The Recession-Proof Business : Chapter 12
In a recession, especially a severe one, you face one of two decisions. Do you stay the course “as is” or do you make a big change? If you’re in a smaller business, this decision applies to your whole business. In a larger company, this decision sometimes applies to a particular division or segment of your business.
If a recession has had minimal financial impact on your business, then staying the course in a more or less “as is” fashion with perhaps a few incremental improvements may be enough.
If your business, or segments of your business, has been hit hard, it’s probably time to seriously consider making dramatic changes. Extreme times sometimes call for extreme measures.
In an extremely severe recession or depression, many times the risk of doing nothing is much higher than the risk of executing a well-thought-out change. It is probably one of the few times in an economic cycle where this is true. If a business is on track to pretty much fail, what’s the worst thing that can happen if you try something different? Worst-case scenario: You still fail. Best-case scenario: You turn the whole thing around, survive, and, if you move fast enough, thrive.
Reinventing Your Business
When I’ve given speeches related to this book, the big takeaway that audiences walk away with is the need to reinvent one’s business if its current form isn’t working in a downturn.
When the economy evolves at a pace of 5 mph, having your business change at a pace of 10 mph is enough to keep pace with the times.
When an economy has gone through a massive structural shift, such as in a severe recession or any other major economic crisis, the pace of change in the economy suddenly speeds up to 50 mph.
Suddenly, the 10 mph pace of change that has served you well for years, or even decades, often becomes inadequate in an obvious way.
For some businesses that dodged the brunt of the economic shift, only a modest change is needed to survive in a recession.
For other businesses, the impact of the recession may be more significant, and a more dramatic solution is required. That solution is to reinvent parts of or all of your business.
So where does one start in the reinvention process?
It’s Not Rocket Science: Follow the Money
The reinvention process is conceptually very simple. Follow the money. Phrased differently, you want your products, services, and company to be in alignment with how buyers are spending their money right now – not last year, but right now.
In some markets, buyers have made massive changes in their spending priorities. If you’re in such a market, there’s a strong chance that your business is out of alignment with buyers’ current spending patterns.
Until you’ve figured out where the money is being spent, it is pretty much pointless to do anything else. Developing products and services that don’t match customer spending priorities is a waste of time and money. Trying to sell and market harder to an audience that fundamentally doesn’t care about what you offer is equally pointless.
You absolutely, positively, must get a grasp of what your customers are thinking and where they are spending money. In some cases, you may be forced to find an entirely different set of customers who are interested in what you have to offer.
When I speak with a new client, I can usually tell if the business is going to make it in its “as is” form. If the business, product line, or division of the business is bleeding cash, it’s obvious it’s not working. Customers vote with their wallets and the results are crystal clear – just look at your bank account.
But the harder question to figure out is if what you’re doing now isn’t working, then what will work? This is of course the million-dollar question and is probably the point at which people who become my clients seek me out. They know enough to know their current path isn’t working, and while they sense the business, product, or service has potential, somehow all the pieces aren’t lining up in the right way to produce sales.
The Two Components for Business Reinvention
In these situations, the big question is to figure out whether or not the business can be turned around easily and quickly. There are two key factors that I use to make this determination.
1. Potential for a New “Recipe”: Can the “raw ingredients” of the company (its target customer, product/service, sales/marketing model) be used in a new combination, or “recipe,” to better match what buyers are spending on?
2. Uniqueness: Does the business have anything unique going for it?
Think of a company’s unique assets or “raw ingredients” as its products, services, sales/distribution method, customer lists, and market intelligence. I look to see if the same ingredients can be rearranged into a different combination or “recipe” to fall in line with new market demand.
Focus on this area first because trying to create a new asset when time, money, and resources are limited is very difficult to do. Creating a new product to sell takes time. Trying to build a different sales model, say, moving from in-person sales to direct mail, takes time to establish.
This process of creating a new “recipe” that combines the company’s existing assets in a new way is part art and part science. The science part comes from knowing the numbers in your business and spotting promising trends hiding just beneath the surface. Sometimes this trend might be noticing that one product is selling modestly well despite no marketing or sales effort. Other times, it’s noticing that one type of customer is really easy to please, buys constantly, but for one reason or another isn’t the type of customer the business is focusing on attracting.
The artistry comes from interpreting this factual data in the context of market demand, the company’s strengths, and the CEO’s comfort zone to find the right “recipe” to make the business work with the least risk, lowest investment, and greatest speed. It’s part art and part science.
A part of this business reinvention process includes looking for something unique in the business that can be harnessed more effectively. I call this looking for the unpolished diamond in the business. This can be anything from the owner’s Rolodex, a unique back story behind the business, a neglected customer list, a great product that’s trapped behind the wrong distribution system, or any number of things.
To launch a business reinvention effectively, it often requires an injection of immediate cash flow into the business. Since many businesses in need of reinvention are typically cash flow challenged, the cash flow boost needs to come from operations. When the company has an underutilized asset, it takes only a modest bit of effort to exploit that ignored asset.
While a business that lacks uniqueness can still be turned around, the process is more difficult and the company may not be able to sustain the progress. Sooner or later uniqueness is going to be critical. So it’s best to spot the uniqueness and build around it early in the reinvention process.
