The Recession-Proof Business: Preface

“Victor, they’re scared out of their minds.” Normally when I go on stage to give a speech to a group of business owners and CEOs, I’m the one who is a bit nervous. But the person introducing me that evening was pointing out that the audience was a lot more nervous than I was. They were all deeply worried about what was, for most of the audience, the worst economic crisis of their lifetimes.

I went up to give my speech and afterward, I was surprised and touched by the response. Dozens of people came up and thanked me for giving them hope about getting through this recession. I had not intended to give a “motivational” speech – one high on energy and low on facts or actionable advice. Rather, my goal was to share the results of my research on small and medium-sized companies that did extremely well in the recessions of the past – and to spell out in simple English the four things all these companies did in common to prosper.

The best way to describe the reaction of the audience after my speech was the word “relief.” As explained to me, they suddenly had an accurate view of their situation, knew what to do to fix it, and could channel all that nervous energy into taking proven actions to protect their businesses. For them, this was invigorating and motivating, especially after being shell-shocked by a barrage of negative news headlines for weeks.

To fully understand why this book is likely to be useful to you, it’s helpful to understand the entire story of how the research project that forms the foundation of this book came to be – and my deeply personal reasons for sharing it with you.

I assure you that when all the pieces come together, you’ll see why the story is relevant to your life and business.

It all began on September 10, 2008. In every major crisis, there’s a defining moment. And for me that moment was at 8:30 a.m. EST, when Wall Street giant Lehman Brothers announced it was in serious financial trouble. The announcement was significant for two reasons.

Lehman Brothers would become the first major financial institution that the US government would choose not to bail out in this recession. Investors suddenly realized that Lehman Brothers owed money to all the other major financial institutions around the world – institutions that would no longer be paid. In turn, these other firms would be unable to meet their financial obligations to account holders, clients, and yet more firms.

A legitimate and massive panic was set in motion – and fear prevailed that all the major financial institutions around the world would fail in one massive global domino effect. The results were financially devastating. Stock markets around the world simultaneously dropped by half, and trillions in US and global wealth instantly evaporated in the span of 30 days.

This moment was also significant for more personal reasons. At precisely 8:30 a.m. EST, I was in a studio for the Fox Business Network, about to appear live on a nationally televised broadcast, to provide my expert commentary on what banks should do to market themselves in a recession. I actually heard the Lehman Brothers news via my earpiece.

In the chaos that ensued, I suddenly realized that this recession would be much more severe and last longer than I had originally anticipated. I also realized that the rules of what it takes to run a successful business had been instantly rewritten. While certain business fundamentals would continue to be timeless, it was obvious that for many companies, “business as usual” was simply not going to cut it.

As an executive coach working exclusively with CEOs and owners of small and medium-sized companies, I knew that all my clients would be asking me what this financial meltdown meant and what they should do about it. In my coaching practice, the recession would quickly become the most asked about issue, trumping all others. At that time the crisis was so extreme that it was the worst one I’d seen in my lifetime. Even worse was that my own mentors, who are all considerably older than I am, felt that it was the worst economic event they had seen in their lifetimes. Not a pleasant thought, I assure you.

When the road ahead is unclear, I’ve found it’s often helpful to take a look back at history for answers. I immediately started an internal research project to analyze the last 12 recessions going back 136 years in US economic history. I specifically wanted to find examples of companies that had begun as small businesses during a recession, depression, or economic panic and had generated hundreds of millions, and in some recent cases, billions, in sales in a down economy.

Happily, I found dozens of famous companies that started and prospered under economic conditions that the average person would consider incredibly hostile to business. Against all odds, these companies succeeded.

All the companies I discovered shared the same four commonalities. Unintentionally and without exception, all these recession success stories followed the exact same winning “formula” to recession-proof their businesses.

The companies featured are all billion-dollar businesses. Most are stand-alone companies on the Fortune 500 list. Others are now divisions within Fortune 500 companies.

Since this book is targeted at CEOs and owners of small and medium-sized businesses, you may be wondering what these big company success stories can teach you about what to do with your business right now.

The point I want to emphasize is that all the “big companies” were once small – possibly even smaller than your business is right now. When we hear names like Disney and Federal Express, we tend to think of industry giants. In this book, you’ll see them as they once were – small businesses facing incredibly challenging economic conditions. The circumstances these winning companies faced at their inception were not too dissimilar from what you face today – massive economic upheaval of every variety, major reduction in customer spending, and tightly constrained resources. Sound familiar?

