base tends to be very diverse. What that typically means is that the company is a peripheral player to most of its customers. From a marketing perspective this is a low margin and strategically precarious position. Again, from a marketing point of view, narrow and deep will out perform broad and shallow every time.
What does narrow and deep mean? It means that you have focused your limited resources on a narrow market niche and figured out how to become very important to a relatively small number of customers. Particularly is you can develop several niches like this, you have the benefit of concentration for each niche and the benefit of diversification as a company in the event one of your niches collapses, which they do from time to time due to no fault of yours.
This starts with segmenting your market and assessing where is business going to be getting done over the next year or two given the current state of the economy. How can you start building relationships in that market? How can you tune your products and services to meet that market’s needs? How can you position yourself as a desirable vendor? If you haven’t read my post, Climbing the Food Chain for Fun & Profit, this would be a good time to do so.
So firing a bunch of customers who nickel and dime you to death will free up bandwidth to pursue better customers and use your creativity to find ways to bring more value to them. If you sell through distribution, this would be a good time to start learning how to sell direct. Your distributors and/or retailers won’t like it, but almost everyone else is doing it, so they don’t have a lot of leverage.
If you don’t know much about marketing, this would be a good time to get your education going. If you know some things about marketing but don’t have any experience with direct response marketing, this would be a good time to start. If you are not making aggressive use of the web, this would be a good time to start learning about that. Web marketing is more complex than it used to be but is well worth the investment of time.
On the cost side of the house, when I speak to groups of CEOs, and I speak to hundreds of CEOs every year, less than ten percent have any kind of formal process improvement programs going on. This is a pretty appalling statistic, but it means opportunity for those who get to work on it.
Again, this is not a quick fix. You will get lots of resistance from your employees. You’ll have lots to learn and lots to teach. But once you start getting traction the effort will pay dividends forever. There is a huge literature on the subject now, but if you haven’t read the classics like Deming’s Out of the Crisis
“Lean” is the latest flavor of the quality disciplines and well worth exploring. There is a government funded organization called Manufacturing Extension Partnership (MEP). Look on the web to see if they have an office in your community. They offer a one day class in Lean which is an eye-opener. They also offer low cost consulting to help you drive cost out of your organization using Lean principles.
As I said at the beginning, a recession is that time where you find yourself wishing you do
ne some things three years ago. Better late than never. We all have to adapt to survive. The hardest part is letting go of the known. How ironic is it that the act of letting go which should be so easy is so damn hard. But nothing like a good recession to provide the motivation.
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