Date Published: 2010-03-01
How to survive and prosper in an economic crisis
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John Lynch, CEO Lynka, outlines the 'seven essentials for surviving a crisis' – principles that will allow your business not only to survive the current recession, but also to emerge stronger and more profitable on the other side… |
During the typical recession, almost 23 &percent; of companies go bankrupt,
20&percent; are acquired or change hands, while 48 percent struggle
through and survive, weakened but still alive. But what about the
remaining 11 percent?
Well, that's the good news. During each recession of the past 25 years,
about 11 percent of companies emerged stronger after the recession
than they were before – higher sales, larger market share, bigger profits.
So how is that possible? What differentiates the 'winners' from 'the losers'?
And how can you ensure that you are part of the 11 percent?
Analysing the data
Professor Ranjay Gulati, of Harvard Business School, recently analysed
this question by looking at several thousand companies' financial results
before and after recessions (Customer Centricity in Turbulent Times). He
discovered that the companies that thrive during recessions – so called
'Breakaway' companies – have a different perspective on the challenges
they face; they simply look at things differently. And the common factor
that sets these 'winners' apart in times of crises is that they are far more
"customer centric" compared with their competitors.
Zigging while others are Sagging
Breakaway companies see turbulent times not as a threat, but as an opportunity.
In particular, they realise that indiscriminate cost cutting can
actually make things worse. They realise that while some cost cutting
may be necessary, if they cut the costs that affect the services that their
client appreciates most, that client is likely to walk away.
Instead, the first step these companies take is to acquire a keen understanding
of what their customers value most from their product and
service proposition. During a recession, they then give customers more of
those highly valued elements of their offering, not less.
Professor Gulati's findings revealed that, during difficult times, Breakaway
companies:
- form stronger customer bonds;
- innovate around customer needs;
- take advantage of strategic alliances and acquisitions;
- invest in business efficiency
- realign their organisation to respond to core customer needs
Based on this research, as well as a published paper in the Harvard Business
Review by David Rhodes and Daniel Stelter of BCG (Seize Advantage
in a Downturn – Harvard Business Review), it is possible to present a set
of guidelines to surviving, or even thriving, in an economic downturn. The
following guidelines have been customised so that they pertain to the
specifics of the promotional products industry.
Defend Top Line Growth
In any downturn, the first thing you feel is the loss of sales. Assuming your
prior cost structure was aligned with your level of sales, it's the drop in
sales that causes the problems in the first place.
So above all, you need to vigorously defend your top line, ideally without
lowering prices too much. Specifically, you should:
- Do an intensive analysis of your customer base Who are
your top clients? Which industries? Decide where you are most exposed
and where you have biggest opportunities. Use this as an exercise to
identify branches that might hold up during the downturn
- Revitalise customer retention initiatives. Having identified your best customers, now make sure your sales team is taking care of them. Find out what they want from you, and give them more of it.
- Realign sales force incentives to generate short-term revenues. Forget about the annual sales contest – you need sales now!
- Revenue generation.Cut those programmes that are unlikely to
stimulate sales now.
- Know your customer needs. How important is speed of service,
how important is quality? Is price more important now than before? You
must know the answer to these questions.
Focus on winning new clients
New customer acquisition is the most important tool you need today.
If some sub-segment of your existing clients order less this year, (think
automotive, banking and construction industries, for example), then
your sales will go down. That is, unless you replace those sales with new
sales. The ways to do that are:
- Reactivate current and former prospects and clients. Go for the 'low hanging fruit'. Someone who ordered from you in the past is much easier to win business from compared with a completely contact. Go through past records and create a hit list – then come up with an attractive offer to win them back.
- Target better. Identify clients of yours that are still ordering strongly, and look for other businesses in the same field. Go after companies in industries that aren't so hard hit by the prevailing economic climate. Offer them something your competitor doesn't have How about special services, such as customised sewn-in neck labels? Or special glow-in-the-dark inks and three-dimensional prints? Can you offer truly awesome full-colour work?