Philosopher George Santayana once said, “Those who do not learn from history are doomed to repeat it.” I like the corollary to that statement: Those who remember, and learn from, history’s success stories, are destined to repeat it.

I don’t claim to be an economic historian. Instead, I see myself as a practical businessperson, an executive coach to others, and one that due to incredible economic circumstances, has become a reluctant historian. Extreme times call for extreme measures – and often these measures/insights come from history. So I’ve put on my historian hat, for no other reason than it was necessary, and I got tired of waiting around for someone else to do it for me.

Finally, through an incredible quirk of fate, or economic mismanagement (depending on your point of view), I find myself unusually, possibly uniquely, qualified to interpret these Fortune 500 lessons for you. I don’t say this because of an overblown ego, but rather out of surprise that no one else has figured out these lessons and gone on to publish and publicize them first. Many authors write the book they wish someone else had written first – so they wouldn’t have to! I am no exception.

The only reason I did the research behind this book is because I wanted to use those answers and share those insights with my clients.

But to understand why I’ve taken the considerable effort to write and publish this book rather than keep these insights as proprietary secrets, you’d have to understand my background.

On October 19, 1987, the stock market “crashed” by what was then considered a dramatic 22 percent. I saw firsthand the impact the crash had on my parents, who were small business owners. They lost a quarter of their life’s savings in 24 hours. Days later, their top salesperson, who generated 35 percent of revenue, quit – taking with him nearly all the profit from my parents’ business.

The stress was particularly hard on my father, who started to complain of chest pain. He went to see a cardiologist and had to wear an EKG device to record his heart rhythm over an extended period of time. The image of him wearing this hardcover book-sized device, with wires running all over his chest, is one that stays with me decades later.

We were lucky – it turned out his heart was physically fine. His pains arose out of the acute stress he felt at having his life’s work seemingly go up in a puff of smoke in 24 hours.

A year later, the markets recovered fully. My parents were able to hire a new salesperson, someone who was even better than the one they lost, and life went on fairly well. But I never forgot the stress and strain the whole ordeal had placed on my parents and the spillover effect it had on my brother and me. My father’s reaction to the economic conditions of 1987 had a much larger impact on our lives than the economy did.

This very distant memory, and the hope that I could prevent another family from experiencing such anxiety, wound up being part of the inspiration for writing this book, rather than making the insights available only to my clients.

Years after “Black Monday,” as October 19, 1987, would be named, as an economics major at Stanford, I was fortunate to take a macroeconomics course from Donald Kohn, who was on a sabbatical from the Federal Reserve. At the time, he was Alan Greenspan’s top in-house economist. And in addition to sharing basic macroeconomics theories from textbooks, he would provide firsthand accounts of the workings of the Fed and insider thoughts on Greenspan’s interactions with Congress. Today, Donald Kohn is the vice chairman of the Federal Reserve – the #2 guy behind Bernard Bernanke, the current chairman.

I found those insights to be revealing all those years ago and consistent with what I see today. Given the choice between actually solving an economic problem and appearing to solve the problem (perhaps in a way that doesn’t actually do anything), many politicians will choose the approach that plays better with voters – regardless of actual economic merits.

Unfortunately, this creates an awful lot of misinformation that ultimately finds its way to business owners like you. Programs that seem like they would help boost the economy may not do so, and programs that seem mundane may actually be very effective. Having the background to sift though all this provides a useful perspective I’ll be sharing with you in the chapters that follow.

But, first, let me get back to my story and how it’s relevant to you. In my first job out of college, I joined McKinsey & Company, the famous management consulting firm whose alumni have held more than 70 Fortune 500 CEO positions.

On one of my first projects, I happened to be assigned to a major bank that was considering getting into subprime lending. The year was 1996 and it was my role to figure out how the subprime business worked and whether it was worth entering that market. I got an up close and personal understanding of the subprime industry in its infancy and the related practice of selling loans to Wall Street – another trend that was beginning to emerge at that time. Through that work, I developed a deep appreciation for the severity of the risk involved in combining those activities.

Over a decade later, this experience has given me a unique perspective on how our current economic crisis was triggered and how it has rippled through the global economy. For what it’s worth, the popular perception that the Wall Street bankers were merely greedy is incorrect. They were greedy and incredibly stupid – not a good combination. More importantly, this background allows me to see with greater clarity how this whole mess does, and does not, impact business owners like you.

