Survive Business Crisis: Act or React?

“The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger-but recognize the opportunity” ~ John F. Kennedy

“There are inevitably going to be periods of time because of the economy or industry issues where companies will be put under stress,” says Bob Rudzki, author of Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise. “It’s important while you’re taking all the necessary short-term actions to manage costs and optimize revenues, to avoid doing things that are foolish”…

According to David M. Traversi, author of The Source of Leadership, there are typically three causes for a business slowdown: General economic decline, industry or sector-specific decline, or business shortfall in which your organization, for whatever reason, can’t fulfill its promises. Whatever the cause when faced with a business downturn most business tends to panic.

“Denial seems to be the first stage,” Traversi says. “Once they see that denial is not reversing the situation, fear seems to kick in and fear-based actions are taken.” Those actions, which include making irrational and irresponsible cuts to staff, budgets, benefits and more, often debilitate a business further. The reality is when cash is tight, cuts must be made. The question is: where? Traversi says: “[Most businesses] begin cutting costs, often irrationally, with the question, ‘What costs can be cut?’ as opposed to the better question, ‘What costs should be cut?’”

Rudzki writes: “You can’t cut your way out of a crisis” or “You can’t starve your way to success”, as many companies have learned, and Nancy Duitch, co-founded Vertical Branding in 2001, the Los Angeles-based consumer products company, agrees: “Downturns and slowdowns are inevitable in every company… In order to weather slow periods, you’ve got to cut costs and build the business.” When her business began to dive, Duitch refused to let even a single employee loose.

Instead, she changed her business model to allow her company to pursue new markets and new opportunities, which in turn created new revenue streams. “You can survive any downturn if you have capital in the company,” she says. “The reality is that revenue holds as much of a solution to the problem as cost-cutting”. Traversi adds: “What about finding new customers? What about leveraging new product lines? What about developing strategic alliances?”….

Scott D. Anthony at www.silverliningplaybook.com writes: Innovators take heart; a quick study of past downturns illuminates signs of hope. Many great companies were formed in years featuring a downturn. Take NCR. The 1870s and 1880s were very tumultuous times in America.

In the early 1880s, they purchased a product called “Ritty’s Incorruptible Cashier”, re-named it National Cash Register, and began to accelerate the cash register’s development…Thomas J. Watson Sr., who went on to transform IBM, into a technological powerhouse… honed his legendary sales skills at NCR. By 1911, NCR had sold more than 1 million cash registers and had close to 95 percent market share.

NCR is not an anomaly. General Electric, Microsoft, Walt-Disney Company, Revlon, Whole Foods Market, and many others started in downturns. Similarly, Fortune Magazine’s first issue was in 1930, right after the stock market crash. Procter & Gamble introduced disposable diapers in 1961. Nokia introduced its first car phone in 1982. And Apple began its stunning transformation by bringing out its iPod in 2001.

Innosight Research looked at the last three U.S. downturns and identified 44 “on the brink” disruptors. These were companies like Nucor in late 1970s, Best Buy in the late 1980s, and Amazon.com in the early 2000s that had begun the process of transforming an existing market or creating a new one, but hadn’t quite broken through to the mainstream. In the face of tough times where stock markets sagged and market leaders stumbled, these companies grew on average by more than 30 percent a year.

Downturns can also be a great time to lock in competitive advantage. In a November 2008 interview, Cisco Systems CEO John Chambers described how Cisco historically has become more aggressive in investment during downturns. “Remember the Asian financial crisis in 1997?” Chambers said. “Most of the economies in the area were contracting.

I knew that Cisco’s peers were making a potentially major mistake by dramatically cutting back their resources there, so we did the reverse. Straight into the economic downturn, we decided to increase our resources and send a number of senior executives to expand our presence in the region. Within a year, we gained the number-one market position in almost all of the Asian countries, and we never gave it up.”

Innovation is possible, no matter how dark the times… innovation has never been more important. Industries are converging, competitors are emerging, and technology is advancing at break-neck pace. Competitive advantage that took years to create disappears seemingly overnight.

Many companies think that innovation and survival are discrete choices. They are not. Companies that put their heads in the sand and wait for times to get better are sowing the seeds of their own destruction. Thriving in today’s “Great Disruption” requires that companies confront the new reality of constant change.

The challenge of successfully navigating your business through an economic downturn lies in the realignment of your business with current economic realities. Specifically, the business needs to renew focus on the core clients/customers, reduce operating expenses, conserve cash, and manage more proactively, rather than reactively: In the article “Survive Business Downturns” by Peter Lim writes: Stay relevant during this economic turmoil with best practices that will successfully navigate your business through an economic downturn:

  • Innovation is key
  • Value your workers
  • Satisfy your customers and find new ones
  • Cut cost efficiently
  • Good business attitudes

In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies covering 16 different SIC industries from 1980 through 1985. The results showed that business-to-business firms that maintained or increased their advertising expenditures during the 1981-1982 recession, averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn’t keep up their advertising.

Companies facing economic slowdown must develop and implement aggressive growth strategies in their core business areas, if they are to build solid foundations that will propel them ahead of competitors…A thoughtful, managed risk strategy is essential to survive and enjoy the rewards after the recession. If you’re running your business scared and making all your decisions by fear…you’re doing it wrong, regardless of the economic situation.

In the book: The Performance Power Grid: The Proven Method to Create and Sustain Superior Organizational Performance, by David F. Giannetto and Anthony Zecca they write: Provide a roadmap to help business weather an economic storm… In business, only the strong survive. Take the opportunity to sharpen your strategy, evaluate your value proposition, and ensure that you’re running your business in a financially responsible manner.

Economic malady can also be a good focusing point to rally employees. The authors call it a “momentary unifying factor” where employees are able to set aside personal concerns and rally around a greater cause. By coaching employees to provide exceptional service, a business can keep valuable customers and ride out the downturn.

Giannetto and Zecca write: Remember the difference between revenue and profit…In desperate times it is easier to forget that all customers are not created equally. Focus on your most profitable customers and find more like them… correctly place emphasis on certain segments over other less profitable ones and rebalance your customer portfolio. By using the current climate to take stock, sharpen your business, and be poised to grow, you can not only ride out shaky economic times, but emerge a stronger, better company.

In the bookThe Toilet Paper Entrepreneur” by  Michael Michalowicz,  entrepreneur, lecturer, author and television personality, writes: Have you ever been in the bathroom only to realize there are a mere three sheets of toilet paper left…but somehow, often with the help of the trashcan remnants, manage to make it work? This is how a Toilet Paper Entrepreneur runs their business in to the ground …they make do with what they have, pull “miracles” out of the trash and make more and more with less and less.

The author argues a successful entrepreneur embodies flexibility and vision many large companies lack. Michalowicz states that hard-line traditional business planning is ineffective and often detrimental; and that successful growth of a business requires a dynamic planning method… Among other growth techniques, Michalowicz argues the leap frogging strategy of significantly pushing ahead in one “area of innovation”, either Price, Convenience or Quality… The truth is that in every crisis, there are opportunities: Opportunities for business evaluation, change, reinvention, and innovation.

“Without the strength to endure the crisis, one will not see the opportunity within. It is within the process of endurance that opportunity reveals itself.” ~ Chin-Ning Chu

“In a time of crisis we all have the potential to morph up to a new level and do things we never thought possible.” ~ Stuart Wilde