How to succeed during the hurricane

April 18, 2019

Canada, despite its comparatively more conservative approach to finance, is clearly not immune to the problems of the global financial and real estate markets. These problems slip into the “real economy” – sales, income and jobs – and move across the borders, especially ours, which is heavily dependent upon exports and firmly tied to the ups and downs of the resource economy.

We are in the midst of a raging storm with market volatility exploding, credit freezing, and many around us stricken with panic.

Despite the strong actions the world governments are taking to keep the economy afloat, we now appear headed for a relatively protracted, and perhaps pronounced, economic downturn.

In a previous article we provided some tips on how to ride the waves.

Below we offer further measures owners and managers might undertake to weather what is now a hurricane. Our thoughts are borrowed from watching entrepreneurs – individuals who frequently try to seize opportunity in the face of limited resources.

Recognize reality

First, no downturn lasts forever. Second, what we do in a downturn should position us for when our sales turn up. Third, not everyone will be impacted equally nor will everyone survive and in trying to, some people will do desperate things, such as making commitments they cannot possibly keep. We need to understand and anticipate the actions of our customers, suppliers, and competitors. Every downturn is an opportunity, especially for those who think and act strategically.

Manage Cash

Profit is like food. Cash is like air. Firms can sustain operations for long periods without profits, but die quickly without cash. Today, “access” to cash cannot be seen as positively as having it. One can manage cash in a variety of traditional and non-traditional ways. Stretching out payables and collecting receivables on a timely basis may help but is limited as everyone is doing it and it can have a negative long-term impact on your firm's reputation. Slowing or shelving expansion plans and development projects is another natural area for cash conservation.

Use the Opportunity

We all know the second-by-second movements of the TSX and DJIA include psychological, herd mentality overreactions. Downturns provide exceptional opportunities to acquire key talent, important assets, expand markets, and acquire businesses. Assets may be purchased with equity and/or at a significantly lower cost. Perhaps, regional markets can be seized at minimal costs as competitors vacate them. The key is to use these opportunities to acquire cash-endowed competitors or to take your business private at a comparatively low price.

Reinvent the Value Chain

Reinvent and differentiate your business models to increase efficiency and effectiveness. Consider outsourcing whole subassemblies in areas where you are inefficient, or find new ways to partner on advertising and distribution. Use the pressure from the downturn to change external and internal practices to better serve the short-run and long-run interests of the business.

Search for Alternative Uses

Look for alternative uses for all your assets – from professional skills to plant capacity. Keep an open mind. Consider pricing excess capacity at marginal cost to serve paying customers. While the production or services rendered may not be a long-run “winner” for you or your organization, the alternative uses may cut total cost and build new relationships.

Forge Partnerships

Work with suppliers and distributors to better integrate supply markets and improve cash flow. Combinations we would have thought impossible only a few months ago may now be possible. Look at what is happening with GM and Chrysler, for example. Shifting relationships may provide dramatic new opportunities to partner to get your products to new markets. Consider partnering with competitors to serve different segments of the market. For example, past recessions have caused companies in the computer industry to abandon whole segments of the business in favour of working with former competitors to meet their supply needs.

Practice Creative Finance

Remember, there is more than one way to finance transactions. Seek out government-supported export programs, off-shore financial groups to barter transactions, private “peer-to-peer” finance and finance reducing management practices. You don't have to buy everything. You can often rent and borrow key assets and resources or partner with others to acquire them. Look for ways to acquire resources with “in kind” transactions or through equity incentives.

Build Employment Flexibility

Communication with your team during these troubled times – as always – is key. Maintain dialogue and look for ways to work together to soften the blow while maintaining productivity. Seek short-term flexibility in work hours and work rules (while maintaining health and safety, of course). Part-time employment, on the increase in some regions, is an obvious reaction. Team members may voluntarily cut their work hours or take a temporary leave to pursue other interests. Responsible teams and unions understand the necessity of adapting existing labour agreements to sustain a business through difficult times.

Use and Help your Network

Keep in touch with your network. Build with it and on it. Your network can help you find unique solutions and resources (and, if necessary, employment). Be prepared to help your network. It is in these times that mutually beneficial new arrangements come forward.

Reinforce your Brand

Remember that your firm's reputation and yours are often forged during downturns. How you act toward individuals and firms around you will not be forgotten and will often be rewarded in the long-run. Bad treatment or inconsistent treatment of your customers, suppliers, distributors, franchisees or regulators in a way that does not espouse your brand values only works to depreciate your brand.

Trust, built over years, can easily be destroyed in such times. Treat others as you would have them treat you. While sounding somewhat clichéd, it is true. After the downturn in the late 1980s, a number of firms lamented how their short-run, self-serving policies alienated their long-time distributors and “friends”.

Finally, it's a perfect time for businesses to take their cues from the culture of surfing. Be bold and get into that charging barrel – staying focused, balanced and creative. And nimble enough to get out of the tube before the waves come crashing down.

Source Report on Business


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