Product and pricing strategy
Changing times require changing product and pricing strategies. If your
client still wants to do his promotion of 2000 T-shirts, but his budget is
reduced, then you need a lower priced version of your existing offer. And
you may need a different brand or a new supplier. There are three other things you should do:
- Identify low cost suppliers. If you can find a better deal, you
just might be able to win that new business without lowering your profit
margins.
- Identify products for which customers are still willing to
pay full price
- Unbundle services and create a la carte pricing. For
example, if clients don't care about having their shirts individually
packed, then charge for that separately.
Cut costs and increase efficiencies
This one seems obvious, but is not always so easy to execute. Just remember,
blindly cutting costs without careful consideration can be dangerous.
Make sure any cuts you make do not reduce critical service levels for your
most important customers. Here's how to proceed:
- Cut long-standing activities that add little business value. Every company has dead wood – now is the time to cut it.
- Analyse suppliers and procurement practices. In general,it's a great time to re-evaluate your supply chain. Are you working with your current suppliers for the right reasons, or is it because of the "We've always worked with the guys across town" syndrome?
- Re-examine the economics of outsourcing and offshoring. Accounting, production, telemarketing – consider it all.
- Revive earlier efficiency initiatives. Look again at those initiatives that you deemed to be too controversial to implement in good times.
- Consolidate or centralise key functions
Manage your cash position very carefully.
If your business depends on bank finance, you should be prepared. EU
banks are very tight on credit today and are likely to remain so throughout
2010. Credit for small and medium companies will be difficult to come by,
so it's more important than ever to carefully manage your cash flow.
Adopt the following approach:
- Calculate your planned cash inflows and outflows. If you don't have one, develop a monthly cash flow report. Know your position at all times.
- Delay capital investment programmes. Wait a year for that new computer or phone system. Consider outsourcing.
- Shed unproductive assets including inventories. The aim is to generate cash.
- Divest non-core activities or businesses. If it's not making you money today, get rid of it, or at least put it into hibernation.
Manage working capital with an iron fist!
Closely related to the above, managing your working capital at this time is
critical: it's not a lack of profits that kills companies, but a lack of cash. To
strengthen your own balance sheet, concentrate on your working capital including: cash, accounts receivables, accounts payables, and inventories.
- Reduce receivables by actively managing customer credit. If you don't have a person working the phones for payment, then consider hiring one or outsourcing this activity.
- Speed up your production cycle. By processing orders faster,not only do you have a happier client, you have money in the bank faster.
- Reduce inventories. Whatever it is you happen to keep in stock - products, inks, or office supplies – make sure that someone in yourcompany is looking that over carefully and eliminating overstocks.
- Tightly manage customer credit. The head of one of Europe's largest apparel brands recently told me:
"John, I am not worried so much about losing sales, but I am terrified of defaulting customers." Offer financing only to credit-worthy or strategic customers Signing a big order feels great, but if the client doesn't pay, it can kill you.
- Be diligent in collecting advances from customers. That reduces your losses in case of default.
- Consider credit insurance . At least for your larger orders. If a credit insurer won't insure a company, there's usually a good reason for it.
John Lynch, 47, is an
American entrepreneur
who has been doing
business in Poland since
1991. Born and raised in
New Jersey, he has lived
and worked in Europe for a
total of 18 years, including
time spent in England,
Spain and Poland.
In 1992, John co-founded
Lynka, which he grew to
become Poland's leading
promotional merchandise
company. By 2010,
Lynka had grown into
the leading promotional
apparel company in
Central Europe, with
over 100 employees, and more than 40 international awards for
quality printing and embroidery. Today, Lynka services hundreds of
promotional agencies from 22 countries throughout the European
Union.
John graduated from Lehigh University in Bethlehem,
Pennsylvania in 1984, with a B.S. in Mechanical Engineering. In
1989, he completed his MBA at The Wharton School of Business.
