Surviving The Recession

Wals h Ente rpris e s Bus ine s s & Financ ial Advis o rs Hunting to n Be ac h , Califo rnia US A http ://www .awals h .us wals hal1 @ao l.c o m (714) 465-2749 Surviving the Recession A Guide for Business Leaders and Entrepreneurs

Your first step is to recognize that this isn’t a recession in the classic sense that we’ve been accustomed to in the past. This is more of a Recession / Depression, and we’ll be a long time recovering. Credit is still frozen, real estate is still declining, people are still losing jobs in droves, manufacturing is down, and there are plenty of other signs that we’re in for more hard times ahead. Nationally and internationally we’re experiencing price deflation for many commodities, products, and services. Whipsaw moves in the commodity & securities markets are a sign of investor insecurity and low comfort-level. A sea of dollars has been created that has largely gone to the banks with no good effect to the economy. This threatens to generate hyperinflation at some point in the not-too-distant future. We’re going to pay higher taxes to pay down the massive debt the government has taken on in our names. The dollar is losing its luster as the world reserve currency, and other nations are nipping at our heels; taking advantage of our problems. The government hints of “green shoots” are just so much wishful thinking. We can’t even trust the economic data the government feeds us. For instance, the employment numbers are widely acknowledged by professionals as being radically understated; using “creative” statistics. Of course, there are companies and industries that do well in any economy. If you’re in this position, good for you and good luck keeping it going. Most businesses and industries are not as lucky, and must take steps to adjust accordingly. Here’s some thoughts along those lines.

The Big Bugaboo Let’s talk about the most significant topic first – Credit and Capital. • As you know, the financial meltdown has largely frozen credit. This has in turn filtered through the economy; scaring capital investors to the sidelines. • Big banks aren’t doing much in the way of lending, and have been reducing existing credit lines in droves. However, regional & local banks are still more active. You may want to consider developing new banking relationships to avail yourself of this opportunity. • If you’re an existing business trying to raise new capital, talk to your existing investors. They’re your most loyal & faithful group. • If you’re an entrepreneur looking for capital, you’re not going to get very far right now except via asset-based private lending; assuming you have assets to borrow against. Angel investors have been largely sitting things out waiting to see what happens when the dust settles. The banks won’t even talk to you. There’s still some activity out there, and you might get lucky; but you had better have a first-class business plan/proposal put together or they won’t even look at you. If you haven’t prepared one before, seek professional help. If you’re lucky enough to get an investor who is willing to listen, you’ll only get one shot at them and you don’t want to blow it with an amateurish presentation. Those of you with no money, no assets to borrow against, and no plan; good luck. Existing companies with years of profitable financials will probably be able to ride out the storm. Those of you just getting started are going to have a tough time attracting credit or capital.

Sales & Marketing Preserving and/or growing your customer base. • Most of you are experiencing declining revenues and lost customers. In an economy such as this, about the only way to displace lost customers and/or grow your customer base is to steal market share from competitors. Now’s the time to dust off your marketing strategy and methods. • Work on your company and product branding. You want to differentiate your company and products as much as possible from your competitors. • Rather than do like everyone else - dropping prices - perhaps you want to restructure your branding and image to attract more high-end customers. • Take a hard look at your advertising methodology and budget. One recent article I read indicated that most companies are still putting the majority of their advertising dollars into traditional media messages, whereas their customers are spending upwards of ½ their time on the internet; and growing. Get with the web trends, get creative, and you might find that you can have a greater impact with fewer dollars. • Use every resource at hand to build goodwill & loyalty. Your investors and employees can be goodwill ambassadors. So can your vendors; who have a stake in your success. Conversely, they can also do you great harm. Reach out to them. Be creative. Involve them in the media and the message. • Be aware of what people are saying about your firm on the web. Google yourself. You might be pleasantly surprised – or horrified. • Use the concept of World-Class Management for good. At its core, this means studying your competition and adjusting your methods accordingly. Look at what they’re doing, right and wrong, and adjust your methods to maximize your impact vs. theirs.

