Strategies for 2009

Preparing for the Best of Times in the Worst of Times

“May you live in interesting times,” the Chinese say facetiously. Like it or not, 2009 will present some interesting challenges for businesses. The question is how to navigate turbulent seas and not only survive, but find opportunities for growth and profitability.

First, the bad news. Fourth quarter GDP growth in the United States is forecast to be a negative 4% by the American Enterprise Institute. This is largely a result of plummeting consumer confidence, bank tightening of credit policies, and investor uncertainty. Banks and investors are waiting for the new rules, and consumers are putting off discretionary purchases. It is estimated that roughly a trillion dollars is sitting on the sidelines. Expect more layoffs, and more business failures.

The good news is that, historically, recessions last about 18 months if the government doesn’t interfere in the markets with bad fiscal or monetary policy. Experts predict if the credit crunch lessens, economic recovery should begin in the third or fourth quarter 2009. When recovery comes, pent-up demand could fuel profitable growth for well-positioned companies. In the meantime, there is probably more pain to come.

Survive by being the fittest

Marketing and strategy almost always focus on growth, but it is the fundamental first obligation of the CEO to ensure the survivability of the enterprise. Companies large and small must be careful not to put the company in peril by over-reaching or under-managing. When markets are slowing or contracting, survivability takes center stage. Now is not the time to gamble.

The first rule of survival in 2009 is to recognize that cash is king. If you are sitting on cash, this may be the time to make select strategic investments. If you are over-leveraged, getting your financial house in order should be your first priority. You should also monitor the financial well-being of your suppliers and customers. Consider diversifying your supplier base if and developing a risk management system for your receivables.

If you need to cut prices, cut them quickly and cut them aggressively. Don’t make incremental cuts and hope things will get better. Go with your gut instinct of the worst possible scenario and take the hit now. The savings in carrying cost will outweigh short-term losses. Doing too little too slowly will not only cost you more in the long-run, it is a drain on morale.

The same holds true with layoffs and cost cutting. Don’t delay and deliberate. You know where the dead wood is. Don’t let personal emotions interfere with your decisions. Just because someone would make a nice next door neighbor doesn’t make up for the fact that they are contributing more to the expense ledger than to top line revenue. A quick surgical layoff today can prevent cutting into the bone later for survivability. You are not doing shareholders or top performers any favors by managing poorly.

Don’t forget that top performers warrant your concern as well. They need to know that the firm will not only survive, but that it will continue to provide opportunity for them. Now is the time to incent revenue-producing or cost-savings performance. Take advantage of slower times to invest in targeted training programs. But above all, reward top line results.

The inability to obtain financial leverage will certainly slow M&A deals throughout the year. But this could be a great opportunity to strengthen your market position through acquisition when values will be low. Again, if you have cash or access to credit, a strategic acquisition could be timely. You can also be creative using stock swaps and buy-outs.

The uncertainty of a down market has something in common with hyper-growth markets: businesses that stray too far from their core competencies lose out to more focused competitors. This is a good time to revisit strategic positioning to make sure your business model includes a clear alignment between enduring core competencies and sustainable market opportunities. Going back to the core can actually expand your options by providing flexibility. Be rigid and stubborn about not deviating from your core business, but be flexible in how you create and deliver value as well as the products you can deliver and the markets in which you can compete. Again, keep cash on hand, keep your options open, don’t over-reach or over-leverage.

You need to be able to react quickly to a changing environment. Kenneth Moelis of Moelis & Company says five year plans should now be five day plans. Angela Ahrendts, CEO of Burberry, says her team reforecast weekly. You need to be nimble. Going back to the core, building in flexibility, and then making fast strategic moves will characterize the winners in this market.

If priority one is survival, priority two should be sustainable and profitable growth. When your competition is weakened and customer expectations are low, that may be the best time to enter new markets or introduce new products. Take advantage of this period by researching new opportunities, investing in new markets, and positioning your firm for strategic growth in new areas. It’s also a great way to apply idle resources that could reap great dividends when the recovery hits.

Whatever your strategy, now is the time to apply all of your business skill, experience, and judgment. The decisions you make now will shape the future of your business. Make good decisions, but make them fast and make them bold. Create your vision for the future and share it will your employees along with realistic expectations about short-term pain. If you are transparent in your communication, they will understand the need for belt-tightening measures. If you act quickly and decisively while communicating clearly, they will not be anxious about their own future. If you set clear and confident goals, they will work hard to help you achieve them. Customers will also respond to strong leadership. In times of great uncertainty, leadership attracts success like no other time.