How to Shape Up Before the Next Recession:
Get Smarter
and Be Decisive!
by Jerry Vieira

Notwithstanding the hiccup of 2001 (plus or minus a year), the last 15 years has witnessed an enormous global economic boom driven by technology-based productivity gains, inexpensive third-world labor access, open trade, and monumental economic gains among developing nations. But a number of factors are pointing to the possibility that a recession, or at least a significant slowdown, may arrive in the next year or so.

Anyone in business knows that downturns are inevitable and that making plans ahead of time - before they arrive - is tough, particularly when your company is doing well in the current economic cycle. But planning ahead is the only way to be sure to weather a downturn.

So, what should companies be doing now, in mid-year 2007, to prepare them for the next recession? There are three important steps to take:

Step 1: Understand the real reason for your current success.

It's extremely important to understand and honestly assess the basis of your current success to know how to prepare for a slowdown in demand. There are really only three reasons why your company is succeeding in the marketplace. By knowing which of these three reasons reflect your current success, you can plan how to survive in the future.

  • You provide capacity to over-heated market demand.

    Consider the early days of VHS tape recorders and movie rentals. Demand for taped movies was so strong, that anyone with $5,000 could rent a storefront, buy an inventory of VHS movies, charge an annual membership fee and be in business. This only worked as long as the basis for success was adding capacity to a rapidly emerging, over-heated market demand. Once the basis for success evolved to the availability of new releases, rather than simply supplying any old movie, only those competitors who could strike deals with the studios for mass outlet distribution remained successful. Inability to understand and deal with the changing nature of the success requirements became the demise of thousands of small businesses.

  • You provide a unique value proposition.

    If the economic or emotional value proposition offered by your company is unique, then demand for your product or service is proportional to the combination of a) the magnitude of that value proposition compared to its cost and b) the extent to which there are many potential customers with the same problem that needs solving.

    This basis for business success becomes shaky when a competitor replicates your value proposition - maybe not exactly, but close enough to begin to drain customers from your base. Patents sometimes protect this position but only temporarily if the profit umbrella is large.

  • You are exploiting a competitive vulnerability.

    Said in a simpler way this means that you have a competitive advantage. In a recession, prices may come under pressure. Your ability to sustain prices may depend on the strength of your competitive advantage and your ability to translate that advantage into real economic return, thereby validating the difference in selling price.

Step 2: Identify and assess your best markets

Most companies sell to more than one market. This next step helps you to identify the markets that will most likely be sustainable with minimum impact in a recession. The objective is to be prepared to reallocate and redeploy resources to those most lucrative market segments during the downturn. Decisiveness, here, is key.

The markets that will be most recession-proof for your specific company and offerings are those for which the combination of the following factors is positive:

  • The value proposition is so economically positive (compared to the cost) that it makes economic sense in good or bad times.

  • Market accessibility and your ability to communicate your value proposition to the prospects in these markets will not be affected by the downturn.

  • The fundamental demand drivers, such as regulatory or demographic factors, won't change overnight.

  • Your value proposition will remain relatively unsaturated in your target market during a downturn.

Once you've conducted these analyses, ask yourself the following questions:

  • For which of your products can you calculate a significant three-year economic value received by the customer?

  • Which of your markets get the most economic benefit?

  • Which of your markets have primary demand factors driven by regulatory or demographic factors?

  • Which of your markets have strong economic benefits from your products and services and low penetration?

  • What percentage of your sales people can calculate that return, on-the spot, when discussing product offerings with a qualified prospect?

  • If you suddenly started to see dropping sales from a downturn, from which of your markets would you pull marketing dollars and where would you redeploy them?

Step 3: Be decisive and make timely decisions once you have completed your analyses.

You're the CEO. The authority to allocate that buck that stopped at your desk is yours.

The last 15 years spoiled many of us. The economic momentum during this era was so strong in many sectors that even a dead man in a canoe would have made progress in the rushing economic river. In fact, the current was so strong that a live man in a canoe rowing backwards would still have been swept forward -- but not ahead of the dead man! It's only when the current slows down that you can really tell who's rowing backwards, who is "dead in the water" and who really knows how to row.

In tough economic times, wrong-headed behavior cannot be tolerated. The rocks are closer to the hull and bad navigation, even for a moment, can be disastrous.

In times like these, quick decision-making is essential - and ultimately it's the CEO's responsibility to assure that the tough decisions are made, and made quickly.

Here are the decisions that must be made to navigate the downturn:

  • Put a performance and progress dashboard in place.

    Rapid field intelligence feedback is essential during tough economic times. Therefore, the key ingredient to monitor is the quality of your sales opportunity pipeline. This will validate quickly the relevance and sustainability of the value proposition in each market and its relative immunity to the economic tide.

  • Reallocate resources quickly.

    Move resources from markets that are slow and the value propositions are low to markets that have relatively recession-immune momentum factors and high-value proposition returns for the customer.

  • Remove people.

    Be wary of your people (sales and marketing) who believe that the way to handle a recession is with price reductions and more head-to-head frontal assaults against the competition. OK, perhaps "removal" is too strong a policy but practice strongly saying "No!" to these types of unnecessary solutions.

  • Redirect the sales force.

    The quicker this is done the better. Place specific emphasis where you can communicate and calculate the economic value proposition of your offerings.

In tough times all companies will take some hits. It's inevitable. But planning now for the moves you will make during a slowdown will increase your ability to maneuver, will strengthen your position and will leave you in much better shape than if you just passively waited for the storm and ignored the warning signs.


Jerry Vieira is president and founder of The QMP Group, Inc., a Portland-based management consulting firm that helps business-to-business companies rapidly turn underperforming divisions, products and services into significant profit contributors. In addition to helping clients directly, he writes and lectures frequently, energizing hundreds of other companies to maximize performance. Visit http://www.qmpassociates.com/ for additional information.

Many more articles in Competitive Strategy in The CEO Refresher Archives

   


Copyright 2007 by Jerry Vieira. All rights reserved.

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