A few weeks ago, I stopped in to see a friend who runs a service business that is heavily dependent on the construction and manufacturing industries for their revenues. We talked about what leadership decisions were required to weather an economic downturn.
The conversation has weighed heavily on my mind as I communicated with other business owners in my industry during the course of my regular daily business. What does it take to survive and prosper in an economic downturn? In every one of my conversations, the same answers keep occurring.
Be quick and go huge: As a business leader you are responsible for the long-term viability of the business. It is human nature to underestimate the severity of a crisis. Make your cuts now and make them strong. Reduce the pay of your non-productive staffers or terminate them now. You know who they are. Reduce costs until your staff thinks you are the second coming of Ebenezer Scrooge. They’ll get the wrong message if you don’t.
Get right to your core business: You know what your company does well. Do that. Examine exactly what it is that makes you profitable. Continually preach your differentiators to your staff and your customers. Focus on your competencies, repeatedly remind everyone what you do best, and do only what brings profitable revenue in to your business. If you are a service business, now is the time to rededicate your organization to that goal.
Recognize your industry trends: Get in front of the trends that can help your business grow, and run away from the negative trends. Understand how the trends affect your core business. It’s easy for me to say this. It’s harder for you to actually do.
Manage your cash: Make sure your customers pay you. Let them string out their other, more timid suppliers. Pay your bills on time and take the cash discounts. Renegotiate with your suppliers, since you are such a good payer. Are you measuring your cash deposits daily? Forget profitability and focus on your cash flow. Profitability without cash equals Enron.
Communicate like a wild man: Tell your staff and your customers exactly what you are doing. Tell them again. Remind them why you are doing things. Cutbacks do not scare your strong staffers, but uncertainty does. Circle the wagons, look for opportunities to reduce costs and improve revenues at every turn and continually state your objectives. Celebrate every cost reduction and especially celebrate and encourage new revenue production.
Ask yourself, "What would I do if the worst-case scenario for my business occurred today?" Once you have answered that question, ask yourself, "What would happen if I did this right now?" In many cases, acting in worst-case scenario mode is the right thing to do now, to actually avoid a worst-case scenario.
I am not a pessimist, but a realistic optimist. There are tremendous opportunities ahead for the smart, adaptable organizations. The long-term outlook for our economy and our country is bright. Optimism has always been the best long-term bet here in the United States. The pessimists have consistently been on the wrong side of the bet. It’s up to you to make sure that your organization is here to reap the long-term benefits that will surely exist in a few years.
Arthur Flater, "assistant to the customer" and president of Central Office Systems Corp. in Waukesha.