Panic now and avoid the rush!
With a pending meltdown of the global financial system, a looming global recession, fuel and interest rate pressures and the day-to-day worries of managing a business – it’s no wonder that a whole heap of people are opting to bury their head in the sand and not look at the potential options and strategies for competing in this environment.
Most people will only start to think strategically about these issues when the pressure is really on – and its often too late.
My advice – panic now and avoid the rush!
Plan now and look for the opportunities and minimize the downturns.
I have approached this issue from 3 perspectives, which are outlined in the sections below:
The Perfect Storm
Understand the Impacts
Develop your responses
The Perfect Storm
Recent developments in the global economy have emerged like a scene from the Hollywood movie “The Perfect Storm”, where many businesses are finding the current economic conditions difficult whilst at the same time others are thriving.
We have had the confluence of a number of events that have led the world towards a global recession. This has been headlined by the worst elements of capitalism: greed, poor financial controls, flawed strategy and lousy decision making.
The bad news is that the impacts are already on their way and the extent to which your business will be impacted will vary widely. I believe that we can expect volatility and uncertainty to be the flavours of the day, especially until the financial and credit markets settle down again. The challenge will be to make sure that you can deal with these challenges.
The good news is that times of fundamental change also produce fantastic opportunities for those that are in position to capitalize on them.
You will have competitors that will not emerge from the storm or who will fail to adjust their strategies and give up valuable market share. There will be good quality employees on the market and, you will have the opportunity to divest yourself of poorly performing staff, products and customers.
So, what can we learn from this, even at this early stage and how will it impact your business?
First, bite the bullet and start making plans now.
It is far easier to think clearly and objectively about potentially stressful situations in advance, than it is to make rational decisions while you’re in the midst of the storm – where you will be highly reactive and prone to making on the spot calls that may not be the best option.
The initial step is to make sure that you understand the impacts of globalisation on your business THEN determine the strategies that you can employ to optimise your success in this period of change.
Globalism requires a new paradigm
If nothing else, the current crisis has clearly underlined the global nature of our economy. We are now, more than ever, influenced by the actions and reactions of our international partners. The flow-on effects of the sub-prime mortgage fallout in the United States has swept Europe, Asia, Australia and the Pacific.
It is therefore, critical to understand how your business fits into the global economy. Even if you have no direct trade at a global level, there is a good chance that many of your customers and/or suppliers will be impacted.
Even if the direct global impacts on your business are slight, the indirect impacts via changes in the national economy can be immense – decreases in consumer spending, reduced government spending, higher interest rates, higher unemployment, rising fuel and input costs can all have an impact.
Knowing the extent of your “global exposure” is critical as global changes can change demand for your products from customers and/or increases in input costs from suppliers. This can make your business uncompetitive overnight by driving down revenue and lifting costs.
The good news is that some businesses will be largely unaffected by the changing economic environment. If your business is one of these, what strategies will you employ to take advantage of your position?
Key Questions to ask: What will be the impact on our customers and/or suppliers of a change in the global economy? How will this impact our business?
For 2 models (there are others) that may help you in your analysis, you can use PEST Analysis to summarise the overall impacts on your immediate business environment. (Note: PEST is an acronym that stands for Political, Economic, Social & Technological areas.
Then I would summarise the potential impacts on your business by summarising your thoughts under the following topics: Customers, People, Products (and Services), Prices & Profits, Processes.
Once you have completed this initial analysis – start developing some strategies.
What is your strategy, again? Or You’re selling “what”?
One of the key problems with this current financial crisis is that much of the problem has been created because of flawed strategies.
For example: one of the first regional banks to crash in the USA had made a “killing” by providing 30 year mortgages to owners of trailer homes. The challenge was that trailer homes are typically worth very little of their purchase price after 10 years, and all was rosy until owners started to default on trailer home loans and there was insufficient equity to cover off the large amount of principal left to repay. The resulting snowball effect eventually brought down the bank and several of its regional associates.
Now anyone with even a small amount of common sense could’ve seen that taking a 30 year loan on an asset with a 10 year life was a very risky business and was a flawed strategy in all but the very shortest timeframes.