• Innovate. Any new innovation you can bring to market or to your operations will increase your chances of surviving and thriving; but be careful. New innovations usually require up-front investment of time and money. Choose carefully so that you don’t destroy your cash flow now for a benefit that won’t kick in for months or years. • Other companies are obviously having problems too. Is there an opportunity out there to pick up an acquisition at a bargain-basement price that could add critical benefits to your business? For instance, doing an asset-based acquisition could net you a sizable new customer base and/or valuable infrastructure at discounted prices. • Do you have marginal business operations that don’t support themselves? Have you been hanging on to them in the hope that you could someday make them winners? If you can’t make the turnaround now, let them go. Why carry a monkey on your back? I watched a holding company do that; and eventually end up in bankruptcy. They almost destroyed their perfectly good aerospace subsidiary by draining its cash flow to feed two other losers they owned. Don’t go down that road.

Internal Cash Flow Now we get down to the nuts and bolts. • The first expense line most companies cut in hard times is payroll. You should be running a lean organization at all times, and some cuts may be appropriate; but be careful. You don’t want to lose key people who will be needed when the economy starts recovering. Cherry-pick carefully among those who are marginally productive and non-critical to your future. No one wants to do layoffs, especially in a lousy economy, but sometimes it’s necessary. Just make sure you do it wisely. • A major expense line for most companies is IT. Those computers, servers, peripherals, and software packages can run big bucks; not to mention the IT staff required. It’s time to take a look at new trends. For instance, there are companies that offer remote cloud computing. Let someone else have the burden of buying & running the hardware, handling storage & security, and even providing / maintaining the software. It can be accessed through simple internet connections, you don’t have to make big capital outlays, you don’t have to support a big IT group, you’re saved a lot of hassles, and you’ll save money. Look into it. It’s worth the effort. • Lease -vs.- Buy. Every business has to make some investments in equipment, etc. Most of it can be leased; keeping your up-front cash outlays to a minimum. Leasing is generally a little more expensive, and there are tax issues to ponder; but if cash flow is an issue, leasing can be a way to bring in needed resources without raiding the bank account. • Negotiate, Negotiate, Negotiate. Lots of vendors provide products and services to you. Then there’s the landlord. They’re probably experiencing the same problems you are. They don’t want to lose revenues from you, but they don’t want to lose your total business either. Talk to them. Everything is negotiable. Make them your partner; in good times and bad.

• Sometimes companies tend to go a little crazy with facilities & amenities; especially if they’re operating on freshly-obtained capital or credit. Operate frugally. If you’re in big- bucks facilities, look for alternatives. I worked once on a turnaround at a biotech company. They got into trouble partly because the CEO spent lavishly on an overblown laboratory and corporate facility; using funds raised from an IPO. By the time I got there, the CEO and his scientists were gone, and the place was on the verge of bankruptcy. I outsourced both the research & production; at significantly reduced cost. The fancy corporate digs became a thing of the past. Doing those steps and others, we survived – and then we prospered. We had amenities that were civilized; but no more than necessary. • Don’t waste money. Operating & growing with internal cash flow is critical in these difficult times. It takes money to make money, but use it wisely. Watch all of your expense and capital outlay lines like a hawk. Remember: the heart and soul of any business is cash flow.

Internal Processes Making your company lean & mean. • The best companies are reviewing their internal methods & processes routinely. Periodic changes are necessary and appropriate. However, we all tend to get into ruts from time to time. Take a fresh look at what you’re doing, and how you’re doing it; at all levels, and in every function. Look for time-savings, cost-savings, ways to improve product, better branding, more effective selling methods, improvements to finance & administration - everything. Sometimes a professional can help here too. They can look with fresh perspective, and can recommend solutions that you’re not even aware of. • Use the proven process-improvement methodologies that are out there; Lean, Six-Sigma, ERP, MRP, TQM, etc. Not only can they make a big difference to your business fairly quickly, but the nature of the business world is that your customers are probably going to demand that you use them anyway; if they already aren’t. • Choose your projects and methodologies carefully. Some will have longer payback periods than others. Some might be wholly or partially inappropriate to your operations. Do the things that will give benefits most rapidly, and save the long-lead-time and more- expensive items for later.

