Thursday, October 8, 2009

Can you Realistically Wait Until the Economy Comes Back?

At a recent meeting several owners of mid-size businesses commented that they didn't expect to do anything significantly different "until the economy comes back." My response was, "Can you realistically wait that long?"

In today's Wall Street Journal online, the WSJ released the latest survey of 48 economists.
("Survey Shows Rocky Road to Economic Recovery" Wall Street Journal, Thursday October 8, 2009). To read the complete article click here.

It could be a long L or a very flat U. It could take until 2014-15 before we see 5% unemployment.
The 48 economists expect the U.S. economy to "bounce back from four quarters of contraction with 3.1% growth in gross domestic product at a seasonally adjusted annual rate in the just-ended third quarter. Expansion is seen continuing through the first half of 2010, though at a much slower rate. But the massive downturn has left an open wound in the labor market that will take years to heal." On average, the economists don't expect unemployment to fall under 6% until 2013 and it could take until 2014-15 before we see a 5% handle on unemployment again.

In the last survey, the consensus among economists was that the output gap would take anywhere from 4- 6 years to close. Again, that is 2013-2015 before we see a return to more normal growth. Can businesses afford to remain defensive for five years?

Two business owners decided it was time to play offense.
At a seminar at Invesco Field in Denver, last Friday, two business owners spoke about the steps they took during the aftermath of 9/11 and the 2001-2 recession. They specifically talked about taking all of the necessary defensive steps, but said that there came a time in 2002-3 when it was "time to play offense." One company acquired and integrated a weak competitor and became the dominant competitor in its geographical markets. The other had very well-orchestrated strategic meetings with the most senior executives of its most profitable top 19 customers to identify new ways they could meet the needs of these customers - even though the current demand was low. This company then invested in new equipment and processes to meet these new requirements. Business models also changed. Both companies discussed how the recession was the ideal time to make these changes since business was slow and management had the time to focus on making these changes.

"We were ready and business really took off."
When the economy finally rebounded, these two companies grew very rapidly - much faster than the competitors. The competitors were still doing business in the same way as they had pre-recession. But the game had changed. Over the next several years, one company enjoyed a doubling of revenue and a 15X improvement in EBITDA; the other company more than tripled revenues and returned to much above industry profitability levels. Both company owners subsequently sold their businesses at the height of the recovery.

While both companies credited good sound strategic planning, solid execution by upgraded management, they offered that the most significant difference was the commitment to play offense while the competition remained "hunkered down."

If you would like to see some of the slide presentation from this seminar, please email me.

Is it time for your company to retool the offensive side of your business?
What steps are you taking? As always, we welcome your comments here or you can email me at

(from Issues for Growth, Vol.18, No. 15)

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