How To Dominate In A Recession

People behave in contradictory ways during times of stress — such as during a recession. Too many business owners in too many companies become paralyzed by fear or indecision. Recessions are part of business cycles, just like growth periods. Thus, managing during a recession is part of your job — perhaps the most important part.

But what should managers do differently? The answer is “a lot,” but not “everything.” If, as a business owner, you have managed through recessions before, you may remember what to do — assuming you did the right thing. If not, consider this short story:

A man was walking along the street, and as he passed a construction zone, he fell in a deep hole. One with walls so steep he could not get out. He yelled for help. 

The first passerby was a doctor, who asked if he was injured. After answering that nothing was broken but he hurt all over, he saw a prescription float into the hole and the doctor was gone.

The next passerby was a minister. The minister asked if the man was alright, and when the answer was a reluctant “yes,” a prayer on a slip of paper came floating into the hole. 

The third passerby was the man's best friend, and the man in the hole was jubilant. Until his friend jumped into the hole with him. The startled man asked his friend, “Why did you do that? Now we're both in the hole.” The friend answered, “Yes, but I’ve been down here before and I know the way out!”

The man in the hole felt frightened because he hadn’t been through the experience before, and didn’t know how to get out — fear of the unknown is natural. If you haven’t been through a weakening economy before, you may think of yourself as the man in the hole.

The mere word “recession” triggers fear of the unknown. How bad will it get? How long will it last? What should we do? If these are your reactions, don’t feel bad. These fears are normal when facing unpleasant events of unknown severity and duration.

The biggest mistake you can make is to act too slowly, but it’s also important to act with carefully considered intent. The second biggest mistake is denial:  “This can’t be happening” or “It can’t get any worse.” Yes, it is, it can and it probably will. The third biggest mistake is to become defensive and reactive. When that happens, you will always be a step behind the competition — and a step late in meeting your customers’ needs.

The secret is not to concentrate on “survival.” Instead, concentrate on taking steps to dominate the competition. When the recession ends and recovery comes, you’ll be on top. Coincidentally, those same steps are the right moves to survive the recession, too.

Here are the six most important steps to take when preparing to dominate the competition:

1. “Attack!” — By definition a “recession” means negative growth, but that doesn’t mean there’s NO business. There’s just less, and it takes more targeted effort to capture it. That’s when “dominate” comes into play. If you read further down this list, you will know to choose the right customers, and push the right products. Get out there and get a larger share of the remaining business. Attack, don’t defend! Be proactive, not reactive!

2. Products — Sort your products in descending order of annual revenue and profit. First, consider the items at the top. Where are they on the “product life cycle”? New and still growing or old and declining? Which are neither growing nor declining? Those will decline next. Now is the time to “rejuvenate” them or drop them. Reduce the drain of old, tired products, and make room for new ones.

3. Expenses — Quit spending! Cut all but truly essential expenses, but don’t cut spending on new products and marketing; those are your future. Get rid of ALL the nice-but-not-necessary things – temps, contract services, memberships, dues, subscriptions, high-priced travel, conventions, parties, FedEx and meals out.

4. Cash Flow — Watch cash flow like a hawk. Make a spreadsheet (you should already have one) projecting cash flow 13+ weeks out, in detail. Collect fast, pay slow; take only the big cash discounts. Use checkbook-style, open-to-spend processes, starting with how much you have and then deducting items as you spend. Stop spending before cash runs out.

5. Headcount — People are usually the largest cost (after purchased materials) for a business. People don’t just cost you their wages and benefits; they consume resources. Carefully evaluate your people. Sort them into four groups:  A = Great – these are the keepers, and tell them so; B = Good – you want to keep them, and tell them, too; C = Fair – questionable; D = Weak – under-performing or unnecessary, and you should cut them now! Find the ones in the fair group who can grow into good and work with them. Dump those who can’t — or won’t — grow, along with the weak ones.

NOTE: These groupings have nothing to do with organizational rank. A great customer service rep might be far more valuable than a fair senior executive. Weak or unnecessary people in high-paying positions should be cut first. Also, combine jobs to remove highly paid positions, i.e., CFO, treasurer and controller can often be combined into two jobs by reallocating workload.

6. Lower the breakeven: Classify expenses as fixed or variable. Variable costs go into every product or service. Fixed costs are determined by decisions about the business’s structure and size. In a weak economy, expect volume to drop — this means you must cut fixed costs fast, and resize the business to the market. Pricing must recover variable costs, and contribute to covering fixed costs, sales, general and administrative costs and interest, and hopefully yield a profit.

Getting through a recession is like getting in shape after gaining weight. Exercise - make the right moves. Eat properly – “feast on competitors” by selling the best products, to the best customers. And don’t quit when the going gets hard. Running a business is supposed to be hard –  if it weren’t, everybody would be doing it. Now get out there and don’t just survive, attack and dominate! It’s a lot more fun than the alternative.

John L. Mariotti’s new book, “THE COMPLEXITY CRISIS—Why Too Many Products, Markets & Customers Are Crippling Your Company – And What To Do About It,” is available at www.amazon.com, www.800ceoread.com and most leading bookstores. Mariotti, former president of Huffy Bicycles and Rubbermaid Office Products Group, is president and CEO of The Enterprise Group and author of eight business books and hundreds of articles and columns. He serves on several corporate boards, advises companies and does public speaking. He can be reached at www.mariotti.net.