First Consideration for Weathering the Storm: Your Mindset

By: Chris Harlow - Associate Director, Butler Business Accelerator

Categories: Economy, Indiana CEO Survey

At a dinner last fall, a local business leader asked me to explain the difference between a recession and a depression. I had to admit that I didn’t know so of course it was the next thing I searched online. I could find no clear delineation between the two – some sources say a percentage decline of this or a long-term reduction of that. What I’ve started to realize is that maybe a depression is when the general populous gets a case of the blues.

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Let’s face it, your retirement investments have fallen precipitously, your house won’t sell, business is down, your friend lost their job… it is depressing. And the continuous barrage of doom-and-gloom newspaper headlines and “breaking news” email updates on the latest bankruptcy don’t help. In fact, in the 2009 “State of Our Business” survey, many CEOs suggested the media have made the crisis worse by constantly covering negative news.

Personally, I’m ready for a “good news” section in the paper, dedicated only to topics and events that will make everyone feel better. After all, sentiment is a driver of spending, right?

So if sentiment can drive consumer spending, how can sentiment help businesses? Henry Ford once said "Whether You Think You Can or Can't, You're Right.” But having the right mindset alone will not weather the storm, so here are a few other considerations that can help businesses make the best out of down times.

Manage your existing business first
- Don’t lose focus of your best customers. These relationships may strengthen during a downturn and are less costly to maintain than acquiring new ones. If as the owner or president of a business you haven’t been out on a sales call in a while, now is a great time to stop by your best customers and tell them you appreciate their business. This practice is also in line with what executives said in the survey. When asked to rate issues in terms of importance, “Customer Loyalty and Retention” was on average ranked at 6.79 on a 7 point scale. Also of interest, when asked about how challenging the CEOs found certain aspects of running the business, they ranked “Rising Customer Expectations” at 5.10, second only to “Having Enough Time.” This further justifies the importance of listening to the customer.

- Those companies that have managed their balance sheet wisely during good times should stay the course. If you didn’t, develop a 90-day rolling cash forecast such that you have the visibility you need to proactively manage your banking relationships. Make timely collection of receivables a top priority and work with your vendors to allow terms suitable for your business environment.

Consider growth by acquisition
- If you have the financial strength to entertain growth through acquisition, good deals may be available. Proceed with caution if this strategy is attractive: down times create a “market for lemons” comprised of struggling companies loaded with debt, poor products, or other hidden challenges. To find a deal that is accretive to your existing business, use your trusted advisors to vet deals, analyze the financials and develop a business case.

- A key component of the business case is to understand what you must do when “the dog catches the bus.” In most cases, additional investment and management involvement will be required after a deal is closed. Factor these additional costs into your decision and don’t let the excitement of a deal drive overpayment.

Strategically position for the upswing
- Continue marketing and selling efforts in a calculated manner. Prioritize your selling efforts and market the product mix best suited for the times, those quick to act will exit the recession with additional market share.

- “Cherry pick” the best talent. If you have an opening, proactively target the best talent in the industry. If you have the budget but no opening, consider investing in those that could propel your business as the economic environment strengthens. This could be the best investment you make during an economic downturn.

…But have a plan in hand in the event there is no upswing
- Some markets may not see a noticeable upswing in the near-term. It is critical to have projected this scenario and know what changes will allow the business to break even. Be ready to make hard decisions and changes quickly. Problems do not get better with age.

- If you have to cut costs, share the pain at the top. Few things can reduce morale more than “sacred cows.” On the other hand, few things could preserve morale more than leadership sharing the sacrifice of compensation, benefits, or headcount reductions.

- Ratchet up communications. Make communications with customers, prospects, employees, and other stakeholders a priority by implementing a proactive, well-organized communication plan.

If you find yourself with a case of the blues, cheer up. It is the first, and likely the easiest, step for growing your business in this recession. For everything else, lean on your trusted advisors for the support, guidance, and experience your business needs to grow.

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