Those of us who have experienced rapid growth or contraction understand the difficulty and impacts of managing our businesses through these periods of dramatic change. As managers, we all must make important decisions in a short period of time that affect our businesses, our families and our fellow employees and all of our futures.
In some cases, we don’t have the luxury of time to prepare or plan for these rapid changes or we haven’t anticipated change and therefore have not developed plans to deal with it. Most rapid growth or contraction results from the business cycle – the periodic changes in our global, national or regional economies. How we prepare for these changes will directly impact our ability to minimize the pain of contraction or maximize the opportunities of expansion. There are important keys to prepare for and manage change, which include:
Awareness
Most of us are aware of the current business cycle and the trends in our own industries. Experience based on previous cycles and awareness of the consequences of downturns or rapid growth certainly can also help us prepare. Where we can be hurt is when something seems to come at us that we didn’t anticipate. There is no substitute for being well-read and trying to understand how global and regional trends could affect your business.
A friend of mine ran a third generation construction company in western North Carolina – a regional center for furniture manufacturing. In the 1990’s he was aware that the much of the furniture manufacturing was beginning to relocate offshore. He did not translate that trend as a risk to his business because he didn’t build for that industry. He failed to recognize the impact of that trend on the regional economy and when the economy tanked in 2001, it devastated his business. Had he addressed this risk by selling his services into different regional or vertical markets that were less dependent on the furniture industry, he might still be in business today.
Another friend runs an agricultural building manufacturing and erection business in the mid-west. Five years ago, he recognized that global trends were increasing demand for American beef and pork and that American producers would be increasing production and exports as a result. He planned for expansion by tightening up his manufacturing and purchasing functions, broadening his marketing geographically and by hiring and training Hispanic workers from Texas to erect his agricultural buildings in his expanded geographic market. His competitors were caught flat-footed. His top and bottom lines soared.
Planning
Consistent, effective annual business planning can be a difference maker. I am surprised at the number of small to medium sized businesses that do not prepare annual business plans or that consider a financial projection for the coming year a business plan. Rigorous planning that considers and identifies short-term and long-term risks and opportunities can help prepare businesses to address periods of contraction or expansion effectively. Questions that I find helpful to ask when considering the tactical part of business planning are:
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What do we need to start doing?
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What do we need to stop doing?
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What do we need to do more of?
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What do we need to do less of?
On the strategic side, analyzing the big four: SWOT - Strengths, Weaknesses, Opportunities, Threats are important but usually lead to more conventional thinking about the future. I find that “Marketing While Walking Around” is a very effective way to stay engaged in thinking about the future of your business. By this I mean being intellectually curious and aware of what is going on around you whenever you are out and about and especially when you are outside of your local market.
What is going on here? Why are those people doing what they are doing? What are people doing differently than at home? What are they doing the same? These kinds of questions and awareness lead to contemplation of trends or changes that may be an opportunity or a threat. Again, there is no substitute for being well-read.
I often find that a random article in regional, national or international publications stimulates thought that leads to introspection about my business and the real estate industry. The Economist is one of my favorite international publications because it gives a non-American perspective on international events and issues. We tend to think that the rest of the world thinks like we do.
Incorporating introspection from consistent observations of what is going on in the world is essential to good planning. My friend may have never planned or executed a successful strategy to expand his agricultural building business if he had not paid attention to how global trends could affect him.
Financial Planning and Management
There is no substitute for a healthy balance sheet. Building a strong balance sheet takes rigorous financial planning and measuring results. “You get what you measure” is one of my favorite quotes. Liquidity is a key requisite of a strong balance sheet. Most companies need a strong balance sheet with liquidity to sustain rapid profitable growth. ALL companies need these assets to survive a deep or prolonged economic downturn. Annual financial planning that reflects the realities of the business and the market can support the goal of financial stability. Stability allows companies to manage both growth and economic downturns.
During the late 1990’s, my company grew rapidly and profitably. We had a strong balance sheet but we had invested a significant part our assets in real estate that could not provide immediate cash flow. In 2001 our robust backlog of work melted away almost overnight. Our real estate investments were sound, but illiquid. We were short of cash and forced to drastically cut expenses to survive. Fortunately, the economy rebounded quickly but it was a painful experience. I learned the value of a highly liquid balance sheet. If I had been doing proper business and financial planning, I would have been prepared to manage through the recession with minimal pain.
Act Quickly and Slowly
When faced with opportunities or threats, we often act too slowly or too quickly. When we see threats on the horizon, we tend to delay painful decisions. We hope things will get better and we put them off. We end up making the decisions we needed to make but only after we had no other choice. Again, one of my favorite quotes – this one from Winston Churchill: “Americans will always do the right thing – But only after exhausting every other possibility.” When we see opportunities, we want to take advantage of them and we begin to believe our own rosy forecasts. When we should be spending time on thorough underwriting and analysis, we begin to take shortcuts and generate data that will support our conclusions. We should act slowly and deliberately and challenge all assumptions. Instead, we often are in too much of a hurry to get going. It usually costs us.
Managing change is hard work. Thoughtful introspection, deliberation and planning are essential. Intellectual curiosity and reading widely are important habits to embrace. Managing change for growth is not easy, but it is energizing and exciting. Everyone is on board and pulling together. Managing through tough economic times is painful but necessary for future successful growth. Those experiences test one’s limits and we often find we are stronger, more resilient and have greater capacity than we ever knew we had. In the end, we are almost always better for it.
I’m interested in hearing your thoughts. What are some daily or annual best practices you take to prepare and forecast change? Share your comments below.
