SURVIVING A RECESSION
[and maybe even prospering]
by Terry
Goodwin [1]
In
good times, from a business perspective - in other words when business is
buoyant and the orders are coming in without too much prompting and being filled
with relatively little hassle - there seems to be no point in looking beyond the
bottom line of the balance sheet.
But
let a recession strike, let orders drop, let prices become subject to downward
pressure from clients, and suddenly gloom is in the air and accusation’s
finger starts to point – usually downwards from top management.
This
is stating the obvious, isn’t it? But
sometimes the obvious is only obvious with 20/20 hindsight.
To
make the obvious even more obvious, therefore, the best way to survive a
recession is to anticipate a recession and take precautionary measures even
though they seem to be unnecessary. You
need a game plan. You need to draw
up strategies for survival.
What
are the three main ingredients of such a game plan?
1.
Added Value. Your clients
must believe that they are getting at least what they are paying
for – be it goods or services – and probably more than is being offered by
your competitors.
2.
Added Value. Your clients
must believe that your product or service is unique; it has
features that other suppliers simply cannot provide.
3.
Added Value. Your clients
must trust and respect you. They
must believe that they enjoy a special relationship with you that is unrivalled
elsewhere.
I
did say I would be stating the obvious, didn’t I?
We all believe that those three ingredients are an essential part of a
successful business. The trouble is
that too few companies are concerned with them in boom times. But come the downturn and personnel start running around like
headless chickens.
The
time to produce your game plan – your strategies for survival – is precisely
when you do not feel you need it. One
of the major contributors to the economic cycle of boom and bust in the stock
market is the state of mind of investors. When
they are feeling optimistic they cannot imagine the FT or Dow Jones indices
doing anything but move heavenwards. Let
the index drop a few points, let a natural catastrophe occur, or the threat of
war appear in some godforsaken area of the world, the optimism can vanish
overnight. Suddenly the market
shifts. Soon it begins its downward
plunge. Pessimism is now the order
of the day. Sell, sell, sell.
And prices plunge still further.
Yet
bigger stock market profits can be made at a time of falling markets than in
times of expanding markets. The
great Wall Street crash of 1929 produced its share of suicides; it also produced
a quota of fortunes for those whose financial game plan anticipated the survival
strategies that involved purchasing AT&T and General Motors when they were
heading towards apparent extinction, and holding them for their revival.
But
of course you knew all that. I’m
telling you the obvious again.
What is never obvious, however, is how these strategies apply to your own particular business. Even less obvious is to anticipate the need to apply them. Furthermore, just as some investors made their greatest killings at a time when others were killing themselves, it is possible for businesses, at a time of recession, not merely to survive, but actually to prosper.
To become one of the businesses that gain when others lose you need to take your head out of your balance sheet, put considerations of cash flow to one side, and concentrate on other features of your business. The ability to gain the confidence, the respect and - above all - the loyalty of your customers begins - like charity - at home. This is not to say that you can afford to disregard asset management, but you would be ill-advised to concentrate your energies on it to the detriment of your employees, nor to concern yourself with the latter to the detriment of your customers. The three considerations are inextricably interwoven at all times, but never more so than in recessionary conditions.
I would suggest that, given a recession, the main financial concern of Management should be simply to ensure break-even. Considerations of profit should take second place to re-investment of funds into personnel resources: use your people to ensure that receivables do not spiral out of control; collect your debts regularly and efficiently; do not moan when a debtor goes bankrupt: "But they were always so reliable!" And resist the temptation to cut back on marketing expenditure. This means both your sales force and your advertising budget. It is essential that your sales people maintain - and even increase - contact with new and existing customers, both in order to secure new business and to monitor the state of health of debtors.
Certainly you will have to cut costs at these times; the first and most obvious area to examine is that of outgoings that may be easily pruned, but it must be done sagely and not at the expense of gaining or administering business. Never forget that you do not need to make a profit in order to survive; you merely need to cover costs. And in times of business downturn, breaking even should be the bottom line. Resources therefore need to be allocated where they will do the most good as far as survival is concerned; profit is very much a secondary consideration. Do not cut costs where customer confidence or staff morale may suffer. At the risk of boring you, I repeat that in recessionary conditions your two major assets are contented customers and happy staff.
Welcome the challenge. When the going gets tough . . .
But you know that, don't you?
Biodata:
[1] Terry Goodwin was senior marketing executive at Finexport Ltd in London and Bangkok until his retirement in 1992, since when he has been in private practice as a marketing consultant.
[2] See A Letter from the Editor in the Business section.