Strategies for businesses in a downturn economy
In reading a recent article on businesses in this downtown economy, Harvard Business School professor Michael E. Porter founder of the modern field of business strategy answered some questions on how and where businesses should focus during this time.
Question: What strategies should small businesses use to survive this recession?
He expressed that during a time period of economic downtown there is an overwhelming instinct to lay off and cut back. He recommends that if you are going to lay off and cut back, you need to do it with your business strategy in mind. The biggest mistake is to cut across the board. He goes on to state that "good leaders need a positive agenda, not just an agenda of dealing with crisis."
This reminds me of the first couple of points in the book Good to Great. You need to get the right people on the bus, then with the right people, you need to decide where you are going (aka business strategy). If we lay off the wrong people, then we have the wrong people on the bus directing our business, which can be the demise of a company. Gary Keller of Keller Williams Realty said during the 2009 Keller Williams Family Reunion that this is the "Era of Extra Effort" those who are average or mediocre will be laid off. You are seeing this across the nation. Companies are laying off individuals - cleaning house. Now, I need to throw a clause in here that some companies are letting good individuals go because they are not going about it according to their strategy.
Question: What is the best way for small businesses to capitalize on any recovery?
Porter comments companies that ramp up their capacity will aline themselves to gain market position. Larger organizations will not be able to meet the new demand due to downsizing or outsourcing.
This is inline with what Keller said - Get Real! Get Right! Wake-Up! "The Business with the Lowest Costs Wins!" - look at the investments in your business and put a dollar amount to everything. Is advertisement XYZ paying for itself? What's the ROI? Is it worth the investment? Remember the profit you seek will always be made in the way you manage your money. When the market shifts, you must create a budget that matches your revenue. You need to lower your costs now and revisit this every month.
As Charlie Munger, Warren Buffett Speaks, "Name a business that has been ruined by downsizing. I can't name one. Name a company that has been ruined by bloat. I can name dozens."
Are there opportunities in trying times?
Porter stated "during an economic downtown there is a greater level of flexibility."
Get involved in the market of the moment. What is happening now? Normal homes priced at their normal value are not selling. What is selling? What price range in your area is selling? What REOs are there in your area? Short Sales? Foreclosures? Lease Renegotiations? Companies down sizing? Companies expanding. Know your market and the market of the moment and price your listings ahead of the market.
As W. Edwards Deming said "It is not necessary to change. Survival is not mandatory."
Looking for commercial real estate in peoria il? See what we can do for you!