Posted: March 03, 2009
How to survive and thrive in the volatile economy
Three crucial cornerstones for thriving despite the recessionBy Larry Turner
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 strategy to thrive in the volatile economy and emerge much stronger than your competitors.
Customer facing activity
Customer facing activity is critical to maintaining or 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 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. For instance, in November 2001, I received letters from two airlines that I flew on a regular basis; I 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, but it planned to extend my status through the next year. I immediately switched all my future travel to the second airline 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.
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 to 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 of 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.
You can boost revenues
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. 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