To say we are in uncertain times is a gross understatement. Investors are in a quandary trying to decide what to do. Employees are ringing their hands as they watch their 401k and retirement funds dwindle. And business owners are wondering what the future holds and what actions they should be taking. I certainly don’t have a crystal ball. I don’t know what tomorrow will bring. But I do know this is not the first time we have had uncertain times. This time, like every other time, there may be different causes and it may affect various companies and industries differently but, if the past is any indication, experience tells us there are proven ways not only to survive these times but, perhaps, even thrive in them.

These are not the conditions you had hoped for, but they are here and there is not a lot you can do to affect and change them. You can, however, affect how your company performs in these conditions. The last thing any business can afford to do now is play the turtle by pulling its head into its shell and wishing for the best. Instead, you need to face the reality of the situation and continue to move forward while you carefully navigate the minefield ahead of you.

Based on the success of various companies during prior bad economic times, I have listed 11 keys to getting through tough times in one piece, maybe even growing a little, and also being positioned to grow when the economy does turn around.     

1.    Act NOW! Don’t wait. But, DO NOT panic.
2.    Don’t fly blind, have a plan.
3.    Know where you are now, what is reality.
4.    Monitor continuously, always know where you stand.
5.    Understand the business model, how it makes money.
6.    Focus, on the core business, not on the fringe. 
7.    Reorganize around reality, get lean, no anchors.
8.    Strengthen the culture, communicate with the team.
9.    Spend wisely, on the best.
10.    Be easy to do business with.
11.    Build market share.

Act NOW! Don’t wait. But, DO NOT panic.
It’s here. It’s not going away. So, what are you waiting for? I am not suggesting you run around setting off a panic in your company, but you need to take action now. Even if you are still doing okay,
even if you have good cash flow from prior work, assume it is coming and take action while you are still healthy. Taking action means doing the other 10 action steps.

Don’t fly blind, have a plan.
You don’t know where all this is going. You don’t know how long or how deep this will be. The only thing under your control is your company. As difficult as it is in this environment with all the unknowns, the only way to get any control over the company’s direction and success is by developing a plan.  This does not require a 100-page masterpiece to bind and place on a shelf. All you need is a planned route, a roadmap for making it through. It should address the “what ifs,” and serve as your action plan should those “what ifs” materialize. It is a written document but it is not, and should never be, written in stone. It needs to be continuously reviewed and modified as times and conditions dictate. Flexibility is the key. But, again, it needs to provide enough direction to show you and your team where you are heading and the strategies you will take to navigate through these times. The last thing you can afford at this time is to show up Monday morning with a Sunday-night strategic plan and a bucket of hope.

Know where you are now, what is reality.
To develop a plan for the future, you need to know where you are at the beginning. This is true anytime, but it applies to an even greater degree when developing a plan in a difficult environment. Determining where you are now is truly a matter of identifying what is reality. It is taking inventory of the current state of the company, including its competencies, people, resources, suppliers, and customers. It is establishing a realist baseline for anything the company will do from here, an understanding of the tools and strengths with which it has to work, and what it is really good at doing, as well as the weaknesses and gaps it will have to overcome.

Monitor continuously, always know where you stand.
In a time of uncertainty, ongoing monitoring becomes critical so you are always aware of where the company stands and where it is headed. Annual, quarterly, and even monthly historical reports are questionable in good times. In challenging times, they are just that, history. Real time, daily, and weekly information will help you steer through and ensure you remain on course. Current information will enable you to make changes and course corrections quickly and help avoid going too far down a route that is no longer viable. It will allow you to make timely changes to your plan when necessary. 

