Monday, April 27, 2009

"Don't Miss Another Opportunity to Sell During the Upcycle"

(from Issues for Growth Vol.18, No.7 )

In our recent Breakfast briefing series, Dan McCallin former owner and CEO of Timberline Steel made an interesting statement: “We missed the selling boom of the late 1990’s and were determined that we would not miss another opportunity to sell during the next upcycle. We decided to take the steps so that we were prepared.” While Dan originally made that statement during the recession of 2002, and later sold the business in early 2006, it could certainly apply today.

The exit sales process may take the better part of a decade. With credit markets tight, the economy in recession, and bad news seemingly everywhere, it may seem counter-intuitive to be writing about preparing your company to be ready to sell during the next economic upturn. While some business owners may believe they can pull the string when they are ready, the truth is, for many business owners, it may be exit sales cycle may take the better part of a decade to execute. Professionals will tell you that in order to sell at highest value, the process includes 2-3 years to get ready, 1 year or so for the transaction, and then you may have to spend 3-5 years with the company after the sale.

Much of the preparation can be accomplished during the down cycle. Companies can focus on making fundamental improvements to their business during the downturn that will help them emerge faster and healthier than their competitors.
1. Focus on customer net profitability
2. Upgrade management
3. Cleanup business processes
4. Develop a strategic growth and execution plan
5. Position the company for the upturn
6. Never waste the opportunity of a good downturn

Focus on customer net profitability. The tendency during a downturn is to cling to any customers and revenue no matter the profitability level. A common comment is that “at least they absorb overhead.” The notion of unprofitable business absorbing overhead may be one of the greatest false beliefs in business. In many cases, overhead that has been viewed as fixed is really a cost that can be minimized or shed. Carrying unprofitable business will be a continuing cash drain that may inhibit your business’ ability to grow as the economy improves.

Upgrade management. There is a great supply of good talent now available in the marketplace . In many cases this may be talent that would not be available in better times. Take advantage of the opportunity to improve. Similarly, this is a great opportunity to review all of your employees and weed out those with below average performance, poor potential, or unrealized potential. Our clients use a simple tool to rank all employees in terms of potential and performance – the results make it very clear which ones have been a drag on the company.

Cleanup business processes. During boom times, many companies claim they are too busy to scrutinize business processes to make improvements and to streamline in order to increase throughput. That “excuse” typically does not apply during the downturn.

Develop a strategic growth and execution plan. You need a plan not only to help you survive the downturn, but also that will allow you to be agile enough to take advantage of opportunities in the recovering marketplace. There may be market segments that will be slow to come back; some may never come back the same way. Other market segments, however, may present huge new opportunities. Your organization needs to develop a plan and be prepared to execute.

Position your company for the upturn. The most significant competitive gains are made during a downturn. Companies that are prepared and well-positioned can accelerate very quickly as he markets healthy. Competitors that are under stress during the downturn will actually be under greater stress as the economy improves. Cash demands can be low when demand is low. Cash needs, however, will increase as the economy improves. Companies will need cash to hire more people, invest in inventory and equipment, etc.

Never waste the opportunity of a good downturn. During downturns, companies have the opportunity to examine everything, reduce unnecessary expenses, trim those underperformers, examine unprofitable business, streamline business processes, etc.

Take a lesson from the Boy Scouts: Be prepared. These steps can add value to your business – even during a downturn. When the economy improves, your business can accelerate faster and be well- positioned. The market for selling a business will be ripe in late 2010 and 2011. Those businesses that are ready will find a hungry group of buyers and investors who have been sitting on their hands during the recession.

Friday, April 17, 2009

"Management Needs to Build Flexibility into Planning...Plus the Faith and Courage to Execute"

(from Issues for Growth Vol.18, No. 6)

We have been working with our clients to help them understand what this new world might look like and how best to prepare to take advantage of opportunities. While you cannot predict the future, you and your management team need to prepare your company. That includes looking at various possibilities of the future, determining what your company’s desired position might be, and focusing the team on the top things that will put your company in position to thrive.

Recently, Jim Collins, renowned author of the classic business books Built to Last and Good to Great, was interviewed by Inc. Magazine and had some great advice for companies weathering the current financial crisis. If you read the entire article, you may find that Collins has some potentially scary words for businesses in today's climate. Collins spends a good deal of the interview discussing the similarities of the bursting of the tech bubble nearly 10 years ago, and says that we're in for an era marked by turbulence.
In the article, Collins talks about the difference between risk and ambiguity and the need for an unwavering faith in our abilities and the courage to act. If you read the entire article, Collins spends a good deal of the interview discussing the similarities of the bursting of the tech bubble nearly 10 years ago, and says that we're facing an era marked by turbulence.

Business People in this Crisis are Mountain Climbers
Collins used the analogy of business people as mountain climbers. It hit me that we're all heading up there, whether we like it or not. We're heading into a world characterized by big events, big forces, massive storms. We're going to be vulnerable little specks high on the mountain when the storm hits out of nowhere. And if we're not prepared, we're going to die up there. Or we're going to be in real serious trouble.
But Collins doesn't just speak of woe and trouble. His advice surrounds staying sharp and maintaining your skills in this ever-changing world of business. He may not be painting the rosiest picture of the economic future, but he's far from pessimistic.