John is fluent in Polish and speaks Spanish as well. He was the
founder of the American Chamber of Commerce branch in Southern
Poland, and is an elected member of the Board of AmCham Poland.
He is an active member of YPO (Young Presidents Organization)
international. In 2004, he was chosen as the Entrepreneur of the
Year in Poland.
email: jlynch@lynka.eu
Web:www.lynka.eu
IMAGES is published by:
CN Publishing, 9a, Kings Road, Flitwick, Bedfordshire, MK45 1ED, England.
Tel: 01525 718890/717655
IMAGES website designed and hosted by Cyberscreen Internet Services
Analysing the data
Professor Ranjay Gulati, of Harvard Business School, recently analysed
this question by looking at several thousand companies' financial results
before and after recessions (Customer Centricity in Turbulent Times). He
discovered that the companies that thrive during recessions – so called
'Breakaway' companies – have a different perspective on the challenges
they face; they simply look at things differently. And the common factor
that sets these 'winners' apart in times of crises is that they are far more
"customer centric" compared with their competitors.
Zigging while others are Sagging
Breakaway companies see turbulent times not as a threat, but as an opportunity. In particular, they realise that indiscriminate cost cutting can actually make things worse. They realise that while some cost cutting may be necessary, if they cut the costs that affect the services that their client appreciates most, that client is likely to walk away. Instead, the first step these companies take is to acquire a keen understanding of what their customers value most from their product and service proposition. During a recession, they then give customers more of those highly valued elements of their offering, not less. Professor Gulati's findings revealed that, during difficult times, Breakaway companies:- form stronger customer bonds;
- innovate around customer needs;
- take advantage of strategic alliances and acquisitions;
- invest in business efficiency
- realign their organisation to respond to core customer needs
Defend Top Line Growth
In any downturn, the first thing you feel is the loss of sales. Assuming your prior cost structure was aligned with your level of sales, it's the drop in sales that causes the problems in the first place. So above all, you need to vigorously defend your top line, ideally without lowering prices too much. Specifically, you should:- Do an intensive analysis of your customer base Who are your top clients? Which industries? Decide where you are most exposed and where you have biggest opportunities. Use this as an exercise to identify branches that might hold up during the downturn
- Revitalise customer retention initiatives. Having identified your best customers, now make sure your sales team is taking care of them. Find out what they want from you, and give them more of it.
- Realign sales force incentives to generate short-term revenues. Forget about the annual sales contest – you need sales now!
- Revenue generation.Cut those programmes that are unlikely to stimulate sales now.
- Know your customer needs. How important is speed of service, how important is quality? Is price more important now than before? You must know the answer to these questions.
Focus on winning new clients
New customer acquisition is the most important tool you need today. If some sub-segment of your existing clients order less this year, (think automotive, banking and construction industries, for example), then your sales will go down. That is, unless you replace those sales with new sales. The ways to do that are:- Reactivate current and former prospects and clients. Go for the 'low hanging fruit'. Someone who ordered from you in the past is much easier to win business from compared with a completely contact. Go through past records and create a hit list – then come up with an attractive offer to win them back.
- Target better. Identify clients of yours that are still ordering strongly, and look for other businesses in the same field. Go after companies in industries that aren't so hard hit by the prevailing economic climate. Offer them something your competitor doesn't have How about special services, such as customised sewn-in neck labels? Or special glow-in-the-dark inks and three-dimensional prints? Can you offer truly awesome full-colour work?
Product and pricing strategy
Changing times require changing product and pricing strategies. If your client still wants to do his promotion of 2000 T-shirts, but his budget is reduced, then you need a lower priced version of your existing offer. And you may need a different brand or a new supplier. There are three other things you should do:- Identify low cost suppliers. If you can find a better deal, you just might be able to win that new business without lowering your profit margins.
- Identify products for which customers are still willing to pay full price
- Unbundle services and create a la carte pricing. For example, if clients don't care about having their shirts individually packed, then charge for that separately.
