Survive & Thrive The Market Flux
Originally published: 08.01.08 by W. Theodore (Theo) Etzel
Managing your business wisely in down times will enable you to thrive when the bull market returns. In fact, learning to survive during a rough economy will teach you more about your strengths and help you avoid weaknesses in the future — no matter the market.
First and foremost, bad times never last forever and good times never last forever. We are always in a state of flux. We find ourselves either growing, trying to maintain where we are or dealing with declining sales or shifting market mixes. Being proactive in the anticipation of these changes, being diversified in the marketplace, having courage to implement our plans and leading our organizations to quickly react and adapt are key elements in being proactive in changing market conditions.
I will be the first to admit that my crystal ball is somewhat muddy at times. Predicting the future is out of my hands and predicting the exact timing of events is even further removed. However, I am a big believer in looking out as far as practical via economic information that tends to be a leading indicator for our industry.
We all have internal leading indicators that tell us something about our customers and their spending habits. For instance, if you see repair tickets increasing on older equipment, then replacements may be in for a decline in the near term. If more people start financing purchases, then it may indicate that cash is getting tight or confidence in their employment is questionable and they are holding on to cash. (As a side note, a good businessman and friend of mine, Red Scott, always says,“Cash isn’t cash until it’s cash.” That may sound funny,but it reminds us that companies canoverextend credit as a way to “buy” business. If credit doesn’t convert into cash in a timely manner, companies can be in big trouble.)
So how do you see out further than just trends that develop in your business? You need to look outside the local patterns and really focus on leading economic indicators. I look for these with the help of an outside firm, Institute for Trend Research (www.Ecotrends.org) based in Concord, N.H. The company has an excellent track record for looking at trends such as the Purchasing Managers Index, Construction Spending in various categories, Money Supply, Corporate Bond rates, etc. Collectively, the company has been accurate with its interpretation of the trends for several years now – specifically its recessionary trend for 2009. Fortunately, it is anticipating an improving trend in late-2010.
Institute for Trend Research also provides industry cycle stages and helps interpret the data for easier digestion and use. Positioning yourself properly by anticipating a changing economy is a decided advantage over the competition. This concept, of course, goes for good and bad times equally.
Looking for upcoming trends with the use of economic data can truly let you see what’s coming in the future. This does not mean that you should sit idly by and take whatever comes. This information can be used to reposition your business in advance of the market shift you see coming.
For example, if you are heavily into construction but light in service and you see the slowing of construction coming, then shifting assets and resources to the service side will significantly improve your chances of surviving a construction market slowdown. This transition is not easy and cannot be accomplished quickly without significant interruption to business as usual and probably a churning of personnel. The more advanced warning you get and the more you commit to responding to that data with a plan, the more successful you can be with fewer casualties in employees and reducing your own level of stress.
When you call for a change in course, it requires commitment on your part and educating people why the change is needed. Being able to start early on this new plan is ideal. If you’ve waited too long and don’t have the luxury of time, then quick, decisive action is needed if you are to save the company. I highly recommend a very good book and quick read, “Our Iceberg is Melting” by John Kotter and Holger Rathgeber. In good times or bad, when a quick change is called for, this book offers practical advice on accomplishing your mission.
Having all your eggs in one basket, as the saying goes, is not advisable in the fast-paced economy and market today. Relying solely on new construction, for instance, makes you vulnerable to the wide swings in that industry. While commercial construction overall has maintained a fairly strong pace compared with housing, it, too, will slow as the financial markets tighten and demand declines. Having a well-balanced company with multiple profit centers (retail, service contracts, and construction) can help smooth out the peaks and valleys in the economy in each specific area. For the most part, not all areas of your business will be at the top or bottom at the same time. While this may limit your potential income one year, it may save massive losses the next. Spreading risk out and the resulting reward is dependent upon your risk tolerance.
America is a capitalistic, market-based economy. (However, governmental interferences make it not truly free.) As such, you and I are able to earn a profit, tempered by competitive forces, and grow and shrink as we see fit. We succeed and fail by our decisions and the timeliness of them. As leaders and owners, our No. 1 priority to our company is to run it in such a manner as to earn a profit. This is the only way you can employ people and provide support for their families, purchase goods and services in the local community, share your profits with charitable organizations, and reinvest for the strength of your company. That is a large responsibility and one that requires a lot of intestinal fortitude. Having a plan and being disciplined about following that plan is important in surviving market fluctuations.
Since many of us are currently experiencing a downturn in overall business, it becomes necessary to look at overhead costs. I break items down into needs vs. wants when we discuss this in our weekly management meetings. Frankly, a consistent review of needs vs. wants in all economic cycles is the best approach to avoid overspending when incomes are up. Profits can hide inefficiencies if we don’t constantly look for better ways to do things. The marketplace won’t pay for inefficient operation with higher prices when the competition can do it better and for less money. Good competition should help us become better and sharper.
In a declining market the opportunity for growth still exists. In this scenario, even staying the same relative to the declining market is a win. The opportunity for growth lies in increasing your market share. If the pie is shrinking, then get a bigger piece of that pie. Most people pull into their shell like a turtle, but stretching your neck out and being bold is what’s called for. Increase your marketing and make more noise so you attract more customers. You’ll have your competition shaking their collective heads when you up your marketing dollars. Spending these harder-to-come-by dollars wisely is your responsibility, and should be directed at what you know works best in your market. So, instead of just surviving through a downturn, you have the opportunity to thrive through one.
Let’s shift gears and look at situations in a growing economy. The current slowdown won’t last forever — thinking about what to do when the tide turns is important. The single greatest temptation in a growing economy and booming business climate is to go after too much business. Former British Prime Minister Benjamin Disraeli (1804-1881) said: “Next to knowing when to seize an opportunity, the most important thing in life is to know when to forgo an advantage.”
The focus and discipline that works in slower times also holds true for the good times. Trying to be all things to all people and touch all kinds of markets is a very tough thing to do. Selectively pruning areas of your business that aren’t profitable and focusing on what you do really well is a great plan. Also, growth can be cash intensive. You can burn through cash quickly in an attempt to expand into new locations or areas of the business. This can put a strain on the day-to-day operations. Knowing when to say “no” is important. This is contrary to an entrepreneur, since we look for opportunities to say “yes.”
Additionally, hope is not a business plan. “I hope things turn around.” In this case, hope is used as a verb and lends no specifics as to how to get things to turn around. However, hope as part of a positive attitude must be central to any leader in good times and bad. Whether we like it or not, we are on stage all the time in front of our staffs. Our co-workers take their cues from us everyday. If we do not show a winning, positive attitude about our business, especially when tough decisions are called for, the resulting negative attitudes in the office and field will spell disaster for the organization.
Economic and market fluctuations have been with us for hundreds, even thousands of years. They are in our future. Whether on a national or local scale, the influences of the marketplace continue to make us act and react to an ever-changing landscape. Take a long-term view when plotting a winning course for the business. Keep market diversity in mind so some of the risk is moderated. Find and develop leading indicators that can help predict what might be changing in your product mix so you can be proactive in your decision making. Involve your people in the decisions; more information is better than less. Map out your strategy and plan to move assertively to implement that plan. And in all cases, show a positive attitude, it’s contagious. Outlasting, out surviving and even thriving in a down business climate is a great feeling to have for you and your organization. And, surviving the downturn is the only way we get to play in the upcoming upturn.
Theo Etzel is an HVACR Business editorial advisory board member and president of Naples, Fla.-based Conditioned Air.
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