My Strategy for Managing the Downturn

Those of you who know me, know I love managing.  Im a management freak.  I enjoy creating and extending efficiency and go to great lengths to establish legitimacy in areas I consider important.  So when the economic climate drastically changes in a compressed period of time, I try to recognize it early and act with great care.

Here we are.  October 2008 with a complete lockup in credit markets, a plummeting stock market, and a generally terrified business climate.  How does a business survive this crisis in tact?  I don't think there is a clear cut answer to this question, but I can tell you what Im doing to be the best steward of my company's future I can be.

Three First Steps

First, remember history.  When you look at financial crisis points of the past, you find that knee-jerk reactions are responsible for setting the stage for eventual failure.  Essentially putting the nail in the coffin too early.  You have to avoid the impulse to act too quickly when you see the danger signs come up on your radar.  I prefer to advocate a "surround and strangle" approach to problem points affecting the organization.

Strategy one:  

If you must act, address the issue confronting your organization and act within that context.  

Example:  If you loose revenue due to client defaults, and must cut in your organization, find the most common elements within the client defaults and start there.

Second, change the way you look at financing your organization.  If I said that I have a way to run a company without the need for credit; Id have a gold mine on my hands.  However that is exactly what small and mid-sized business must do in order to give themselves a fighting chance to survive.  In my company, I have instituted a company savings plan.  We are raising cash to create a multi-month expense buffer, and as an organization will not spend dollars on anything but essential costs until our goal is reached.  To ensure this ongoing, we have also instituted controls that allow for the maintenance of this savings buffer should we have to use it at any point.

Strategy two:  

Creating the ability to self-finance through lean times retains equity and creates a strong foundation.

Added Win :  This number can generate a hefty interest payment.  Establish a separate fund for interest retention and spend it on over the top expenses should you need it.

Third, your clients and your vendors are gold.  Treat them that way.  Right now business must stick together.  If you aren't a public, massively scaled organization, you are dependent on other businesses for your work and revenue stream, and are therefore vulnerable to a cascading stream of business defaults.  While this may seem out of your control, information gathering isn't.  Make it the business of everyone in your organization to know your customer and collaborate about the status of those customers.  In other words, communicate, communicate, communicate.

Strategy three:

Know your customers even better.

Added Win:  Customers deserve, and should always get as much attention as you can give them.  Done correctly, this strategy pays off at both levels.

Conclusion

There are no silver bullets, and anything can happen really.  However assuming an even playing field and a strong hand on your organizational metrics, you can manage revenue downturns, key vendor failures, and staff contractions better with an incremental and focused approach.  The primary goal should be to get as early insight into potential problems as possible, act within the context of the issue, and ensure that you have the ability to meet your obligations while this is occurring.  As long as you can maintain this level of legitimacy, you can survive to fight (and earn) another day.