Wednesday, 25 August 2010

Who Will End Your Recession

This is an article I wrote a few months ago. It sentiments seem as relevant today as they did then...

"In a recent conversation with a wise and experienced business owner he told me that rather later than many had the recession paid a visit to his business. More than a year had passed since many businesses had first felt the pinch of the credit crunch and yet during this time he had been able to continue with business mostly as usual. But then quite suddenly the volume of leads started to dry up, and prices and margins fell as competition increased.

However, most interesting was his reaction to this crisis. He could have cried into his coffee and blamed the market. He could have slashed headcount and gone into survival mode. But rather than look inward for the solution to his problems, he decided to look outward and drive up his sales. His view was that there was still plenty of business out there. After all, he said, his £3m business was just a very small part of a sector still worth £billions.

On reflection he realised that he and his business had got a little too complacent. They had operated with a “business as usual” mindset despite the myriad of changes going on around them. So my friend has fired up his sales team, reviewed their marketing strategy, and most of all got back on the road to meet and talk to the customers who his business had perhaps started to take somewhat for granted. His view was that it was complacency rather than the general economic environment that had made his recession.

So who is responsible for your recession? You, the general economic environment, or a bit of both? The businesses that credit the general economic environment for their woes have resigned themselves to a pessimistic powerlessness that becomes a self-fulfilling prophecy. Consequently their business is functioning rather too much like it was pre-recession despite being in the middle of a rather deep and sustained downturn.

Although it is true that some sectors have been hit harder by the recession than others, construction for instance, I've come to see that what separates the performance of one business from another is not just the performance of their market, but moreover how effectively they have adapted to the changes in their market. Proof of the pudding being a construction sector business I visited last week that has grown market share, maintained turnover, and continued to return a profit.

The struggling businesses have changed little or nothing about their business and their approach to the market since the on set of the downturn. They are selling the same products, aiming to earn the same margins, using the same marketing techniques that they were before the downturn, and wondering why business is tougher now.

Some businesses have made some changes, but have stopped short of what politicians call a “root and branch” overhaul. Typically they will have laid off some staff, and put a bit more pressure on sales, but failed to take a step back and think about how they would run their business if they were to start all over again. There are surviving, but is “not dying” a worthy goal?

The businesses that are doing better than the rest have rigorously examined their organisation and their markets, and fearlessly driven change throughout. These fearless businesses have asked and answered questions like:

• What changes are taking place with our customers' buying behaviour?
• What product and services does the market want now?
• How will all this affect our cash-flow and profitability?
• Where have we allowed slack to creep into our business?
And most importantly:
• If we were to start all over again, what would be different?

So let me close by asking you 2 questions. Firstly, which of the following best describes your situation?
• We're keeping our heads down and hoping it will pass soon; we hope we'll survive
• We've made some changes but nothing too fundamental; we think we'll survive
• We've gone back to the drawing board and challenged every assumption; we're not surviving, we're prospering.

And which best describes the situation you'd like to be in?"

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