Understand the business model, how it makes money.
It often amazes me how many business owners don’t truly understand how their companies make money. They don’t understand the connections within the model creating profit. During good times, you can get away with this. Sales are building, cash flow is good, and profits are showing up on the bottom line. As things begin to tighten up, though, understanding your company’s business model becomes more important. It’s like a mechanic trying to fine-tune an engine without understanding how all of the parts and components of the engine work together and affect each other. Ignorance of those interactions could lead to removing an important part of the engine, believing it does not serve a major role, and protecting a part that is actually unnecessary. To make it through tough uncertain times, your company needs to be operating at peak efficiency. The only way you can ensure that is to thoroughly understand the business model, the interactions of the parts of the company within that model, how each affect the other, and how to tweak that model to squeeze out profits while maintaining what makes your company great.

Focus, on the core business, not on the fringe.
Businesses that maintain the strongest focus are typically the most successful. That’s because all of their resources are focused on their core business; what they do best. Since most smaller businesses have limited resources, focusing those resources enables them to become really good at what they do and sometimes better than anyone else. When the economy is in a downturn this practice of focusing resources on your core business could enable you to grow while others fail. Success in a bad economy can depend on you being the best at what you do. It can depend on you providing your key customers with more than they expect and with providing them more value than they can get anywhere else. By casting off fringe products and services you will be able to focus on those products and services at the core of your business; the ones you perform best and can do better than anyone else. Then, by casting off the fringe customers, you can concentrate your efforts on those best customers you absolutely cannot afford to lose. Although it may seem counter to common sense to cast off customers in a time of uncertainty, these fringe customers will drain resources needed to keep the core customers happy. Think of it as saving the passengers of the leaking boat by casting off enough excess baggage and weight to keep the ship afloat until the storm subsides.

Reorganize around reality, get lean, no anchors.
By acting early, you should be able to avoid wholesale layoffs of vital employees. However, that does not mean you can or should just leave the organization as it is. Getting real and getting lean should be your driving force. Getting real means you need to reorganize around the reality of the business. If growth is slowing, stopped or even in reverse, the organization needs to be adjusted to best fit the new reality of the market and the business. You must remove any excesses or positions that were nice to have but could become anchors preventing the company from being agile and lean as the slowdown continues. Getting lean now may prevent deeper cuts later, affecting your company’s ability to perform. The caution is, while getting lean, to be careful not to damage your ability to support customers and provide them with the service they have come to expect.

Strengthen the culture, communicate with the team.
Your team played a large part in the success of your growing company and they will have to play an even greater role in helping the company survive and thrive in this economy. Your team had help from your company culture. Your culture played a large role in helping employees perform, and it will need even more strength to help them work through these newest challenges. Throughout these next few months, or even years, as long as this economy remains a challenge, you can never allow your company to lose its culture. Your employees are happy in it, they perform well in it, and they are comfortable in it. Now is not the time to eliminate the ingrained elements of the culture. It may mean spending a few dollars on their favorite pizza lunch or free soft drinks, but it will be worth the investment. You can find other places to cut expenses. It is also definitely not the time to stop communicating. These rough times make employees uneasy. Communicating with them makes them feel like they are “insiders.” But you must communicate both good and bad news. By doing so, they will know you are not hiding anything. They will be able to do their jobs without worrying if the end is coming and you are not telling them.   

Spend wisely, on the best.
This is definitely a time for budget scrutiny and elimination of foolish and unnecessary spending. However, it is not the time to stop spending wisely. Wise spending is spending on tools and improvements to make the company more productive and effective, better serve customers, strengthen the culture, and increase sales of core products. It may also be the time to spend wisely on a new hires. There may be good buys out there on some of the best possible talent. If that talent can improve the company through added resources or enable the elimination of weaker talent, the payback on the investment could be large and quick.   

Be easy to do business with.
It’s a good strategy anytime. And it makes even more sense when the market is tight. Keep it easy for your customers to do business with you. In fact, look for ways to make it even easier. Easier to find you, easier to find what they want, easier to order from you, easier to get what they bought from you. This will require you to know what your customers want and what they consider easy. It’s a great excuse, while your competition is playing the turtle, to contact customers, reconnect with them, and show them you know it is also tough on them and you really want to help make their lives easier. Being easy to do business with can also become your focus and reason for reassessing your internal systems and processes.  This ensures  you can deliver what you promise and what your customers want in the most cost-effective and efficient manner.

