Creating Success for the New Year
Preparing for a Tightening Economy
By Anne
Saita, Vistage Corporate Communications Writer
If the year’s
business news has you feeling a little queasy, it’s no wonder. One week the
outlook is dire; the next, things are on the upswing. But with job rates
sputtering and mortgage foreclosures and fuel costs trending up, economists
have expressed mounting concerns that the economy has begun a slow, possibly
steep contraction.
During the next
three months and throughout 2008, Vistage will devote considerable editorial
resources to provide its members strategic, tactical and operational
guidance on how smaller companies can best prepare for the rollercoaster
ride ahead.
Vistage members
acknowledge the next six to 12 months will be far from assured, as
businesses big and small continually regain their bearings in the wake of
yet another financial crisis. The recently released Vistage Q4 2007 CEO
Confidence Index survey of 2,233 CEOs hit a low point in its five-year
history. But if Vistage members are bearish on the overall economy, they are
much more optimistic about their own enterprises. Sixty-six percent
anticipated an increase in revenues in the coming year. Still, for
Vistage-member companies and for others, credit for capital improvements
will be harder to come by. In the year to come, some businesses may be
forced to cut back, or even close, if they don't take proper action now.
How Are
Things These Days?
Vistage members frequently turn for guidance to the New Hampshire-based
Institute for Trend Research (ITR), which has served American businesses
since 1948 and includes economists who are popular Vistage speakers.
ITR Economist Alan
Beaulieu believes that 2008 won’t be a great year, but not as bad as 2009,
when he predicts a bona fide national recession. His prediction is based on
continued expansion of some leading indicators that ITR tracks faithfully.
There’s still growth, according to ITR, but it’s slowing. That’s why the
time is now for executives to prepare for what lies ahead.
According to
Beaulieu the housing market will continue its painful plummet. High energy
prices and rising interest rates will continue eating away at discretionary
income. And in 2009, Congress may undo tax cuts provided under the Bush
Administration, essentially amounting to a new tax that would further reduce
consumer spending.
“Right now it’s like there’s pressure building in a steam pipe, but the
pressure’s not enough to cause a rupture,” Beaulieu says.
What to Do
Now, Before the Economy Turns
In a slower economy, companies instinctively pull back, whether through
downsizing or holding off on new product launches or planned expansions.
After all, one symptom of a down economy is having less business than
before. Less business means less revenue. And less revenue typically yields
lower profit margins.
Vistage members tend
to reduce marketing expenditures as the economy contracts, mainly because
they aren’t sure their marketing dollars will work. But Vistage speaker
Mitch Gooze, president of Customer Manufacturing Group in Santa Clara,
Calif., says the opposite approach might be more appropriate.
“One recommendation
I always make to members, and especially if you believe the economy might be
slowing down, is figure out as quickly as you can what aspects of your
marketing are working,” Gooze says. “Because your competitors are likely to
do less marketing, and if you don’t do less and instead do what you know is
most effective, you’ll gain on them.”
If Gooze has just
one piece of advice for chief executives, it’s
focus.
“Most companies are
afraid to focus on those few things they do great. One reason is fear they
won’t diversify enough to survive a slowdown. But the truth is, the more you
focus the more chances you’ll remain successful,” he argues. “If you don’t
focus, you end up being a ‘me too’ company across the board, and the only
thing you can sell on is price. And when the economy slows down, people push
back on price.”
Instead, Gooze
suggests, look for what makes your company different and emphasize that
uniqueness to find customers willing to pay for differentiation. Take the
housing market, which has been in a slump for awhile. There’s less business
overall, but there also are still companies doing well because they continue
to attract new business, with customers lured by unique value propositions
touted within targeted marketing campaigns.
It’s also important,
he stresses, to focus more on customers than the competition. Once you find
your competitive edge in a market, reach out to the appropriate customer
base and then be sure to provide the promised level of service or product.
“In a slowdown, it’s
even more important to make sure customers love doing business with you,”
Gooze says.
Unless your company
already dominates its industry market, there are plenty of opportunities to
gain market share in a slower economy. With less business to go around, it
becomes a buyer’s market. Customers will scrutinize their current vendors
and perhaps give a new company another look. Businesses can find
opportunities in untapped or underserved markets when people begin looking
to get more value for their money.
While growth is very
much possible, some expansions may need to be delayed so companies can hold
on to their cash reserves or because they no longer meet more stringent
lending requirements. But what if your company is already far along in the
lifecycle of a new product or service?
“It depends,” Gooze
responds. “If you introduce a product in a slower economy that isn’t right
for that customer in that particular economy, your product can appear to be
a failure when it really isn’t. You have to look at when to introduce a
product or service based on what customers need, want and demand in this
economy.”
For instance, an
insurance broker might want to introduce a new line of insurance during a
downturn. People in general are saving as much as they can, and they’re not
likely to splurge on more insurance. More coverage is nice, but it’s not a
necessity.
Another thing to
consider with product launches is when customers will realize its value. The
quicker they see some return on investment, the better; so a new line that
takes nine months to a year before value is shown may be a much harder sell
in a tighter economy.
“People are more
cautious about what they’re willing to try in a slowdown,” Gooze says.
Similarly, pricing
should be based on value delivered. Customers typically negotiate prices
regardless of economic conditions; however, “in a downturn, sellers get
nervous and because they don’t focus or know what makes their value
different, they use price to win customers over.”
“Even in a
slowdown,” he adds, “there’s a lot more business out there for Vistage
members.”
There’s
Still Money to Be Made
Beaulieu agrees that there’s money to be made with proper preparation and
adjusted expectations. For these strategies to work, he argues, executives
need both knowledge and courage. “A lot of people like to be in the macro
comfort zone,” he explains.
Changing strategies
during a downturn – such as buying up inexpensive real estate when everyone
else is still selling -- might seem counterintuitive. But if you’ve handled
your cash and debt responsibly and better understand how slower economies
can be advantageous, you will emerge a better business leader.
Beaulieu equates
recessions to naturally-generated forest fires, which ultimately help keep
woodland healthy by clearing dead wood and laying groundwork for future
growth. – and are part of a natural cycle.
“A recession cleans
out excesses and restores balance and growth,” he says. “There’s plenty of
time for Vistage members to prepare and keep from getting burnt, and to
remember this will be good in the long run.”
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