Once you have a new business reinvention recipe in mind, it’s time to move to the next step in the process. Now you want to test your idea against the harsh reality of the real world marketplace. Great ideas are just that … ideas. As I mentioned previously, it doesn’t matter if you think it’s a great idea. It only matters if the people with the money – the buyers – think it’s a good idea.
The process of testing interesting reinvention ideas against marketplace reality is even more challenging in a severe recession. Customers themselves may not have clarity around their own spending priorities. They may be waiting to see how their own customers’ spending priorities have changed. In consumer markets, consumers are trying to get a gauge on their job security and net worth, both of which may be in flux.
For these reasons, it’s vital to rely on a process to validate against marketplace reality. It’s precisely in times where spending priorities, and thus the economy, are in flux that it is prudent to avoid using only gut instinct. While gut instinct can work, it is during times of transition when it is most likely to be wrong.
Supplier-Driven versus Customer-Driven Business Reinvention
The golden rule of business reinvention is this. It does not matter one bit what you want to sell. It only matters what customers want to buy!
Most companies use a supplier-driven process to figure out what products and services they offer to the marketplace. Far too many businesses are operated on the business principle that “I got a great idea and I want to sell X to customers.”
This is a high-risk approach. It can be appropriate in certain industries, such as high-tech, where the innovation is so new and different that customers have a very hard time understanding whether or not they would want the product. But in most industries, deciding you want to sell X because you think it’s a great idea is risky.
Personally, I don’t like taking big risks when it’s not necessary. Instead, going after a “sure thing” – or something as close to it as possible – makes more sense. Rather than taking a supplier-driven approach where the vendor decides what he or she wants to sell, I prefer a customer-demand driven process.
The idea is fairly simple. Figure out what customers are willing to buy and then give it to them. It sounds like common sense, but I cannot tell you how rare this kind of thinking is. I’ve had countless conversations with business owners and CEOs who are trying to force their idea of a good product or service onto customers who totally disagree. At the end of the day, the person who is voting with his or her wallet wins.
When the economy undergoes a massive structural shift, as it does in a recession, the odds that gut instinct and a supplier-driven approach are wrong are much higher. The rules of the game have changed, and it’s pointless to try to win a game whose rules you don’t understand. Better to figure out those rules by figuring out what customers want first.
But this is especially difficult to do in a recession. In an economy in flux, transition, or even chaos, it’s very hard to figure out what’s really going on.
The Fog of War (And Recessions)
Military leaders use a phrase called the “fog of war” to describe what happens to their best laid battle plans once the fighting begins. Things happen so fast. The information coming back from the front lines is often incomplete and outdated. In the chaos of war, with thousands of people and weapons moving around in different directions, it’s hard to figure out something as simple as who’s your friend and who’s your foe.
As evidence of this, one of the main reasons for “friendly fire” accidents where, say, a US marine accidentally shoots and kills a fellow marine is this fog of war effect.
Well, running a business in a recession comes with it its own fog. When customer demand is being reprioritized and recalibrated throughout the whole economy, it’s very confusing and disorienting.
That’s because our economy is very interconnected. Companies are waiting to see how consumer spending patterns shake out. Consumers are concerned about layoffs and are waiting to see how employers respond. Of course, companies are employers and consumers are employees. In this circular process, everyone in the economy is looking at everyone else in the economy before deciding what to do. This of course creates a weird analysis paralysis phenomenon.
This is the fog of a recession – trying to recalibrate your sales, marketing, and product development efforts to be in line with your customers’ spending priorities when they are trying to do the same thing themselves.
This additional level of complexity during a recession is something you need to be aware of. To deal with this “fog” you need some mechanism or process to figure out what the heck is going on out there in the marketplace.
On the one hand, a supplier-driven process to business reinvention has a very low chance of success in a recession. On the other hand, a customer-driven reinvention process makes more sense but you have to deal with this “fog” problem. So what’s the right answer?
The Winning Recalibration Process
To see through the fog that comes with a recession, you need a method to identify clearly what customers are doing and what they want. You need the equivalent of a pair of X-ray vision glasses so that you can see clearly through the fog.
The equivalent of X-ray vision glasses is a systematic process for recalibrating your decisions, plans, and assumptions with customers whose needs and behaviors are continually evolving.
The challenge with the demand-driven process is the fact that it’s a process. You start with what you know, come up with your best concept for reinvention, but still need to find some way to cheaply validate it with real customers before investing a lot into it.
Invariably, you never get it right the first time. You get some feedback from the customers: Perhaps they like one particular aspect of your reinvented business, product, or service, but they absolutely and positively hate another aspect. Okay, let’s listen to them. And then make another attempt.
It is through this iterative process of market testing that one can rack up a very high success rate. I call this the “Victor Process” – it is both a play on my first name and also refers to the idea that it’s the process that winning businesses adopt to continuously increase sales and profits in any economy.
