Let's be blunt: The current financial crisis is a great deal more substantial and impacting than any of us could have conceived of just six months ago. Where we once concerned ourselves with preparing for a looming economic downturn, most of us now find our net worths fractioned even as we grapple with the sort of threat to our livelihoods and standards of living that would make us throw a party were we merely forced to confront a recession.
At present, the security we once felt in the stability of the global markets is dramatically undermined, perhaps forever. Our confidence in financial "experts" and market "specialists" is severely shaken. Even for those of us in businesses not technically within the imploding global financial superstructure, we are finding it difficult to conduct business as usual. And who can blame us, distracted as we are by the cacophony of journalistic Chicken Littles rhythmically heralding the impending dropping of yet another shoe by this centipede of a crisis.
Do I overstate the current state of affairs? Perhaps. There is a chance that I experience more acutely the sensations, pressure, and grisly drama due to my living and working in the New York City area, where all of a sudden tens of thousands of people are facing life upheavals. It is almost impossible to live here without having family, friends, or neighbors directly affected by the lightning quick alteration to the familiar and comfortable landscape of Wall Street. Not that these events can even compare with the atrocity of 9/11, but there is a palpable sense of déjà vu amidst the rampant gloom and pessimism that haunts even suburban streets these days.
And yet, there we are, arising each morning, heading to work to produce and sell, to earn and create value. Tucked within the folds of our psyche is that Darwinian autoreflex that tells us that our lives are still within our control. We just need to work harder, concentrate better, and make smarter and more careful decisions. Our success or failure, we convince ourselves, cannot – must not – be a function of the performance of others. It is incumbent upon us to be the master of our own destinies, to prevail in spite of our surroundings and circumstances.
But there is no denying the impact that this faltering economy will have on our businesses. When consumers suffer financially, they tend to spend less. This hurts retailers in every category, which in turn hurts their suppliers, and so on up the supply chain. In the best case scenario, business slows but remains steady enough to survive. In many cases, profitable survival is a struggle akin to juggling chainsaws, where you hope to clutch safely while avoiding the blades of bankruptcies, credit crunches, price reductions, cost increases, and general despondency.
Still, if this financial morass has taught us anything, it is that putting our faith – and money! – in others is not necessarily any better than investing in ourselves. Considering that even conservative mutual and index funds have lost anywhere from 20 to 50 percent of their value over the past several months, wouldn't you have been better off investing in your own company?
At the end of October, a business owner approached me to assist him in finding a business for him to acquire. His situation was enviable. He found himself sitting on a great deal of cash, and while in the past he would normally have invested this money in the market, he felt that buying and building a business was a safer, more secure way to put his money to work. And for many businesspeople who have legitimate opportunities to invest in their own companies, this line of thinking is worth consideration.
But make no mistake about it, just as the prism through which you view your financial affairs has become more complex, so has the manner in which you manage your business. The impact of tighter credit markets not only makes it more difficult to borrow, but may embolden lending institutions to demand a great deal more than just higher interest rates, particularly in the form of increased collateral and increasingly restrictive covenants. Speaking of credit, the importance of managing your receivables and your customers' credit lines has never been greater. Revenue and customer bases will shrink as formerly acceptable credit risks will be deemed too risky to retain on terms.
If you thought your competitors had no more room to lowball, think again. The downward pressure on prices will only increase, as every link along the supply chain squeezes its vendors in response to the demands of its market – and the more desperate vendors will discover new ways to justify seemingly insane pricing. There has never been a more important time to review your purchasing policies and procedures to ensure that you are negotiating the very best total value – not necessarily price alone – from your vendors.
John F. Kennedy once observed, "The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger, but recognize the opportunity." Times like these can offer opportunities to companies willing and financially able to take a long term perspective. For privately held businesses, which are not forced to meet artificial quarterly reporting thresholds, prospects that have been out of reach might all of a sudden be there for the taking. As larger competitors raise prices and reduce service levels in order to stave off revenue and margin decline, smaller companies that have invested smartly in technology and capabilities over the past few years need to find a way to insert themselves into the emerging gap. Trust me: The purchasing managers for those targeted customers who previously wouldn't give you the time of day will treat you royally if you can assist them in keeping their overall cost structures relatively intact.
For some, the silver lining in all of this may be their ability to weather the storm better than their competitors. In times like these, small businesses in many ways have a significant advantage over larger companies, due in part to lower overhead and in part to their flexibility and ability to change directions more quickly. Nimble businesses can dance though the raindrops that soak the lead footed. The British unconventional self-help author and motivational speaker Stuart Wilde (most famous for his bestselling book The Trick To Money is Having Some) pointed out that "In a time of crisis we all have the potential to morph up to a new level and do things we never thought possible."
Let's put it this way: The good times had to come to an end some time, right? Deep down, you've always known that there would be dark days at some point. The best strategy is to meet your challenges head on, as they arise. Businesses today face hurdles spanning every facet of their organization: rising costs, worried employees, contracting consumer spending, and paralyzed financial markets. Now is the time to put into action those "if push comes to shove" plans that you've at least subconsciously considered over the many years when push never came to shove. From redundancy elimination and Lean initiatives to customer retention and more stringent sales force management, every arrow in your management quiver must be actively engaged to ensure profitable survival.
Keep in mind that while the importance of protecting your market positioning has never been more critical, every effort must be made to diversify. Risk reduction is imperative, not just in terms of customer credit, but in the form of aggressive fixed cost reductions as well. But for smart, strategically positioned business, this economic downturn will offer an extraordinary number of new opportunities – especially for creative entrepreneurs and small businesses.
But your first priority must be stabilization. Ensuring the ongoing viability of your business means honestly assessing your vulnerability to not only a world of tighter credit and walking a financial tightrope, but also of your market and customer diversification, key customer health, and cost and margin management. The Chinese business consultant and author Chin-Ning Chu points out that "Without the strength to endure the crisis, one will not see the opportunity within. It is within the process of endurance that opportunity reveals itself."