By Richard Randall and reprinted here by permission from the Central Penn Business Journal www.centralpennbusiness.com
In the world of public corporations, the declines we’re seeing in many industries prompt immediate reactions. Contingency plans are triggered at pre-arranged percentage decreases in orders, revenue or income. Actions are taken quickly to protect quarterly results and the all-important share price. I believe private companies should have contingency plans too, based on the owners’ needs to sustain their business through tough times. But there is no doubt that private-business owners have more flexibility than corporate managers and should use it to their advantage.
It’s hard to be positive in the middle of an economic crisis. Many businesses, facing declining sales, are preparing for the worst –cutting budgets, deferring expenses and considering workforce reductions. But it’s not all gloom and doom. Businesses that have kept expenses under control and built a strong balance sheet during the good times should look for opportunities in the tough times ahead. Cash reserves and access to credit open up many options.
One opportunity for those who can afford it will be finding good people. When planning workforce reductions, companies should deal with mediocre performers and problem employees first. But many will take the easy way out: seniority. That means good people with at least some work experience are going to be available in an abundance we haven’t seen for some time. If you’ve been having trouble filling important positions or finding people with strategically important skills, the coming months will be your best chance in years.
Private businesses that can afford to hire will also have a great shot at high-caliber college graduates who normally might be recruited by larger corporations. If you want raw talent, consider attending on-campus career fairs. Company attendance will be down, so your firm will get more attention. And while looking for talent, don’t forget the competition. You may be able to lure strong performers, people you already know, from shaky competitors.
Before deciding you can’t afford to hire new people, take an honest look at your own team. Have you been carrying below-average performers or putting up with problem people because it was easier than the alternative? If so, consider taking the actions you should probably have already taken to improve your team. On more than one occasion, I’ve seen one good performer out-produce two poor ones. When things are going great, it’s easy to turn a blind eye to problems. When an economic crisis hits, you can’t afford that. Your company and the good people who are carrying the load deserve better.
A strong balance sheet can also be a competitive weapon. If weaker competitors are cutting service and tightening credit terms, you may be able to take market share by doing the opposite, working with qualified customers to ease credit terms and providing above-average service. Dropping prices may also be an option, but be careful. You don’t want a price ware with a competitor to depress market prices permanently. Remember, it’s always tougher to raise prices than to lower them.
A weakened competitor may also be an acquisition target, either for the business or its assets. You could pick up good people, customers, intellectual property, products or services at a bargain price. Of course, in this environment, good due-diligence will be more important than ever.
If you don’t have an appetite for acquisitions, there may be other ways to form profitable new business combinations. Some companies will be prompted by the economy to explore outsourcing production or other function, such as human resources or information technology. If you are positioned to take advantage of new business, rather than hunkered down, you may find your market expanding rather than contracting.
Looking internally, an economic slowdown provides a chance to devote more resources to improvement projects. There’s never enough time for process re-engineering, software-system; upgrades and quality system improvements when business is good. So why not do something now that will position you ahead of the competition when things turn around? If your sales go down now and you re-allocate manpower, what game-changing improvement project could you complete in the next six to 12 months?
Richard Randall is founder and president of management-consulting firm New Level Advisors. Email Richard at info@newleveladvisors.com