Lessons Learned In a Downturn

In 2009, the recession was technically over due to some modest growth. As the economy continues to become healthy, it is an excellent time to examine the companies that did more than survive during this recession.

During a recent Rocky Mountain Association for Corporate Growth (ACG) Corporate Executive Series breakfast meeting the subject was discussed by three senior executives that were able to improve their business results during this period, including one company managing through a Chapter 11. Panel participants included Anthony Carroll, CAO, Vicorp Restaurants (Village Inn and Bakers Square restaurants); J.D. Johnson, President, Nogren Americas; John Zimmerman, CFO, Tomkins plc. The panelists shared a great deal of information on specific initiatives to improve financial results during the recession, but there were five overriding strategies that each company employed:

Move quickly

Identify issues in your business and initiate changes quickly. Don’t get caught up in gathering and analyzing data, but rather make changes once trends start to appear. Those companies that react quickly in difficult situations (economy driven or self inflicted situations) are those that will have the best chance of emerging quickly and healthy. Moving quickly means there may be mistakes made, but most can be recovered from as long they are not catastrophic mistakes. A business that is not making mistakes is one that is not moving quickly enough and will most likely be left behind.

Communicate the situation to your employees

Provide your employees a real understanding of the situation and what the goal of the company needs to be in the recovery. Your employees are the most knowledgeable about the detail workings of your business, and they are your best resource in resolving problems.

One company that presented at the ACG meeting solicited input from the employees on how to reduce payroll costs. The employees were briefed on the situation and asked for their recommendation on headcount reductions, reduced work weeks, or reduction in salary. The company ultimately had to use a couple of the options, but the employee base was appraised of the decision and appreciated the opportunity to be a part of the decision process.

Increase frequency of reporting

During difficult times it is necessary to have as transparent an organization as possible. The reporting of key metrics becomes critical and each had reporting stepped up drastically. Once company described the increase in their business as “reporting that was done yearly was now monthly, monthly reporting was now weekly, weekly reporting was daily, and daily reporting was many times each day.” Focus your efforts on the important metrics of your business. It may not be possible to increase all reporting, but those that are drivers for your company need to be reviewed more frequently and by all management that can impact the results.

Communicate to your key customers

Your key customers need to be a part of your communication strategy. The communication needs to be more than just a letter from the president. Your key customers deserve face to face meetings to learn of your progress and in times of economic difficulty how you can partner with them to create a stronger relationship.

Initiate revenue enhancement programs

Even in a recession there are ways to increase revenue. Cost containment is a given, but not a cure-all in a poor economy. Companies that focus solely on cost reductions will lag their competitors and emerge from a recession a weaker company.

All the companies on the panel discussed price increases and promotions. Each had their own way of increasing sales, based on their specific industry. Norgren Americas had a strategy of telegraphing price increases well in advance to condition their customers prior to the increase. Tomkins took advantage of the downturn to exit unprofitable businesses and focus their marketing and sales efforts on industries and businesses with growth potential. Vicorp Restaurants refused to play in their industry’s love of coupons.

Summary

These five strategic actions are not new, and I find that they are reoccurring in many of my articles. It was interesting to hear these three senior executives from very diverse industries talk about the same things that I have experienced firsthand in companies I have run over the past 15 years.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is a consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms”. For additional information visit www.RoundhouseAdvisors.com

Survive and Thrive in The Volatile Economy

The economy is certainly an issue when trying to run our businesses, but it is possible to implement programs that allow you not only to survive but more importantly thrive. Putting your head in the sand to ride out the recession is a normal response by many managers… Don’t do it! You can rise above your competitors by taking steps to build your business.

The following areas can become the cornerstone of your business strategy to thrive in the volatile economy and emerge a much stronger company than your competitors:

Customer Facing Activity
Customer facing activity is critical to maintaining and growing your revenue. Any initiatives that focus solely on cost cutting will result in continued cuts to match an ever declining revenue stream. During turnarounds and right sizing programs, it is critical to stabilize your revenues in order to build a healthy company.

It is easy to cut the sales and marketing departments in slow economic times, because “they are not closing any business anyway”. While this is true in companies that focus only on cost cutting, it is not true if you concentrate on stabilizing or increasing revenues as an integrated management approach.

The customer service department is another area that is an attractive cost cutting opportunity, but it is also a good place to differentiate from competitors. An example of how you can differentiate yourself with customer service in a downturn:

In November 2001, I received letters from two airlines that I flew on a regular basis and had elite flier status on both. One airline informed me how many miles or segments I needed to maintain my status, and the other airline explained that they understood that many companies had cut back on air travel since 9/11 and was extending my status through the next year. I immediately switched all my future travel to airline #2 and strongly suggested that all my employees do the same.

Focused Cost Cutting
Ignore the impulse to make cuts across the board when going through a cost reduction program. When making cuts, it is important to maintain customer facing functions and focus initial cuts on “back office” activities. Back office functions include accounting, finance, human resources and IT departments – all areas that do not interface with your customers and can be supplemented with outside resources.

Use a tool like customer profitability analysis to identify cost cutting opportunities in the “customer facing” functions. This process will identify those customers that are unprofitable and in most cases suck your organization dry of valuable resources. “Fire” your unprofitable customers, so you can focus on those that are profitable.

Once you have eliminated the activities associated with your unprofitable customers, it is now time to cut costs associated with the “fired” customers in your customer facing functions. Taking this approach allows you to provide a consistent level of customer support and maintain a sales staff to grow your business.

Marketing Spend
It is easy to “go dark” and eliminate your marketing spend to save money. Going dark is essentially putting your head in the sand and giving in to the poor economy. There are a number of studies that have been done to evaluate the effects of marketing spend on the results of a company during and after a recession.

One such study was done by ABP/Meldurm & Fewsmith in 1979 to evaluate those companies that did not cut marketing expenditures during the 1974/1975 recession. They found that companies that did not cut their marketing spend experienced higher sales and net profits during the two years of recession and the two years immediately following than those companies which cut in either or both recession years.

This is due to the cumulative effect in marketing communications. When you start a marketing program it does not result in an immediate impact on sales, exposure or improvement to brand; instead it takes many months of continued exposure to provide momentum. For this reason, it can be easy to cut back on marketing because there may not be an immediate impact on sales, but rather a slow decay.

In Summary
It is possible to increase revenues during an economic downturn, but it takes hard work and a focus on results. Any cost cutting program needs to be paired with a program to stabilize or increase revenues; otherwise you will be forced into the downward death spiral of continual cost cutting. You stand a better chance of thriving in the volatile economy through targeted cost reductions, maintaining customer facing activities and not cutting your marketing spend.


Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. For additional information visit www.RoundhouseAdvisors.com

ref: “How Advertising in Recession Periods Affects Sales,” American Business Press, Inc., 1979