Build market share
This seems both obvious and impossible, doesn’t it? It’s obvious that building market share would help a company thrive. But, is it possible in this economy?  Unless you have 100% market share in your particular market, the potential to increase market share is there. Since the total demand for your products and services has or will likely decrease, the only way to maintain or increase sales will be to take them from your weaker competition. Focus your marketing and sales efforts on the principle of survival of the fittest. The prior 10 keys can make you the fittest. They can put you in a great position to take customers away from your competition as they weaken or even die in this economy.  

Can you honestly say your team is as good as you would like it to be? Are you confident that they are strong enough to support your growth plans and truly help the company achieve its objectives? Can they take you and your company to the next level? As Jim Collins asks in his book Good to Great, do you have the right people “on the bus?” If you can’t answer yes to these questions, you should be asking yourself why not. Why shouldn’t you be able to say you have assembled the greatest team possible and they are driving your company to new heights?
 
Whenever I talk to company owners and managers who cannot answer yes to these questions and I ask them why not, I typically get a very standard excuse. I’m told, “It’s just tough to find good people,” or “What can I do? They’ve been with the company for so long,” or “I guess we just deal with it.” The rationalization creating these excuses can be very costly. The ultimate cost is that these employees prevent the company from achieving its growth goals, and actually jeopardize its future.
 
It is a fact, the ultimate long-term success of every company depends on having good people. And, to reach the heights truly great companies reach, you can’t just settle for good people, you need great people. Great companies understand the importance of great people. They believe it is worth the time, the effort, and the cost to find great people.

Are you thinking, “I just could never get the truly great employees to come to my company?” If you are, then you need to change your thinking. There are truly great employees out there and you can get them. It doesn’t matter if your company is small or doesn’t have all of the bells and whistles of some larger companies. What matters is that you have both the right attitude and a strong commitment. You have to adopt an attitude that only the best will do in your company and you will not put up with mediocrity. And you need to commit resources and efforts to back up that attitude. Although in reality it may be impossible to put together a team consisting only of “A” players, this should never stop you from having it as your objective. If you allow yourself to take the easier route and simply hire employees who are “perhaps not the best but should be able to do the job,” then you can expect your company performance to mirror that philosophy.

Companies often become self-fulfilling prophecies. They think they cannot find and attract the best and their prophecy comes true. Instead of aggressively seeking and recruiting those “best” candidates, they assume they can’t attract them, so they don’t even try. Your goal has to be to become a company that is a top choice of the best players. That means you need to have an environment making the best people want to come work at your company. Think positively. Think what would make your company into the place to be for those employees.

I can almost hear the excuses again. Some of you are already thinking to yourself, “Whatever my attitude, those ‘best’ employees are expensive and there is no way we could afford them.” Although it may sound trite, for the sake of your future, can you afford not to hire the best? And, by being a little more creative, you can design compensation plans that not only attract the best but also make them much more affordable. Remember, although you need to be competitive, salary isn’t always the ultimate attraction.

Take mediocrity out of your vocabulary when you are forming your team. Be committed to an attitude of excellence. Be creative. Think of ways to make your company the place where the best want to be and where the best possible team is busy taking your company to the next level.

 

It was 1967, and it was my first job in engineering for what was, at that time, one of the top companies in the machine tool industry. This manufacturing company was a young engineer’s dream and as an entry-level engineer, my initial assignments had me directly involved with the workers in the factory. It was there that, in addition to having my first real taste of manufacturing, I had my first real lessons in employee incentives and behavior.

The company was very proud of its factory incentive system. Production employees, in addition to their base wage, received a piecework incentive. Standard times for the manufacturing operations required to make every part were established before it went into full production. The incentive system then paid off if the employee beat the standard time to complete the operation. For example, if a machine operator making a part with a 10-per-hour standard made 12 parts that hour, they would receive 120% of their base hourly rate for that hour.

