Prepare your company for the ‘new normal’

 

BY RICH SCHMITT

Management specialist

 

As you know from previous columns, I think that some — probably a lot — of the public reaction (or panic) about the economy has been shaped by the ratings-hungry national press. They, in searching for the most exciting bad news, hammered the world with every negative story that they could find. In the process, they created much of the fear that President Franklin D. Roosevelt warned against in the depths of the Great Depression. (For those who have forgotten 10th-grade American History, Roosevelt said that our country had “nothing to fear except fear itself.”)  The point was that fear was paralyzing our country and preventing an economic recovery.

 

So understand that I do not believe in promoting gloom and doom, but I do believe in reality checks. And I think now is a great time for a “hard-look” reality check.  My goal in this month’s column is basically to say:

 

• Assume that the current economy is the new normal
• Start building your life and business around what the economy is and not what you wish it will be
• Focus on getting profitable in this environment
• Remain ready to respond to any changes — up or down — in the economy.

 

I must admit, the future business climate may not seem as fun as the bubble that we enjoyed several years ago.  But it was a bubble, filled with air, that got bigger and bigger and then predictably burst as all bubbles do. I certainly did not see when it was coming but I, as a student of history, did know that economies have always cycled.

 

As always, I provide the disclaimer that I am not an economist nor a soothsayer, so accept any predictions and recommendations at your own risk. Among some of my thoughts on the situation are:

 

• Housing and commercial construction will continue to recover very slowly. Given the high inventory of unoccupied residential and commercial properties, inventories will need to be sold before there is a huge improvement in the new construction area. I am guessing years, not months.
• Controls and restrictions put in place to prevent a reoccurrence of the meltdown will also act as a governor that will moderate or dampen any trend toward a similar bubble.  (In other words, these controls will also slow recovery and will prevent a similar new-construction boom.)
• Housing and commercial construction may never recover to levels we saw a couple years ago based upon reduced demand. While the number of housing starts will increase, the average house size and value will be smaller.
• Competition will continue to be aggressive in manufacturing and distribution. There is significant over-capacity in both arenas, which often leads to lower margins and hand-to-hand combat in the marketplace. There isn’t, and won’t be for some time, enough business to go around.  In other words, there won’t be enough business to support all of the existing players at their previous size. While many have hoped and expected their “stupid” competition to quit, fail or be acquired, it just hasn’t happened. These “stupid” companies show an amazing level of staying power as they hang on based upon their most basic survival instincts.  A couple quick comments on “stupid” competitors:

 

1. I don’t want to offend anyone, but some of you are the “stupid competitors.” I was at a meeting earlier this year and a wholesaler, who I know casually, was complaining about the stupid pricing in his market.  What he didn’t know is that several of his competitors had mentioned his company, by name, as the price-prostitute of his market. While he was complaining, his branch team was becoming famous for their massive discounts at the drop of a hat. His team was blaming the competition but it seemed that they were dropping their price every time a customer said, “Boo!” One of the problems, it seems, was that this owner had issued a directive to the branches, “Don’t lose any business on price.” The branches were using this directive as their excuse to murder the margins. Even in this market I continue to find significant reasons to professionally manage pricing to remain competitive and profitable.  There is no substitute.
2. Some of the companies that you think are “stupid competitors” really aren’t so stupid. Their building is paid for, they own their inventory, they have little or no debt, they aren’t fancy and, therefore, have very low operating expenses. In other words, their break-even point is significantly lower than average and they can continue to weather this economy for years if necessary. Plus they may even be “stupid” enough to actually be making money in this troubled economy.

 

So here’s my list of “hard-look” recommendations:

 

• Get your company right-sized (again) — I know that many companies have made some painful changes over the last couple years. Some have remained a little fat because they wanted to be prepared for the upswing. Take another hard look at your market and your cost-base, then make any further adjustments that are appropriate.
• Adopt a whole new attitude — The lazy days of business coming to you are over. The whole team, from the top down, must become more aggressive and hungry. Some compensation plans will need to be adjusted to reward this new attitude. Take a hard look at your team to ensure that they have the “hunter” attitude you need going forward.
• Keep selling, keep selling, keep selling — When I started college, I attended a state school that focused on engineering, home economics and agriculture.  The ratio of men to women was something like 5 men to 1 woman. For the most part, it seemed that most women who wanted a social life, had a social life.  They didn’t even have to try real hard, look nice or act nice. On the other hand, a lot of men who had enjoyed an active social life in high school suddenly found that their good looks, letter jacket and cool car were no longer their ticket to an active social life. They actually had to get off their duffs and to start selling themselves if they were to have any sort of social life. They had to try harder. They had to look their best, smell good, treat the women respectfully, be interesting and entertaining to even get a shot at a date.  They had to be creative to get noticed. Some, who had grown accustomed to dating only cheerleaders, had to be open to dating non-cheerleaders. They had to sell like crazy to achieve average results.  And they had to be able to handle a lot of rejection because even the really great guys were getting rejected quite often. Now to “dating” in our industry:

 

1. Work to become the customer’s primary supplier (for a reprint on becoming the Primary Supplier, e-mail me at rich@go-spi.com.)
2. Try harder. Just like at that state school, there are no more “bmocs” (Big Men On Campus) in this economy.  All of us need to be more humble and work harder for the business.
3. Treat customers with respect.  Always remember, respect is in the eyes of the beholder. For a reprint on Respecting Customers, e-mail me at rich@go-spi.com.
4. Consider new types of business and customers. While I always recommend caution when getting into new types of business, new products, new customers or new geographical areas, you may need to be open to other areas.
5. Make sure customers know what you are selling. Catalogs, your website, marketing, outside sales and inside sales are all critical to getting the maximum business in your situation.
6. Support the customer’s business. Focus on how you can help your customers succeed. Don’t assume that you know and understand the customers’ problems and opportunities. Take time to ask and listen. You may learn something but at the very least customers will appreciate that you asked.
7. Be creative and interesting. Where having the product was once enough, now you must do more in order to thrive.
8. Adopt the mantra jks (Just Keep Sellin’). Of course you must operate the business properly but selling is at the heart your efforts to survive and grow.

 

• Plan to grow — Many wholesalers are treading water to stay afloat so the idea of growth seems like a distant concept. However, throughout history, the most dominant companies have swum toward growth as opposed to treading water.  It requires more energy but the odds of a good future are brighter. Modest plans may be in order to reduce your risks but profitable growth must be an explicit part of your business plan.
• Outsource what makes sense — Instead of trying to do everything in-house, focus your in-house team on the core competencies of your business.  Then hire others to expertly and efficiently do the other tasks that are a part of running your business. The cost reduction opportunities range broadly across the business. Some areas to consider are vehicle maintenance, facility maintenance, graphic design, mailing of statements & marketing materials, print shops, catalogs & content maintenance, website design & support and it support. 

We don’t know what the future will hold, but I think we have enough of the picture that we can get fully focused on this new, challenging reality. It will require some to make big changes and others to make minor course changes but few companies will be able to continue forward with “business as usual.” In any case, hoping the world will recover to the “bubble” years is not a legitimate strategy for success.