Bad times are good for one thing- it is a time that forces us to challenge all of our business assumptions. No sacred cows. Because of the new economic realities, we are forced to look at everythig associated with our business. Things that once we “unthinkable” need to have a second or third look. For example:
1. Look at all the costs in your business. Do you really need all those people to effectively run the business? Which are revenue producers and which are overhead? Which are nice to haves or luxuries we just got used to? Take no prisoners.
2. Can we sell or reach our customers a more effective, less expensive way? Do we need a direct sales force or can we go directly to customers or through third parties?
3. Is there a way to improve our gross margin? Can we make or offer the product another way?
The trick is to be creative without being Draconian. The key is not to cut into the bone of the business where you save money but hobble the business so it can only spiral down.
In the last severe downturn of 2002, my client who had been in business for over 100 years was forced to look at everything because of slowing demand. They had always assumed a gross margin on their product of 35%. When sales withered and they had to increase this in order to just make profit, they found a way to make a 45% margin! This had never done before. The CEO would never have even tried to increase his margin unless the economy had demanded it. As a result, after the downturn was over, the company was more profitable than it ever had been in its history. This can be one silver lining to the current crisis our businesses face.
We can fat and complacent during good times. That’s okay. It is what those times are for. But this year it is necessary to take bold and big action in your businesses so you can survive and thrive during the downturn. You will be surprised what you can achieve.
