Recession, what recession?
Article Date: May 30 2006
There is no question that the economy has slowed considerably and the Chancellor’s accumulation of stealth taxes is continuing to take a rising proportion of consumers’ pay out of their pockets. And, little by little, unemployment has risen for 13 of the last 14 months. That other early indicator, advertising revenue, has been trending down for six consecutive quarters with a real year-on-year decline likely for this period.
However, it is possible that the internet has created a new paradigm and the old indicators no longer work.
What is happening now is that winners and losers are emerging faster and the gap between winners and losers has never been greater. This applies to whole sectors as well as individual businesses. For example, the DIY retail sector is in recession whereas the growth in online gambling is extraordinary. The popular press is in recession but search engine revenues this year will be greater than all national newspaper advertising in the UK.
So, if your sector is depressed or you sense there’s trouble around the corner, it’s important to remember that ambitious, fast-growth companies can turn recessions to their advantage. We’re not talking about ‘surviving’ in a recession, but ‘winning’, although not surprisingly some of the techniques are common to both.
As a veteran now of five recessions, here is what I recommend:
1. Is your management in denial? Are you? A major error in recessions is to assume it’s a ‘temporary blip’ and ‘if we hang on a bit longer, things are sure to get better’. Many of our competitors approached the 2001/2 recession in that way and were wallowing for 18 months. You should assume things are never going to get better and that any upturn is a bonus.
2. Having accepted that there is a recession, you should be worried, there’s nothing wrong with that. But you must show your concern selectively to staff. Obviously senior managers must be involved, but making your more junior staff aware on a day-to-day basis creates a morale problem. It’s worth remembering that the most common form of stress (as opposed to pressure) is caused by carrying big problems that you can do nothing about.
3. Now make up your mind: are you going for margins or market share? This will affect your company’s pricing policy; staffing and overheads. And you can’t maintain both – something has to give in a recession.
4. Drive through tough decisions. Who have you outgrown? Who is cruising? Who has not kept up with the changing needs in the company as you’ve grown? Who have you brought in to manage a ‘more sophisticated service’? Those professional managers you were told to bring in to help build your business, how many are adding value?
5. Be cruel to be kind – it will be expected of you. I once made the mistake in a recession of hanging on to all staff for as long as possible. To my horror, this was seen in the company as weak management. It meant that we’d lost time and money and had to make even more redundancies as a result. So, cut early, and cut deep. It sounds savage, but it’s the best policy.
6. Cash is king – but do you have any? Depending on the answer, you’re faced with totally different decisions. This is the time for bottom fishing. Nearly everything will be available at lower prices (or with extra value thrown in). Some lose their nerve when the going gets tough. This is the time when just keeping silent after a supplier has named a price can result in progressively greater discounts! You can, of course, be on the receiving end of this too, so spend time on negotiating tactics.
7. Cash management is key. Make sure you know exactly how your clients’ payment systems work. Then either fit into that process to maximum advantage or go round it. For example, invoicing earlier, breaking the amount up into several, smaller ‘qualifying’ invoices that require a simpler procedure because they are below a certain threshold, or billing part of the cost upfront, may be solutions. Don’t let your client contact blame everything on the accounts department or wash their hands of your payment predicament. Be prepared to embarrass them: ‘Here I am totally preoccupied with payment problems rather than concerned with helping your business’, or, ‘I reckon your company is 300 times bigger than ours and yet we’re meant to be financing you!” Despite people’s fears, you rarely lose clients by being direct about money. You have to think, “overdue debtors are bad debtors”.
8. Keep close to your clients. Make sure you really know what their problems and needs are. They most likely have changed in a recession. Get people out of administration and into the front line. You have to maximise your revenue-earning potential.
9. Your income is your clients’ expense. Think about it – get into your clients’ heads. Their perspective is totally different from yours. Remember, nobody gets fired for delaying or cancelling expenditure in a recession.
10. Big projects stand out. They’re the easy things for your client/prospect to cancel or postpone in a recession. So, look for small, recurring income that doesn’t come up on the radar screen.
11. Renegotiate everything.
12. Be totally open-minded about outsourcing. This is no time for pride or sentiment!
13. Cut expenses. Fly less, video conference more. How many of those subscriptions do you need? What about the flowers in reception? It’s amazing how costs drift up in the good times.
14. Be very selective about how many ‘investments’ you carry. I tend to be the entrepreneur who is always trying several new things at once. In good times you get called ‘brave’ or even ‘visionary’ when one of them comes off spectacularly. However, in bad times, the chances of these ‘investments’ being a success is lower and you are much less able to afford hits to the main business. Again, see it early – I know of a company right now that is in real danger of being dragged down because they have hung on grimly to two embryonic divisions when their core company is in a downturn.
15. You’re not the only one struggling! Take a good look at your competition: who can be taken out? Do you buy them or set up a joint venture on highly advantageous terms? In the 1993/4 recession we applied these techniques to great effect at CIA and increased our purchasing power dramatically. Are clients’ in-house facilities vulnerable? Can you persuade them to outsource it to you, perhaps delivering the economies of scale you were missing? Are there competitor companies tucked inside larger groups where you can persuade the holding company that the business is not core to it?
To summarise: make sure you’re the last one standing!