This process allows you to calibrate how closely your business is aligned to market demand (Rule #2) and how unique what you have to offer is in the eyes of your buyers (Rule #3). Remember, it’s not good enough to be in alignment with market demand if you don’t have something unique to offer. Similarly, it’s not good enough to offer a unique solution to a problem buyers don’t care about. You have to do both. You must align to market demand and do so in a unique way at the same time.
This is impossible to get right on the first attempt. I’ve been using this process in my own business and that of clients for years. And it is never, ever right the first time. That’s why it’s a process.
But the purpose of the process is to recalibrate your efforts to see how closely they align with what buyers are willing to spend money on. And then to determine whether or not they, not you, see anything unique about what you’re offering.
Remember, your opinion, while interesting, is not relevant. It’s only the opinions and spending behaviors of customers that matter. When customers vote with their wallet, they vote honestly. Any other time, things like being polite, telling you what you want to hear, or avoiding hurting your feelings comes into play. But the second that real money, their money, is at stake, the truth comes out.
When I coach clients, I try to impress this concept upon them. For any decision that requires customer buy-in to succeed, I never tell clients that a specific strategy will work. That’s because, in most cases, I’m not their target customer – and I have to remind them that they aren’t either.
Instead, I do say that the last three clients who used a particular strategy saw a financial improvement between 15 and 35 percent. Or I’ll say when I used this strategy in my own business in this situation, it produced a 25 percent improvement. While all this suggests there’s a very likely chance it’ll work for a client, you never really know until you try it. And that’s why it’s a process. Until the customer votes with his wallet, everything else is really just educated guessing.
Many companies are unaccustomed to operating in this way. So getting your company to adopt this approach requires not only a process change, but a mind-set and culture change as well. In coaching clients on implementing this approach, I’ve found the mind-set shift and culture change to be the most critical to long-term success, but it also requires the most effort to change.
For more tips on this winning process, visit www.victorprocess.com.
Why the World’s Greatest Heart Surgeons Don’t Operate on Themselves
The world’s greatest heart surgeons don’t operate on themselves because they are too close to the problem to solve it!
The heart surgeon’s dilemma occurs because of both a physical limitation as well as limitation of perspective. It’s this latter thing, perspective, that’s relevant to your business.
Most business owners and CEOs are “too close” to their own business to see it objectively. They’re too familiar with their own business. They know the industry too well. And their memory of why the current approach used to work a few years ago is too good. They’re too used to the assumptions they made about their businesses – assumptions that were unconsciously made and solidified in their minds in the midst of a booming economy that no longer exists.
Being “too close” causes all kinds of problems. If you have a great, but under-utilized asset, you may be too used to ignoring it – because it’s how you’ve always done things. Or a small problem can creep up on you over a long period of time. Being close to the business, you never noticed the tiny changes occurring from week to week and thus missed the cumulative magnitude of the problem that has emerged over time. Someone with a fresh set of eyes and an unbiased perspective can spot this kind of problem in a few minutes whereas you’re too used to it to notice it.
It’s kind of like raising young children. Day to day they don’t change that much. But month to month they do. So if you have friends or family who see your young kids every few months, they’re going to remark at how much they’ve changed since the last visit – when you barely noticed a thing.
Someone who’s competent, is emotionally uninvolved in your business, and doesn’t have psychological ties or a memory of your company’s past can challenge assumptions you’re making about your business – assumptions that may no longer be true in the current economic environment.
If you sense that some degree of business reinvention is needed in your business, it’s very useful to include a competent outside advisor in the process. You want to ensure that this outsider is someone with a history of dealing with the kinds of issues you are facing and has experience overcoming those issues.
When the Rules of the Game Change
The Person Who Doesn’t Remember the Old Rules Is an Asset
I find that the outsider role is especially critical in the time of a major transition. When a business is running well without any major problems, the problems that do emerge usually come with simple and obvious solutions. Similarly, under normal “status quo” circumstances where the business isn’t under any major outside pressure, the opportunities that present themselves are also fairly obvious.
The real challenge comes in times of crisis or extreme changes in market forces. When the rules of the game change, it is very disorienting. The process of recalibrating to market demand is confusing. This is one time when deep experience in your business and industry can be a liability.
When you’re good at operating your business under the rules of the prerecession economy, it can be difficult to make the transition to the new rules of game. In this case, having someone you can rely on who is not emotionally involved in your business, has no memory of your company’s glorious past (in a boom economy), and looks only at the cold hard facts of the current situation is a good idea.
This person has no ties to the business’s past and has no emotional attachment to the future dreams for the business that may have been shattered or delayed. This person is forced to just look at the present. What is true (or not true) about this business right now? This is the foundation you must have to make well-informed decisions about your business.
If you don’t understand the problems in your business correctly, it’s possible for any solution to succeed. Sure, you may succeed in solving the wrong problem – but that hardly helps your business.
Having an outsider with fresh eyes, relevant experience, and judgment you trust involved in the decision-making cycle is a vital part of the business reinvention process. This person can ideally provide a clinical, totally objective, and emotionally uninvolved perspective that’s especially helpful in a chaotic and disorienting economy.
Business Reinvention Tips and Resources
In the next chapter, I’ll share some tips and resources that you may find helpful in jump-starting the business reinvention process.