This seemed like win-win. The company got improved production rates and the workers had an opportunity to make more money. However, I learned productivity was not very good, parts were still late, quality issues were abundant, and costs were high. The system was not achieving what it was intended to achieve. Its intentions were good but its design was flawed. It was, in many situations, actually incenting the wrong behavior. One of the more obvious flaws was that operators got paid their incentive based solely on the quantity of parts produced. There wasn’t a good system in place to ensure the quality of the parts. This often resulted in operators being paid incentives for producing bad parts. And it doesn’t end there. Once the bad parts were discovered, they were often sent back to the same machinist who could earn incentive pay to fix his own mistake.

Its all in the design

The key to a successful system is therefore in the design. It must ensure that, unlike the piecework system described here, it doesn’t inadvertently incent the wrong behavior. This is important in large-scale plans or simple performance rewards.

It’s actually very easy to implement a destructive rather than a constructive incentive program. You have a problem and an incentive program seems like a good way to solve it. You want a quick fix so you don’t spend the time you should to really think out the ramifications and the possible behaviors that could be incented by the plan. Following some simple guidelines can help ensure your design creates the results you intended.

Rules of thumb

1. In designing a plan, don’t focus on only one aspect of the process. It will likely create unwanted behavior in another part of the process. An incentive plan rewarding speed of manufacturing or delivery may also create quality issues.

2. Don’t design the plan to be too general. If it doesn’t identify specific objectives, it enables interpretation that could hurt rather than help the company. A plan designed to reward sales increases without specifically stating target products or price points may result in increased sales of lower-margin, less-profitable products, and a reduction rather than an improvement in company performance.

3. Play the devil’s advocate throughout the design process. Involve your managers and the employees involved to gain insight into their reaction and interpretation. You need to feel comfortable the plan will incent the behavior you intend before you implement it.

Incentives do work

I have heard (and I tend to agree with) the argument: “Why do I need to incent them to do a good job? That’s what I pay them for.” But, designed and used properly, incentives can be a powerful management tool. They can help us solve short-term problems, mold behavior, and develop the company culture. That’s both the good news and the bad. They work so well that, unless designed properly, they could incent unintended and potentially destructive behavior.

Well it has been some time in coming but my blog is finally up and running. So welcome to my blog. The delay was due totally to my procrastination. My web design firm GoFactor Design and my PR advisor Ann Videan of Videan Unlimited told me to do this months ago. When they first suggested it I don’t think I even knew what a blog was but I have finally come into this century and I have a blog. 

I think what really convinced me to follow their advice was when I realized that I could use this blog to do what I have enjoyed doing for my entire 25 year consulting career – writing and talking about my thoughts and theories about business growth and creating value and wealth in growing businesses. So that is just what I am going to do. I plan to refer back to some of what I have written for my long running magazine column and for my books as well as expound on new ideas and thoughts about creating growth and wealth. I really like to tell true success stories of businesses I have seen and worked with so I will definitely include some of those in this blog. Of course I will not be able to resist telling some horror stories as well.

I hope you enjoy reading my blog and will visit often and please participate in the discussions that I hope will occur. I will be updating it often. Sharing your input and experiences as owners and managers (and employees) of growing businesses will be invaluable to others.   

I am a strong proponent of performance-based compensation so I have decided to use this as the topic for my initial blog entry.  Performance based compensation can be a powerful tool for creating a performance-based culture. That is a culture where people take responsibility for their actions and are continuously striving to perform to the best of their abilities. However, for a performance-based compensation or incentive system to bring the desired results requires a carefully designed system. The crucial issue in designing any system is to ensure the incentives actually incent the desired behavior. (The contents of this blog article are taken from my book “Expand Your Entrepreneurial Passion Into Growth and Wealth”)