Don’t Just Survive … Dominate in a Recession
©John L. Mariotti 2008
Here is the last 4 ways to beat your competitors in a recession:
4. EXPENSES: Quit spending! Cut all but truly essential expenses, but don’t cut spending on new products and marketing; those are your future. Get rid of ALL the nice-but-not-necessary things – temps, contract services, memberships, dues, subscriptions, high-priced travel, conventions, parties, FedEx, premium flights, expensive limos, hotels, and meals out – at the company’s expense.
5. CASH FLOW: Watch cash flow like a hawk. Make a spreadsheet (you should already have one) projecting cash flow 13+ weeks out, in detail. Collect fast, pay slow; take only the big cash discounts. Use checkbook-style, open-to-spend processes, starting with how much you have and then deducting items as you spend. Stop spending before cash runs out.
6. HEADCOUNT: People are usually the largest cost (after purchased materials) in a business. People don’t just cost wages and benefits; they spend money and consume resources. Carefully evaluate your people. Sort them into four groups: A – Great – these are the keepers, and tell them so; B – Good – you want to keep them, and tell them, too; C – Fair – questionable; D – Weak – under-performing or unnecessary, and you should cut them now! Find the ones in the “Fair” group who can grow into “Good,” and work with them. Dump those who can’t grow, or won’t grow, along with the “Weak” ones.
NOTE: These groupings have nothing to do with organizational rank—a “Great” customer service rep might be far more valuable than a “Fair” senior executive. Weak or unnecessary people in high paying positions should be cut first. Also, combine jobs to remove highly paid positions—CFO, Treasurer and Controller can often be combined into two jobs by reallocating work. Next, cut excess people added in “good times.”
7. LOWER THE BREAKEVEN: Classify expenses as “Fixed” or “Variable.” Variable costs (expenses) go into every product or service. Fixed costs are determined by decisions about the business’ structure and size. In a weak economy, expect volume to drop – this means you must cut fixed costs fast, and resize the business to the market. Pricing must recover variable costs, and contribute to covering fixed costs, S. G. & A (sales, general and administrative costs), interest, and hopefully yield a profit. (Note: Using EBITDA as a metric is dangerous; it excludes interest—a cash outlay.)
Getting through a recession is like getting in shape after gaining weight. Exercise—make the right moves. Eat properly – “feast on competitors” – by selling the best products, to the best customers. And don’t quit when the going gets hard. Running a business is supposed to be hard; if it weren’t, everybody would be doing it. Now get out there and don’t just survive, attack and dominate! It’s a lot more fun than the alternative.
John L. Mariotti’s new book “THE COMPLEXITY CRISIS—Why Too Many Products, Markets & Customers Are Crippling Your Company – And What To Do About It” is available at www.amazon.com, www.800ceoread.com and most leading bookstores. Mariotti, former President of Huffy Bicycles and Rubbermaid Office Products Group, is President & CEO of The Enterprise Group, and author of eight books business books and hundreds of articles and columns. He serves on several corporate boards, advises companies and does public speaking. He can be reached at www.mariotti.net.