Wednesday, October 1, 2008


If you looked into a crystal ball…what would you see?

Consumer spending—up. Government spending—up. Inventories—low. Factory orders are surging. Money is cheap. The stock and housing market is booming. And talent is available. Sound too good to be true? Well it happened in 2002 right after the big dip in the economy following the last recession. And if history repeats itself, an upswing may be just around the corner.


Throughout the past century, businesses have had a habit of becoming too lean during a downturn. So when the economy picks back up, they have trouble getting back on track.
Want to ensure you're ready for growth? Then keep following the lessons you've learned during the last several months:

During a recession, businesses scrutinize every expense. Why stop when profits increase? While you shouldn't be pennywise and pound foolish, you should continue to treat every expense as an investment. If the investment won't yield improvement in your efficiency, cost structure, or ability to service customers, don't make it! Some of the smartest places to put your money in the coming months include:

• Technology enhancements to improve productivity
• Infrastructure development to increase capacity or operational flexibility
• Product developments to better satisfy customer needs
• Process improvement to increase efficiency
• Training and employee development
• Sales and marketing

Set a goal to become the lowest cost producer of the goods and services that best satisfy your customers' needs. In manufacturing, they call this lean thinking—eliminating all waste from production processes. The goal is not to become the cheapest—it's to become the most efficient producer at the level of quality your customers want. At the same time, focusing on process helps to drive improved consistency, which is one of the most important drivers of quality.

Leverage can be essential for capital projects, but avoid having too much of a good thing. Did you know that five of the last seven recessions were "double dip" recessions—two periods of decline with a brief rebound in the middle. Protect yourself by borrowing no more than you can comfortably repay in three to five years assuming zero to moderate revenue growth.

Profit is no excuse for poor performance. Key indicators are those metrics that predict future performance in your industry. Unlike financial statements, which are backward looking, key indicators allow you to forecast future results. While every business is different, key indicators to watch may include:

• New Orders — the pace of orders can show the direction your business is heading
• Inquiries — the volume of inquiries is a measure of future results as well as the effectiveness of sales and marketing activities
• Conversion Rate — a measure of the market and the productivity of your sales efforts
• Days to Pay — an indication of your clients' financial health
• Quick Ratio (A/R divided by A/P) — watch for trends to see how well you're managing cash
• Service Request / Customer Complaint Volume — an indicator of product and service quality

Want to know the dumbest statement ever made by a CEO — and this is an actual quote: "We're so busy right now that we don't want any more new customers." This comment was made by a CEO in 1999, and guess what, he got his wish—he went out of business shortly thereafter.

Every day your business is headed in one of two directions: up or down. It's obvious, but it needs to be said—you always need new customers. While advertising traditionally increases during good times, sales efforts often get less aggressive as more time gets spent servicing existing clients. Avoid the temptation to turn sales people into service reps, and instead, increase quotas as the economy improves and invest the revenue into developing your capacity for service.

It's funny—and sad—how many businesses had to be reminded to focus on building client relationships during the recession. Strong client relationships are a critical asset in any economy. Don't wait for business to get better to go out and look for new ways to help your customers. Get out there and find out:

• What you do well and where you can improve
• The challenges your clients face and how you can help
• The new products and services your customers are going to need
• New contacts you can work with inside existing accounts
• New applications for your products and services at each customer site
• What you can do to win a 100% share of each customer's business

No question, it's tough to stay positive and optimistic during a slowdown. But it's essential. Negativity spreads and can eat away at the core of your culture. Regardless of whether business goes up, down or sideways, find occasions to celebrate. Reward people for their results. Recognize them for their efforts. And constantly give them a reason to smile and feel good about the future. Optimism is contagious—it breeds excitement, a willingness to work hard, and it gives customers more desire to work with you.

1 comment:

  1. Interesting piece. Built from common place experience and holds true.

    We tend to ignore what is obvious....thanks