So everything is going well - even perhaps better than ever. What's all this Credit Crunch and Recession worry about? It can't affect me, my business is growing at 25-50% and even a slowdown means at worst I will just have low growth.
Economists reckon we have seen the worst of this economic crisis - so we can only see upturn. My business is perfectly poised to take advantage. Or is it?
Hitting The Wall
The recent Sequoia presentation at its All Hands CEO Meeting in California clearly illustrated the concern by VC companies and warned 'Spend every dollar as it was your last' while mandating all its portfolio to reforecast - and fast. There was no doubt in the VC community that everything had changed.
There is no hiding from a recession. It will affect every business in some way or another - some profoundly, some only slightly, some positive and mostly negative. The one constant is that everyone will see some effect even it means an increase in business.
I cannot urge enough - rethink your business forecasts and plan for change whether it's good or bad. If you don't, you are in grave danger of what I term 'Hitting The Wall'.
If you are an emerging business, evangelising your product or service, you are particularly vulnerable to the downturn as larger businesses will be more reticent to risk new things or change from trusted methods. There will be less money to make less risk.
'Hitting The Wall' is the term stolen from the experience marathon runners have at some point when the they hit a pain barrier that can prevent them from going further and completing the challenge. Some simply grind to a halt and don't make it - others conserve their resources and tactically survive to get through the pain and emerge renewed, better placed to complete their challenge. It's very similar for any business, particularly emerging ones and more so in times of recession.
The effect of this recession has come about at the confluence of a dramatic and unexpected economic crisis that came from left field. It means we have constrained credit, far greater conservatism to risk and an economic slowdown. It's a mixture as toxic as a sub-prime mortgage.
For a business, if you don't have a plan to survive or thrive in a recession, you will surely be a victim by some degree and possibly even 'Hit The Wall' where survival means a drastic retrenchment in the face of the recession which will mean failure for many businesses.
The Speed of Recession
The last thing you need is a business model dependent on fine margins with high lending - a minor slowdown can hammer your business and no bank will lend just for working capital now. There is no alternative but drastic and rapid cuts. Yahoo! is a typical example of this. A swift and comparatively minor downturn in revenue hit their bottom line by 64% and caused an immediate lay off 1,500 jobs. If they do not dramatically change their model, I suggest they will have a similar problem in 3 months. They literally 'Hit the Wall'.
In the UK Estate Agents like Savills suffered an 82% downturn as they are locked into high home sales - they are going to have a long hard battle to survive ahead. Even more widely placed Estate Agents are selling homes at an average of one per week and even less in London and the South East. They are in huge trouble.
Car makers are getting hammered as sales of new cars dropped 21% putting those dealers reliant on hitting quotas of sales for margins in big trouble as well as significant job losses.
Builders and associated suppliers are also 'Hitting The Wall'. The speed of it has been dramatic and less than a few months ago none of them had foreseen it or planned for it. Lehman Bros is great example of a company who paid huge bonuses last year, got a triple A credit rating as recent as August and were even approving pay offs to fired executives to the tune of several million a few days before their demise.
An example of little drop off to date is IT and related sales. Most software and hardware firms in the supply chain are predicting growth rather than slowdown. Dream on - as the recession bites all costs will get cut, it simply hasn't filtered through yet and when it does it come it will be hard and swift.
Plan Now
I have blogged on this before and there is a a presentation on my LinkedIn Profile and my website to download free of charge. My strongest advice is to take a look and see if it helps your thinking.
In short:
- Think how the recession is going to affect your business and how you are placed
- Focus hard on the value you provide to customers, enhance it and work on how you position it. Rethink your Value Proposition.
- Reforecast - don't think this will not affect you, it will somehow whether good or bad
- Don't be needing cash for survival, banks will have little sympathy
- Make tough decisions on cost now - don't spend on what does not return immediate profit
- Sell harder - profile what customers bring most profit, then call more of them
- Decrease your dependence on individual large customers, any slowdown can hurt harder
- Throw a blanket of value and service around your best customers, make sure they feel loved
- Outsource as much of your headcount as you can. Be flexible, put skills where you need them when you need them, pay for results and mitigate onerous employment costs
In a recession, customers focus on bottom line impact and real value to the business. Nice-to-haves and non-essential products or services will get cut. Fluid budgets like travel, accommodation, entertaining, marketing and training are always the first to go - make sure you are not only dependent on revenue from such products.
Get Advice
The last thing you need to do is put your head in the sand or carry on as normal. As the Credit Crunch took banks by surprise executives were still going on corporate jollies to expensive Spas as if the world would never change.
If you do not know how the recession will affect you and your business, seek good advice. Most SME businesses around today will be run by people who have never experienced a recession, there are few left who bear the scars. Managing a business in a downturn comes only from hard experience as anyone can run a business in the good times.
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