As if that weren’t enough, the media has been making an already bad recession worse.

As my expertise about marketing in a recession became known to the media, many sought me out as an on-air expert and source. For example, I’ve been featured as a guest expert on marketing by the Fox Business Network, The Wall Street Journal, Inc. magazine, and SmartMoney magazine.

Through these experiences, I’ve gained insight into how producers and editors decide what’s important enough to become the news. While I could write an entire book on that topic, I’ll give you the most important insights. Bad news gets broadcast with a megaphone, while good news gets whispered. This happens because bad news drives up ratings and viewership more than good news does. Unfortunately, this negative bias creates a huge emotional roller-coaster ride experience for viewers like you.

In the many speeches I’ve given to business owners and CEOs on this topic, I’ve found that the level of anxiety experienced by audience members is much greater than the facts would warrant. It was only through the Q&A portions of the speeches that I came to understand that business owners feel like they’re driving on a bumpy road blindfolded. Sure, the road conditions aren’t great, but not being able to see the road due to the blindfold makes it 10 times worse.

While I can’t change the condition of the road for you, I can certainly help you get rid of the blindfold that’s getting in the way of your understanding of what’s going on and share with you the lessons of how some famous companies have navigated through economic conditions similar to what you’re experiencing now.

While my professional experience started in the upper echelons of the Fortune 500, my passion has always been in working with smaller companies. After McKinsey, I was on the executive team of two publicly-traded NASDAQ companies – running a $20 million a year division of one and serving briefly as chief technology officer and head of product development for another. This was in addition to starting three companies of my own.

Today, I’m an executive coach who guides CEOs of small and medium-sized companies in making the difficult decisions necessary to take their company to the next level. That next level ranges from economic survival to generating aggressive growth despite the recession.

While I certainly had the credentials, talent, and skills to work with the biggest companies in the world, I didn’t find it satisfying. Somehow, helping a $10 billion company make an extra $10 billion in sales was not nearly as gratifying as helping a small business owner increase sales from $100K to $200K or the owner of a mid-sized firm grow in sales from $5 million to $10 million annually.

While the math of doubling a business is the same, the personal satisfaction is entirely different. With the big companies, the accomplishment has very little visible human impact. For the owners of smaller companies, doubling one’s income is life-changing. Seeing someone’s life improve significantly because of some contribution you made is profoundly rewarding. I hope to be worthy enough to consider it my calling.

As you can see, I’m passionate about business and the potential it has to have life-changing impact on one’s life and that of one’s family. As I child I was certainly on the receiving end of both the good and bad experiences – and much prefer the good experiences.

Today, I coach owners of small and medium-sized businesses on making the “do or die” decisions that can make or break a company. Unfortunately, with the current economic conditions, many businesses are facing these major decisions without being equipped with accurate facts and a clear, levelheaded, and unemotional perspective.

This too is the motivation behind sharing my message – a message that some describe as a message of hope grounded in economic and historical facts. Hope without facts is just a dream. Hope with the facts on your side is a plan. It is my goal that this book will provide you with the foundation for a plan to help you survive, and even prosper, in the worst of recessions.

I’ve organized this book into three sections. The first section explains what I call the recession-proofing formula. This “formula” is based on the greatest recession success stories of all time. It identifies the common thread amongst companies such as Disney, UPS, Charles Schwab, Hewlett-Packard, Fortune magazine, FedEx, Vanguard Funds, Pringles, and numerous others. They either started or had their formative growth years during one of the major recessions in the past 136 years of US economic history. This section provides the “big picture” overview of what separates the “winners” from the “losers” in a recession. It provides you with a set of useful and practical rules to guide your decision making.

The second section specifically covers the topic of sales and marketing in a recession. While sales and marketing is vital in a booming economy, it’s doubly so in a recession for the simple reason that a major reconfiguration of market demand occurs in a recession. And it’s your sales and marketing efforts that will first come in contact with this change and will be the first part of your business that needs to adapt to new market conditions. For this reason, it’s the “tip of the spear” to fight your way through any economy undergoing significant change.

The third section focuses on business re-invention. For businesses that are struggling in a recession, the key next step is to reinvent your business to be in alignment with how customers are spending money right now – not when the economy was going through a boom, but right now. This section shows you the process and resources you need to follow to reinvent your business.

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