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When the Bubble Bursts

“When the Bubble Bursts”

10 ways to navigate the waves of an economic downturn.

With all the talk of a downturn, it’s easy to worry about when and how stormy economic weather will hit you — if it hasn’t already.

Remember, downturns have long been part of the business cycle. By preparing for their inevitability, slowdowns can be turned into upward mobility.

The key to surviving and thriving a bad spell is to be certain that the downturn is real and not merely media generated. Too often, salespeople read about impending doom and accept it as a given, rather than checking to see if it really exists in their industry.

Downturns actually can help a business. When the tide stops lifting all boats, a business owner can better determine his or her company’s specific strengths and weaknesses, enhancing the former and shoring up the latter. Slowdowns also provide a chance to prune any dead wood that may have been holding down long-term growth.

Here are 10 key strategies to help you come out on top:

  1. Review your business plan. Make certain that you’re following your plan. In fast-paced, high-sales periods, businesses often create products or services that may be profitable but take them in an entirely different direction. When those sales begin to erode, the company’s true mission has been forgotten. As you search for new opportunities, ensure those activities match the plan that fueled your success.

    Caution: You can draw your company into a deeper downturn by refusing to admit that you strayed from your original course. ‘Fess up and get back to business.

  2. Examine operating expenses. Almost every business has some fat in its budget that can be trimmed. This might be certain services, equipment rentals, employee perks or other controllable expenses. When you initially committed to those expenses, you may have regarded them as investments that would pay off later, such as an advertising campaign. But if sales are decreasing, it’s time to slice whatever’s expendable. Don’t stop putting your name out in the market, but consider cutting back the number, size or frequency of the ads you’re running.

    Staffing levels also must be addressed. Granted, no employer likes to lay people off; however, you cannot afford to maintain marginal employees as work subsides. Consider providing outplacement services to help displaced employees find more suitable positions with another company.

    If you’re raising funds from venture-capital sources, try to raise enough cash so your business remains fully funded until it becomes profitable. Don’t assume that you can get a fresh infusion of cash at a secondary stage.

    Your business plan should offer investors several strategies for reaching profitability, based on different levels of funding. In the wake of the technology crash, investors today want to see the basic path to profits more than any other consideration. Be conservative in your estimates for getting there.

    Also consider using current positive cash flow to reduce debt. Your stress level and bank account will benefit in slower times if the company doesn’t have heavy debt that drains revenues.

  3. Level with your staff. Communicate openly with employees about the company’s position. Stress that job security for all employees is uppermost in your plans as you look for the best ways to succeed amidst economic turmoil. Gossip and fear can siphon productivity before a downturn actually impacts the company. As a leader, it’s important to communicate and keep your people upbeat and focused. Three sand traps to avoid:
    • Don’t be the Lone Ranger. Brainstorm with employees. A more autocratic approach may be able to exist in a strong economy, but it will hurt in a downturn. Create cross-departmental teams, and try to find ways to boost productivity or cut costs.
    • Don’t be afraid to discuss bad news. Employees typically fear the worst, and the truth rarely is as bad as they expected. Knowing where they stand alleviates dread.
    • Don’t use layoffs as a way to force productivity gains by loading extra work onto remaining employees. More work for less people is a recipe for disaster. Discuss new duties with any employees who are affected, and acknowledge their increased workload. Reward them through new titles that reflect their responsibilities, bonuses for achieving goals and other perks. Warning: Any savings realized through layoffs can be meaningless if remaining employees are resentful and distrustful; negative attitudes can result in reduced productivity.

    Encourage employees to attend seminars or classes that can help them in newly expanded roles. And, in some cases, you may be able to expand your company’s skill set during a downturn by hiring highly qualified employees released by other companies.

  4. Exploit your talent. Make up a revenue shortfall by taking advantage of your staff’s talents and exploiting time that suddenly becomes available.

    "The technology business always is a roller coaster, and we know that," says Dennis Ortman, a partner at Stadtech Inc., a Rolling Meadows, Ill.-based information-technology company. Stadtech has continued its momentum as consulting assignments slowed, says Ortman: "We just have to keep people moving in the right direction.

    "We had an honest conversation with our employees to explain the industry’s trends and to lay out our plan … finding new ways to create billable time and use our resources to their best ability," Ortman explains. That required a lot of retraining to acquire skills for creating code for Internet-driven software. As a result, workers acquired new skills — like Visual Basic and Java — that could be billed by the hour. Though not part of the company’s core competency, these extra skills were easily acquired — and brought in extra revenues.

    Stadtech, which employs about 30 people, has increased profits each of its 12 years in business.

  5. Evaluate marketing. A downturn represents a good time to invest in branding research to ensure the company is in the proper market.

    Too many companies assume they know the value they provide to customers and how they are perceived. Those misperceptions backfire when they try to survive in a slowdown by emphasizing the wrong elements.

    Conduct a survey or talk with key customers to learn why they value your company, and make sure marketing programs emphasize those aspects. Similarly, if their responses contain surprises, consider whether you need to alter those perceptions or adapt your business systems to take advantage of them.

  6. Maintain pricing. Cutting prices and offering major incentives to gain short-term business can hurt your value proposition in the long haul. It also can send the message that the company is operating from a weak position, adding leverage to competitors or enticing customers to seek further discounts.

  7. Create strategic partnerships. Look for companies that might be willing to invest in or partner with your company.

    Stadtech has successfully worked with some clients to create software products that both companies own. "We’re examining where we can gain more from projects and make them more scalable," Ortman explains. For example, Stadtech is taking repetitive sections of code used in customer programs and adding them to a software library, which allows the code to be reused and sold in other programs.

  8. Consider mergers and acquisitions. Even if one partner is in the red, the other can still win by taking advantage of tax credits. A merger may also create a stronger combined company, providing both companies with access to resources that enhance employees’ skills and market position.

  9. Take advantage of aid programs. Many states and organizations offer grants and loans to encourage economic growth and help companies through difficult times. (See sidebar.)

  10. Maintain a good attitude. Your reaction to change will be noted and amplified by your staff. This doesn’t mean shading the truth, but it does require a positive outlook. Keep looking for opportunities and encourage employees to think in new ways.

Writer: Craig A. Shutt