Turnaround. This is for those of you experiencing severe problems that threaten your business survival. • Act now. Don’t wallow in self-pity and/or hesitate until you’re near the end. The earlier you act, the better your chances of a successful turnaround. • Seek competent professional help. Your skills are limited, as are everyone’s. You’re probably emotionally involved. The strategic application of professional assistance, on a timely basis, can make a huge difference. • If you’ve been profitable in the recent past, your business model is probably valid and you have just been faced with some new challenges. Don’t throw the baby out with the bath water. Take a hard look at what has changed, and adjust your methods accordingly. “If it ain’t broke, don’t fix it.” This is where a professional advisor can help. When you’re up to your neck in the business, sometimes it’s hard to see the forest for the trees. A fresh perspective can be of great assistance. • If you’ve been operating unprofitably since day-one, either you’re early in to your enterprise and it just needs a little time to percolate, or your business model is flawed. Take a hard look, and see if there is something you can alter to hit a winning formula.

Take Sensible Risks. All business involves risk. Choose wisely, but be prepared to take risks. • It’s possible that your business fortunes might improve dramatically if you just took a risk that you’ve been putting off. Take a hard look at your options, weigh the risks, and act on those that make sense. Few actions are totally irreversible if they don’t work out, and you don’t want to miss out on a viable opportunity because of excess caution. • Remember the heady days when you first started out. You felt that you could conquer the world, and you were prepared to take on any challenge. Experience has a way of tempering our attitudes, but you don’t want to lose your entrepreneurial vision.

Manage for Success. Are you making best use of your people resources - including yourself? • Successful people & businesses reinvent themselves often; adjusting to changing circumstances. Stay nimble, try not to get caught in mental ruts, and reassess often. • If you’re leading a company of any size, your primary job is to be visionary & leader – so envision & lead. Let others get caught up in the fine details. Manage them through the results. • My methodology of leadership is simple. I retain competent managers, give them broad instruction, and then turn them loose; managing by results. If the results don’t come, and I can’t see factors beyond the manager’s control that caused it – they’re gone. Those who accomplish are rewarded well. Of course, those managers must exert more direct control over their reports down the chain. It’s their job to get caught up in the details. Choose your own methodology, but this one has worked well for me and I highly encourage you to use it. One thing is for sure - a micro-managing CEO does not understand their proper role. They’re wasting their time and the company’s, and their senior managers resent it. They didn’t move into upper management to be micro-managed. They want to have ownership of their responsibility-areas, and they’ll perform better if they do. There is always the rare exception to the rule, but those people don’t last long under me. I want managers who can lead and accomplish with minimum guidance. Don’t you?

• Are your employees encouraged to share ideas, and do you have an open door policy? If not, shame on you. I’ve seen companies save millions based upon ideas presented by common laborers. Sure, you’ll have to be patient and listen to some hair-brained ideas; but you’ll get some good ones too. They see things you can’t – or won’t. Unless you encourage them, they tend to keep their mouths shut. Reward them too. Let them share in the fruits of their beneficial ideas. Don’t be stingy. Give them motivation. • Your employees are the core of your business. Involve them. Give them a sense of belonging, community, ownership, and pride. Small efforts like newsletters, suggestion boxes, company picnics, etc. come at low cost and can make a big difference. Learn their names, and talk to them. Just a small greeting from the “big cheese” can bring a smile to a worker’s face. If they feel a sense of belonging, they’ll be goodwill ambassadors for your business and they’ll perform better too. • Share the fortunes of the company; in good times and bad. When times are good, reward those who have contributed. When times are bad, talk to them and enlist their aid in doing what has to be done to survive. If sacrifices have to be made, don’t wait until the last minute to tell them. Make them part of the process; and the solution.

• There are other thoughts I can share, but I think I‘ve hit on the critical ones. These thoughts should feed your imagination to explore other solutions. My comments have been largely aimed at mid-size & large companies, but much of what I’ve said is applicable to entrepreneurs too. If you’re opening a business, start it off right with the proper philosophy, methodologies, and culture. If your business is sloppy, and you’re seeing the negative results, it’s never too late to change. What’s my basis for sharing these thoughts? • Thirty-year business background as executive, consultant, and director, with startups –to- global firms, regionally –to- globally, through recessions, downturns, surprises, government stupidity & interference, and a host of other challenges. • Two successful turnarounds. • Two successful business startups • Twelve successful M&A transactions; in good times and bad. • Countless sales boosts, cost-reductions, process improvements, organizational improvements, and other value-adding activities. • Years of experience consulting, advising, and coaching. Want to explore a thought? My contact info is on page one. Good Luck. Al Walsh, CEO Walsh Enterprises

Surviving The Recession

by Alan Walsh on Jul 08, 2009

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Surviving The Recession — Presentation Transcript

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