Best Practices from the Last Downturn

Every “expert” and every business publication seems to be giving advice on how to manage the downturn nowadays and it’s great to have those thoughts and ideas. It struck me the other day that we’ve gone through this before (remember the “Dot.com” bubble) but no one seems to be talking about what we’ve learned from that past experience.

So I became interested in learning if there were any “best practices” that we could use to help make better decision this time around. I’ve talked to a few clients, folks here and looked at some work we did with clients during the post bubble burst years (2002-2003). From that research I’ve pulled together nine “best practices” and have listed them below.

1. Cut Fast and Deep – the last go around folks were very optimistic that the economy was going rebound quickly so they delayed decision or cut less than they should have given the reality of the situation. We did exactly that and went through three rounds of RIF’s needless to say it was painful and demoralizing…ever heard the expression “There are two ways to die: get shot or bleed to death?” Well, we choose the latter. This time around we went back and looked that the low point of the recession, the point at which our revenues bottomed out (let’s say it was 30%) and we took that percent and cut expenses to that level last month, even though our revenues are off forecast only by… let’s say its 15%. It gives us a cushion in case things get worse and allows us to preserve cash which we didn’t do the last time…which is the next topic.
   
2. Cash is King – got to have it, keep it and watch it like a hawk. Customers will take liberties with payment terms and there may be nothing you can do about it. If DSO starts to tick up, pull down on a line of credit (if you have it…and do it now) to give yourself some cushion to absorb cash flow issues. This killed thousands of small business during the last go around.
   
3. Little Things Mean a Lot – as you tighten the belt be careful what you cut. Yes, you should control travel cost and really asked yourself whether or not to you really need to be there but there are little things that you may be tempted to cut things that may mean more to your employee and/or customers than you realize. If you experience a RIF, be careful not to cut other little things that may demoralize the remaining staff. For example, if you have bagels or donuts brought in one day a week continue to do that. The cost savings is minimal and the unattended message that you may end up sending is that the company has cash flow issues…spooking the folks that remain. Keep in mind their senses will be heightened and if you have inexperienced staff (recent graduates, for example) it will kick in the fight or flight reflex. The last thing you want is the remaining employees to be unproductive because they’re job hunting.
   
4. Strengthen the Core – this is a great time to refocus your core business, customers, partners, markets and employees. In the good times companies have a tendency to drift away from their core…what built the business. If you’re a software company focus on building, supporting and refreshing your offerings…put the transition to a “services” company on hold until the recovery. Take a long hard look at your customers, partners and markets…are these the folks you want or will need in the future? If the business is hard to get or maintain it is expensive…think about what you can really afford. I heard through the grapevine that a profession services firm recently pulled out of 15 markets, including Asia. Their comment on doing it…”those markets will be there in the future we can reenter when its right.” This can help guide your decision with bullet #1 - Cut Fast and Deep.
   
5. Take a “Pit Stop” – many companies have been operating with inefficiencies in their go to market engine for years. The demand for meeting quarterly performance has kept many CEO’s from taking the car off the track for a “Pit Stop.” Now is the time. It’s a good chance your stock is down and not going anywhere soon regardless of your performance so take advantage of this situations to do some work on the engine, flush the systems, and get the car ready for the next 500 miles. Actively look for opportunities to gain greater efficiencies even if it means setting aside funds as a write off. Take the hit now, MasterCard recently announced their 3rd quarter earnings and they took a $500M after tax charge to settle a lawsuit with Discover card. That lawsuit had been out there for years and was settled a while ago but they took the hit this quarter…there’s a reason. We’ve spoken to a number of CEO’s recently who said that they regret not doing this in the past.
   
6. Adjust Your Message…Carefully – yes, you need to realign your value proposition to today’s economic reality but be careful. The temptation is to jump to a “cost” message but not all of your customers maybe feeling the pain…yet. If you abruptly switch a message from “growth”, “revenue performance,” etc. to one of “cost savings, “ be forewarned that it can damage your brand and/or confuse your customers. Know how your customers perceive your value and how it varies by segment or type of customer (and don’t guess, do your homework) and finds ways to enhance it with key messages that play today around value for the money.
   
7. Focus on Strengthening and Deepening Relationships - the good thing about a downturn (if there is one) is that it’s a great time to strengthen and expand your relationship with your best customers…and it’s worth the investment. A “spending freeze” takes the pressure off your interactions with customers. It can go from you trying to sell something to them, to you talking to them about their situation and needs. Customers may no longer be in the “buy” mode but they very well may still be in the “learn” and “shop” phase of the buying cycle so take advantage of that to introduce them to new information, services, and employees (senior executives in particular). This “value added” period can go a long way in growing your business when they start buying again.
   
8. You May Have to Give Some to Get Some – your customers may need to do business with you differently during this down turn. You don’t have to go to the extent of a Microsoft or IBM in creating special demand generation and financing programs to help partners and/or customers but think about their situation and how you might be able to help. Chances are the gesture will speak volumes and relating to the bullet above goes a long way in deepening the relationship and increasing customer loyalty.
9. Lastly, Prepare for the Upturn NOW – bad times, just like good times don’t last so start preparing your recovering plan now. Many companies use times like these to create an aggressive plan to gain/buy/steal share from competitors as soon as they sense the start of a recovery. Don’t become financial myopic and only focus on cost reduction. Something that we have learned from the past is that companies have a tendency to turn over the keys to the CFO in times like these and for good reason…they drive out cost, watch cash flow, etc. Unfortunately, they can hang onto the keys a little too long. As Beth Comstock, the CMO of GE told me (in her first stint on the job) during the recovery after the “burst”; ”...finance did its job of controlling cost but it impacted growth… the CEO is looking at my role as being the Chief Growth Officer…” .

Draft a plan and have your organizaiton commit to coming out of the downtown stronger, leaner and more aggressive than you went in to it. It will help focus the organization during this challenging time. To do that you'll need to learn from the past (see above) and be ready to invest. Now get started!