Cornerstone Business Solutions

Clever Clues for Driving Your Business Through a Downturn

In the RAN ONE planning framework, business activity and decisions fall into key categories, Vision & Strategy, Systems & Processes, Finance, Sales & Marketing, and People & Culture.

Leading a business through an economic downturn means keeping your finger on the pulse in each of these areas.

Nurture Your Vision, And Re-examine Your Strategies

Be proactive! Look at stepping out into new market opportunities.
Stand back from your business, evaluate and examine your customers, consider their changed needs, and take the opportunity to capture new markets for your products and services.

Keep investing in innovation.
The Internet and technology in general have transformed customer service expectations. In this environment, the risk is that your competitors will meet customer demand for better service and outstrip companies that don’t keep up. Put systems in place which give you instant access to information, so your customers are served quickly. Smart companies will utilize technology that integrates all of their customers’ previous communication and history with the company, so they know accurately who is contacting them.

Review Your Financial Systems

Optimize your working capital.
Now is the time to pay extra attention to credit and collections. Aim to reduce receivables, manage payables and decrease inventories. Here are some techniques:
a. Query major customers to find out whether they anticipate delays in payment.
b. Contact suppliers to negotiate extended payment terms.
c. Cancel any outstanding purchases that are not essential.
d. Recognize all possible expenses and losses. Don’t be shy about appropriate write-offs – including divisions and locations that no longer make economic sense.

Review operating expenses.
Eliminate any unnecessary expenses. Having said this there are two important areas where you should not slash budget.

Don’t make the mistake of cutting back on what differentiates your products and/or services – your unique core differentiators. There may b e a hidden opportunity if your competitors cut costs that lower their service level or product quality and you can continue yours or – even better – improve it.

Don’t cut capital spending designed to improve productivity or R&D spending on new product development.

Revisit your financial structure.
Make sure you have worked closely with your accountant and reviewed your financial forecasts. Then meet with key lenders to review them – with your accountant present, if this impresses on your lenders that your finances and strategies are well prepared. Know where you stand with them, and make sure their expectations are not too high. If interest rates are falling, consider new loan or financing alternatives to reduce interest expenses, improve cash flow, and provide credit for acquisitions. Lenders and investors may also be more amenable to restructuring they would never consider in better times.

Assess Your Sales & Marketing

Sustain high product quality and boost customer support..
Companies with a reputation for having quality products and services always come to mind first when a buying decision is being made. It is always good business to maintain a strong and comprehensive focus on quality and customer service. Steps to take:
a. Make sure your business is ready to hook into the latest communication technologies and give customers the freedom to contact you by phone, fax, e-mail and the Internet.
b. Go through the exercise of classifying your clients into A’s, B’s, C’s and D’s. Identify your ‘A’ class clients – these are your best customers and responsible for the bulk of your revenue – give them VIP treatment. You should also foster your relationship with any ‘B’, and perhaps some ‘C’ clients you might be able to nurture into ‘A’ class customers. In challenging times, it is an imperative for companies to retain existing customers.

Don’t ditch your marketing budget.
Even in the most difficult of periods, core marketing and relationship maintenance are essential to business recovery. If you need to reduce sales and marketing expenditures, then consider innovative and more cost effective ways to maintain your marketing imperatives. Sponsorships for instance can give you wide exposure more cheaply, and if you are associated with community activities (sports teams, charities etc) the public relations attracted to your firm is positive. Your competitors may even curtail sales and marketing expenditures, giving you an opportunity to increase market share when others are losing theirs.

Keep the lines of communication open.
Nothing is worse than keeping employees, customers, suppliers and investors guessing about the company’s plans and actions during a time of uncertainty. Communicate! Communicate! Communicate! Spread your good news, bad news, plans, changes in plans, reasons for plans/actions, successes, failures, etc. Stay real – tell the truth. Don’t paint a rosy picture for your board and lenders. Credibility later will count for a lot.

Focus On Your People

Remember the team is key to your business success.
It’s a tempting first resort to start a string of redundancies and lay off team members when times get tough. Review your team carefully. Think of it this way – a sports team doesn’t downsize to three quarters of its players when the game turns against them. The best teams dig in, and everyone works harder to make success happen. Instead of layoffs, consider pay cuts, reduced hours, and revised incentive pay plans. Align employee goals with the company goals by using creative compensation programs, so you can retain skilled employees for a quick start in the next upturn. You might decide to reduce your team, but it should be tied very closely to that person’s long-term value to your organization. Companies that cripple themselves by cutting into muscle will be slow out of the blocks when the new cycle begins.

Lead your people.
Inevitably a depressed or down economy takes a toll on the psyche, and it means making a conscious effort to retain a positive attitude. It is a fact that no downturn lasts forever, and that most of our worst fears and imagined disasters are never realized. Make it your goal to help your team recognize the same realities. Don’t hide in your office – walk around and talk with your people. Make them true members of your team, keep them informed, solicit their best ideas, and help them see the light at the end of the tunnel.

Recipe For Success

Don’t overreact – and don’t under react.
Running a business in times of economic stress can feel like driving a car in an ice storm: jerk the steering wheel one way or the other, and you can find yourself in an irreversible spin. On the other hand, if you aren’t looking ahead far enough or proceeding with increased caution, you won’t be able to avoid hazards in your path. And if you’re just sitting still, you will fail to get moving in time to avoid the hazards coming at you. The good leader, and the good business owner builds a support crew: employees, accountant, lenders, investors and customers, and navigates as a winning team.


Copyright 2003, RAN ONE Inc. All rights reserved. Reprinted with permission from www.ranone.com.

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