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

Tough Times Require Greater Employee Communication

Even the best leaders hear their employees complain about the lack of communication in a company. I have heard this complaint even in companies where I had some communication effort reaching out to the work force on a weekly basis. This is an indication that the employees need regular communication to help them feel engaged in the company and move the company forward.

The employees will fill any void of information with their own assessment of the situation, and in most cases this information does not operate in reality. This informal communication channel then provides the wrong message for a broader employee base, which in many cases demotivates and disrupts the direction of the business.

A lack of internal communication is a problem in good times, and is detrimental in difficult financial times. Instead of focusing on the daily work at hand, employees get caught up in the rumor mill resulting in an atmosphere of fear and concern. The end result is a loss of productivity and more importantly a reduced level of customer service by those employees responsible for dealing directly with your client base.

The senior leadership of a company can prevent this from happening by implementing a proactive communication program. The tactics may be uncomfortable for those senior leaders that spend most of their day sitting behind a desk, because it requires them to get out of the office and spend time with their teams. A few tactics that I have used successfully with teams as large as 1,600 people include:

1.) All Employee Meetings -- I have found that a monthly meeting of all employees provides an opportunity to cover information ranging from progress on initiatives to financial results from the previous month. Even in privately held companies, where there is a need to keep financial results confidential, I have shared how the company had done compared to key financial targets. For example, "last month revenue was better than planned, but profit was short due to unexpected expenses related to..." This provides even the front-line employees with a feel on how the company is performing, and it also gives the senior leaders an opportunity to explain how the different departments contribute to the financial results of the company. I have never had an employee tell me they would rather not know how the company is performing.

2.) Employee Emails -- Take advantage of email to communicate with all the employees that have access to provide updates through the month. The information may be a new sale that just closed, progress on hiring a key position, customer feedback, or the company being highlighted in the press. Communicate the good and bad! Your employees will hear and see the bad, so take a proactive approach and communicate it up front with an explanation they can understand. Emails should be relatively short, and anything that takes more than a 4 sentence paragraph probably deserves an additional all company meeting to explain.

3.) Bulletin Board Posts -- Bulletin board posts allow all employees to share in the information outlined in the employee emails. Post everything that goes out in email as well as any company related articles in the press that did not get communicated in an email.

4.) Walking Around -- I cannot emphasis enough the need to get out of your office and "walk" around the company. It may be walking through the assembly or manufacturing area, spending time in engineering, calling a customer, or making a sales call with your sales and marketing teams. This gives you first hand knowledge on what is happening in your company and allows you to talk to those employees closest to the process and closest to the customer. One of my favorite activities is dropping in to observe a meeting that is taking place (My management team in one business referred to this practice as a "drive by" -- if I was walking by a meeting and it looked interesting I would stop in to observe), which allowed me to hear the issues and observe how my teams were handling with topic.

Increasing communication with your employees will yield a more engaged and effective work place. This could be in the number of widgets produced, but more importantly improved customer interactions and workplace team dynamics. Improving the level of communication with your employees will position you to emerge from these tough economic times a stronger company. Hopefully the economy improves sooner, rather than later.

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 in all stages of company life cycle. For additional information visit www.RoundhouseAdvisors.com