Cut costs and increase efficiencies
This one seems obvious, but is not always so easy to execute. Just remember, blindly cutting costs without careful consideration can be dangerous. Make sure any cuts you make do not reduce critical service levels for your most important customers. Here's how to proceed:- Cut long-standing activities that add little business value. Every company has dead wood – now is the time to cut it.
- Analyse suppliers and procurement practices. In general,it's a great time to re-evaluate your supply chain. Are you working with your current suppliers for the right reasons, or is it because of the "We've always worked with the guys across town" syndrome?
- Re-examine the economics of outsourcing and offshoring. Accounting, production, telemarketing – consider it all.
- Revive earlier efficiency initiatives. Look again at those initiatives that you deemed to be too controversial to implement in good times.
- Consolidate or centralise key functions
Manage your cash position very carefully.
If your business depends on bank finance, you should be prepared. EU banks are very tight on credit today and are likely to remain so throughout 2010. Credit for small and medium companies will be difficult to come by, so it's more important than ever to carefully manage your cash flow. Adopt the following approach:- Calculate your planned cash inflows and outflows. If you don't have one, develop a monthly cash flow report. Know your position at all times.
- Delay capital investment programmes. Wait a year for that new computer or phone system. Consider outsourcing.
- Shed unproductive assets including inventories. The aim is to generate cash.
- Divest non-core activities or businesses. If it's not making you money today, get rid of it, or at least put it into hibernation.
Manage working capital with an iron fist!
Closely related to the above, managing your working capital at this time is critical: it's not a lack of profits that kills companies, but a lack of cash. To strengthen your own balance sheet, concentrate on your working capital including: cash, accounts receivables, accounts payables, and inventories.- Reduce receivables by actively managing customer credit. If you don't have a person working the phones for payment, then consider hiring one or outsourcing this activity.
- Speed up your production cycle. By processing orders faster,not only do you have a happier client, you have money in the bank faster.
- Reduce inventories. Whatever it is you happen to keep in stock - products, inks, or office supplies – make sure that someone in yourcompany is looking that over carefully and eliminating overstocks.
- Tightly manage customer credit. The head of one of Europe's largest apparel brands recently told me: "John, I am not worried so much about losing sales, but I am terrified of defaulting customers." Offer financing only to credit-worthy or strategic customers Signing a big order feels great, but if the client doesn't pay, it can kill you.
- Be diligent in collecting advances from customers. That reduces your losses in case of default.
- Consider credit insurance . At least for your larger orders. If a credit insurer won't insure a company, there's usually a good reason for it.
|
John Lynch, 47, is an
American entrepreneur
who has been doing
business in Poland since
1991. Born and raised in
New Jersey, he has lived
and worked in Europe for a
total of 18 years, including
time spent in England,
Spain and Poland.
In 1992, John co-founded
Lynka, which he grew to
become Poland's leading
promotional merchandise
company. By 2010,
Lynka had grown into
the leading promotional
apparel company in
Central Europe, with
over 100 employees, and more than 40 international awards for
quality printing and embroidery. Today, Lynka services hundreds of
promotional agencies from 22 countries throughout the European
Union.
John graduated from Lehigh University in Bethlehem,
Pennsylvania in 1984, with a B.S. in Mechanical Engineering. In
1989, he completed his MBA at The Wharton School of Business.
John is fluent in Polish and speaks Spanish as well. He was the
founder of the American Chamber of Commerce branch in Southern
Poland, and is an elected member of the Board of AmCham Poland.
He is an active member of YPO (Young Presidents Organization)
international. In 2004, he was chosen as the Entrepreneur of the
Year in Poland.
email: jlynch@lynka.eu
Web:www.lynka.eu |
|
|
IMAGES is published by: CN Publishing, 9a, Kings Road, Flitwick, Bedfordshire, MK45 1ED, England. Tel: 01525 718890/717655 IMAGES website designed and hosted by Cyberscreen Internet Services |