Too many businesses have similarly flawed strategies for growth or even worse – no strategy. There are a great number of businesses (way too many, in fact) that just keep on doing what they have always done without rhyme nor reason. There is no talk of: business models, marketing strategies, product strategies, pricing strategies. These businesses are essentially reactive, not proactive, to the business environment. They are the “price cutters”, the “layoff kings” and have variable quality and service. We all have competitors (not our businesses, of course!) who fit this description.
The majority of your competitors will see cutting prices (and service) and reducing staff numbers as their only options. These strategies fail to differentiate your business in the market and are largely unsustainable in the medium term. The trick is to have a clear strategy that focuses on building a business model that grows customer value, optimises price points and creates a strong competitive advantage for your business.
If the profitability of your business is under pressure from global recession – what are the strategies that you will employ to emerge from the storm? To use the nautical analogy again (I’m sorry!), “battening down the hatches” will probably not be enough to survive. You will also need to chart a different course (or strategy).
In an increasingly competitive market, there are a number of strategic decisions that you can take to position your business for success. These strategies are outlined in more detail in our webinar presentation “The Perfect Storm” – click here to view this 25 minute webinar (all you need is a computer with broadband access and sound)
Developing a strategy – The key areas to focus on
In developing your strategy for the Perfect Storm, the key areas to focus on are:
Cashflow – this is the lifeblood of your business. Ensure that you have tightened the ship and have sufficient cash buffers to ride out the storm. Look to sales, costs, inventory, debtors and creditors to maximize your cashflow. Tighten financial controls.
Retain your key staff – Ensure that you retain your key staff by looking to job satisfaction, performance management and reward systems in order to do this. Look closely at the real cost of staff turnover in your business and take steps to address the key issues.
Retain your key customers – one of the keys to business success is customer (or client) selection. Take the time to determine the customers that you want to keep working with and what strategies you can employ to retain the in a highly competitive environment. Now is the time to ramp up your training, management and systems in your sales team. This is also a great time to look for new business.
Productivity Improvement – if we are to remain competitive, we can’t just cut prices (if this is your plan – think again, as this is a lazy strategy that does little to differentiate your business) and reduce costs. We need to lift productivity by increasing output at the same cost structure. Applying Lean production techniques to your business is a proven methodology for driving down costs per unit – increased productivity.
Personal Energy – changing times require additional inputs from management. Make sure that you manage your personal energy so that you are in a position to make quality decisions. Regular breaks, delegation and support are important elements. Make sure that you have a good support network.
I obviously believe that engaging an experienced, business consultant (or coach), who is an objective sounding board and who has a depth of experience and strong tools and processes, is an important element of your survival strategy and should provide you with an outstanding ROI. However, you may decide to enlist the services of an external mentor or other professional (accountant, lawyer, adviser) to assist. Either way, I believe that appropriate support will be critical.
If you would like to explore this option further, I am more than happy to spend some time talking with you about we support business owners in any location, using tools like VOIP, GotoMeeting and web-based resources, to ensure that you develop sound strategies and more importantly – implement them . I currently support over 50 businesses across Australia and New Zealand (and until recently the UK) using these resources and methodologies. To discuss these options email me, skype me (russell.cummings) or call 0414 929 585
Ultimately, these 5 areas are areas that you should be focused on irrespective of whether the economy is in disarray, so any planning and thinking that you do here will not be wasted. Just make sure that you do it.
Do it NOW – not tomorrow. Like Nike say “Just do it” –NOW!
Take the time to plan your response – NOW
There is no time like the present for you to sit down and develop your plan to survive the Perfect Storm. It is far easier to think clearly and objectively now than it will be to do this when the pressure is on.
Step 1 Understand the impacts of the changing economy on your business – PEST Analysis, Business Analysis
Step 2 Watch the webinar – click here
Step 3 Develop a One Page Plan – “The Perfect Storm Plan” – for your business. You may need to cascade the plan so that you have individual 1 page plans for different elements of your plan.
Step 4 Get some objective, experienced assistance to develop and review your plans so that you are not building your future on a flawed strategies.
The current economic environment will full of opportunities for those that are well positioned to take advantage of them as they emerge. Good positioning requires planning and strategy to ensure that you are in the “right place” with appropriate resources and support.
I wish you all the best.