July 2008
How to Find Hidden Value in a Slowdown
By Tony Mulkern
While some business sectors see no slowdown at all—an example is the box office hit “Dark Knight”—others are facing challenges meeting revenue and profit goals, in spite of an overall resilient economy. Leaving aside firms which are forced to close their doors as many mortgage companies have, there can be significant opportunity in a slowdown. While almost no rational business owner would wish for a decrease in business, you may be able to uncover hidden value within it. How?
One positive result of a slowdown is that we see starkly the importance of not taking customers for granted. Every one of them is a significant part of our staying in business. And too many firms—from start-ups to the largest firms and utilities—fall into the trap of compromising the basis of their success, whether that was quality or service or both, during times of expansion.
Remember the “soup Nazi” in the Seinfeld comedy series? In spite of his brusque and authoritarian personality, customers lined up to buy his outstanding soup. Why? Because he did not let business success compromise his strategy of quality at a fair price just to increase volume and accommodate ever bigger crowds. His customer loyalty was built upon extraordinary quality, and he did not take this loyalty for granted. The actual soup restaurant upon which this fictional one was created, by the way, recently sold for a handsome price.
By contrast, the harm that comes from taking customers for granted is shown by the U.S. banking industry, which provided most commercial and consumer loans as late as the 1970s. Since then, the industry’s failure to respond to changing customer needs and demands has resulted in aggressive, newly formed competition from issuers of corporate paper, mortgage and auto finance companies, credit card houses, wire service companies, and start-up community banks, to name a few. The result has been drastic bank consolidation, and eight of the largest ten banks in the world today by asset size are non-U.S. banks.
Other advantages of slow growth are illustrated with the following real-life examples and suggestions:
- Motivates you to stop wasting money. One large company recently discovered that they could save tens of thousands of dollars in annual electricity costs simply by eliminating computer screensavers. Originally installed to keep static images from being burned into cathode ray tube (CRT) computer screens, screensavers are unnecessary on the newer flat, liquid crystal display (LCD) screens. Other possible waste includes dual subscriptions, unused memberships, and the discount deals you never had time to look into.
- Allows you to get rid of marginal employees. Entrepreneurs in my experience are rarely the cold-hearted Scrooges of Hollywood and TV dramas, and poor performers are frequently tolerated longer than they deserve to be. Now may be the time when you can justify to yourself and to everyone else the need to reduce staff.
- Encourages you to combine adding and cutting. For example, Starbucks is opening 200 new stores in the U.S. next year, while closing 300 unprofitable ones.
- Forces you to find more cost effective ways to do the same thing— A client, who had used multiple subcontractors for similar kinds of work, was recently able to negotiate more favorable rates in return for promising just one or two of the subcontractors the bulk of their business for the next year. Sometimes you can get a better rate from the phone company or credit card provider just by calling and asking for it.
- Allows you to see who is really committed. Employees who are “engaged” in their work and the success of the firm will come up with suggestions of their own when asked how to increase productivity.
- Helps employees to appreciate the job they have—which they often take for granted. Reviewing costs of benefits, perks, and comfortable facilities seems especially timely when you are reducing waste.
- Allows time to review all policies, procedures, benefits, and ways of doing things that may be outdated. Wal-Mart is famous for its program of periodically “getting rid of stupid rules.” What made eminently good sense a year ago may be outmoded now (see discussion of screensavers above). When was the last time you took a critical eye to your employee hand book? Behind your back, your employees probably do.
- Forces you to listen to customers—poor service remains such a common complaint of consumers, this remains a strong competitive advantage. My pet peeve: waiters in pricey restaurants who seem trained to abruptly and rudely interrupt conversations and refer to customers as “you guys.” Listening to customers can lead you to seek out new markets, new forms of marketing, and how to leverage present strengths for new services. If customers are driving less due to the price of gasoline, will delivery, taxi, or shuttle services be more attractive.
- Allows time for training. It is estimated that most companies use no more than 30% of the capabilities of their very expensive software. How many seminar action plans have not been looked at since the seminar, how many user manuals for expensive equipment have never been digested? Productivity improvement opportunities are often within arm’s reach.
- Slower business separates the sales people from the order takers. Who hustles creatively and energetically to bring in the business, rather than become discouraged because the phone is not ringing as much? These are your “keepers” and the future of your company. Plan how to retain and develop them.
- Encourages consideration of alternative staffing such as outsourcing. This does not mean “cut into muscle, while cutting the fat,” or dispensing with highly-experienced, valuable members of your team. But instead of hiring that very expensive CFO or IT executive right now, could you manage with a part-time, “virtual CFO” or IT consulting firm in the interim?
The more you use a slowdown as a kind of “off-season” time when the team can practice its new moves and try out some new “starters” in order to get into its most competitive possible shape, the more ready you will be to take full advantage of the booming economy when it returns.
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Copyright, Mulkern Associates, 2008
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