Stand Strong in the Face of Ambiguity and Uncertainty
It is only in times like these that you get a chance to show your strength. In the end, I think we need to have absolute faith in our ability to deal with whatever is thrown at us. And we need to have a complete, realistic paranoia that a lot can be thrown at us. It's our ability to put those two contradictory ideas together: We need to be prepared for what we can't predict and, at the same time, have this total, unwavering faith that we will find a way to deal with all the uncertainty and the courage to can what we know must be done.

Right now, we could all use some of Collins' "unwavering faith." If you are staring into the rest of 2009 and beginning to doubt your organization's ability to ride it out, take a minute to check whether it's just that realistic paranoia that he says we should all have, or whether you need a dose of faith. If you find that's the case, we always say that a good, flexible and “executable” strategic plan is a great source of faith and courage! The entire article can be found at

How well is your company prepared to respond to these challenging times?

Are you taking control of the things that you can? Are your actions strengthening your company - or weakening it? Are you building flexibility into your plans? Are your managers able to adapt quickly to rapidly changing market environments? Have you changed your approach to planning?

Wednesday, April 8, 2009

Is Your Company Prepared?

The previous post "Four Possible Scenarios of the Economy in the Future: How Will Your Company Respond?" was first sent to clients and friends in Issues for Growth Vol.18, No.3 on February 2, 2009. Since that time we have had numerous comments about the likelihood of each scenario. I would suggest that an organization shouldn't focus on "handicapping" the likelihood of future events. Rather, it is important that we think through how our company would respond under each scenario so that we are prepared to thrive REGARDLESS of how the future plays out.

What steps are you taking to be prepared for different versions of an uncertain future?

"Four Possible Scenarios of the Economy in the Future: How Would Your Company Respond?"

(from Issues for Growth Vol. 18, No. 3)

1. Paralysis/Survival: This describes a situation where external events will be unknown and surprising, and companies will respond to them in a predominantly passive and reactive manner.

This, clearly, is the worst-case scenario. In this situation, "unexpected and disruptive events will increase over the next three years, and companies (and/or economies) will react by pulling into a protective shell." The external shocks could include economic developments such as the nationalization of major global industries (like oil, banking, auto) and significant disruptions to global material flows. On the political front, terrorist attacks could escalate in different parts of the world, and the U.S. led anti-terrorism coalition could fall apart. Isolationism and protectionism may be revived. Companies (could) react by trying to protect existing assets with layoffs, reduced R&D investment, reduced product development, and lower foreign direct investment. Consumers may compound the problem by reducing spending dramatically.

The bottom line in this scenario: A long, global recession

2. Slow Growth: This scenario predicts a future where external events will be known and expected, but companies will respond passively to them.

This, too, is a grim scenario, though not as irredeemably dismal as the previous one. In this case, “disruptive events with moderate impact continue, and while seen as normal, they result in an economic malaise.” This scenario would be marked by debt and currency problems in key world economies, though a full-blown long-term global recession is avoided. Unemployment would be higher but manageable, but consumer confidence would be low. Politically, the war against terrorism could head toward a stalemate situation. Companies would get used to the risks of terrorism and learn to cope with their losses. They would make modest investments.

The bottom line in this scenario: Life becomes an overpowering shade of gray

3. Thriving With Chaos: Here, external events will be unknown and surprising, but companies will respond mostly in an active and opportunistic fashion.

In this scenario life is still gray, but sunlight begins to filter through the gloom in some areas. "Unpredictable disruptive external events" would continue, but "corporate and national resolve to be successful in the face of adversity" would drive modest prosperity. While uncertainty would continue, it would be considered a cost of doing business. Companies would try to seize business opportunities amid the disruption and uncertainties, and make increasing investments in areas that seem to be potentially profitable. In the political arena, the continued global realignment of the U.S. with Russia and China would continue to open up new market opportunities, but the Islamic and developing nations would be shut out of these new alliances. The war against terrorism would continue without a clear victory.

The bottom line: Life could be better, but there’s money to be made if you know where to look.

4. Global Growth: In this scenario, external events will be known and expected, and companies will respond actively and aggressively.

This, clearly, is the best-case scenario, one in which "countries and peoples of the world recognize common goals and focus on economic development and peace as the route to permanent stability." The key features of this scenario would be that the recession proves short-lived and the business cycle would return to normal; the global coalition against terrorism would evolve into a coalition for peace and commerce, and the threat of terrorism would fade. Investments in new technologies for energy management would reduce the role of oil in Middle Eastern politics. Consumers would feel confident about the future, increase their spending, and lay the foundations of a sustained economic recovery. Trade barriers would be lowered and the developing economies would grow in tandem with the developed ones.

If these four scenarios - or a combination of them - represent what lies ahead in the next three years, what strategies should companies put in place today to deal with them? Clearly, though, neither these scenarios nor the strategies that follow from them will apply across the board. The scenarios will play out differently not only in different industries, but also in various regions of the world. Accordingly, the strategies that companies develop to cope with these situations will need to vary to reflect these differences.

It would be a mistake to allow the uncertainties that prevail today to put business decision making on hold. The future may be unclear, but one thing is certain: In today’s circumstances, scenario planning is more than a tool. It is a weapon to combat uncertainty, and the future will belong to companies and executives that wield it well.

¹ NOTE: These scenarios were excerpted from an article that was originally published: December 05, 2001 in Knowledge@Wharton.
It is interesting to see how similar the possible views of the future are in 2009 when compared to 2001.