Saturday, November 01, 2008

Now, maybe more than ever

Most people think about strategic planning as a way to plot growth. It certainly can be that: When you know your business well, your market, and your competitors, you are in a good position to make the growth choices that move you most effectively toward your aspirations.

But rigorous strategic planning is also a critically important tool in helping you to survive in tough times. When resources are scarce, choices matter more than ever. When you know your business well, understand what is going on in your markets, and are aware of what your competitors are doing, you can make the choices that will allow you to use the resources you do have to meet needs that continue to exist as other also make tough choices.

In taking this position, we are not advocating cock-eyed optimism. Instead, we are suggesting that rigorous strategic planning can help you take a good hard look at your business and begin to think about it differently. For example, think about what machinery you have among your assets instead of what the machinery usually does; think about what your various personnel know, not what they usually do. If you think about your current resources as inputs with flexible uses, you may be able to redeploy them to create new outputs.

For example, consider the nightmare that is the current mortgage market. If you are a mortgage broker, the credit freeze may have idled your usual business. On the other hand, the various federal rescue plans call for a lot of work relating to re-underwriting and re-negotiating a lot of mortgages. Although there may be little opportunity for “brokering” as part of this activity, chances are good there are people on your staff who are very knowledgeable about mortgages and their documentation. If a lending institution has to re-work a lot of loans in a short period, they may not have enough trained staff to do it. Perhaps you can provide an outsourcing service or create an employee leasing program to help them meet their needs.

Or perhaps you are a car dealer. An analyst was quoted Friday as wondering “how many people are just going to hold on to their vehicles until they fall apart.” All those vehicles will have to be taken care of if they are going to last that long. Although owners of older cars often go to local mechanics, they don’t have to. If a car dealer can re-orient its thinking and make servicing cars over long periods a real priority, it might be able to generate revenue, while also retaining both customers and staff. Some re-training to focus on the problems that affect older cars might be required. Management might have to learn how to outsource some aspects of the business if they don’t have staff trained do some of the more complex kinds of repairs for older cars. These relatively small changes may, however, create a loyal customer base that will be useful to have when the economy turns around. It may also create a staff business process that is ready to support continuing customer relationships as owners generally begin to purchase new cars expecting to drive them for long periods instead of leasing them, expecting to give them back in 3 years.

We do not pretend that these are tried-and-successful strategies. Very few new strategic directions are. But these ideas are reasonable things to think about. Negotiating new arrangements might take some time; some new skills may have to be added to your organization; and new ways of business might also require giving up some aspects of your business’s self image. But new approaches might also forestall some firings and bankruptcies.

What are you thinking about? Do you know enough about your business – your customers’ current needs, potential customers you have ignored or under-served, your competitors, your vendors, your employees’ skill sets – to know what you might have to sell in this environment and where your natural buyers may be? If you don’t, now is the time to learn. You have a history; you have hard assets and skills. These are your inputs. By letting go of the habits you usually take to thinking about them – and about the outputs you expect them to produce – you may fine novel ways to use them that could save your business for the long run.

Tuesday, October 21, 2008

Teach Your Children Well

A number of colleagues have commented over the past several weeks about the ways in which raising children has suddenly changed. A headline on the New York Times website several weekends ago captured the issue in a nutshell: Cutting back on expenses, parents say “no” and children say, "Huh?”. Perhaps even most startling, especially among families who thought they were immune to economic shifts, were reports that the Sumner Redstone family, large owners of two very large and historically successful businesses, had to sell 20% of their holdings in the midst of last week’s market slide to meet debt covenants.

The current state of the economy has created a wonderful opportunity – and a need – to address with our children the realities of economic limits. For many of them, that has been little but a vague abstraction until now.

For most of our children’s lifetimes, our culture has been filled with pictures of celebrity and great wealth. Even for those who are a little more intellectually or financially inclined, lessons have often focused on the value of debt and its importance in building wealth.

The lessons suddenly being taught to all of us by the current economic situation are decidedly more punitive.

Unfortunately, the harsh realities of the moment are likely lead more to resentment than to learning unless we take proactive steps to help our children develop a better understanding of practical economics.

Talk about budgets. Whether they are going to run a business in the future, or simply manage their lives on some finite amount of income, your children will at some point to have to understand one important issue: To sustain any given set of expenditures, income from some source is going to have to equal or exceed them.

Give them a fixed allowance to manage. If your resources have been reduced in this environment, you may have to – or decide you want to – reduce your children’s income proportionately. They probably won’t like it; but they will learn more if you take the time to explain to them why you are making the changes, and help them think through their own new budgets.

Find a few items in your budget that will have particular meaning to your children, and discuss them: Which of your costs (like housing) are fixed? Which (like vacations) can be adjusted as circumstances change? What does their schooling cost? How much income does the family have to have to pay for big items like tuition with after-tax dollars?

Do not ignore debt – its uses, its costs, and the fact that it almost always carries real (contractual) conditions. Where do loans come from? Why do some loans cost more than other loans? What kind of rules come with the money when it is loaned to the borrower? Why do almost all vendors charge interest if bills are not paid within a certain amount of time?

It’s hard. Much of your energy is probably going to figuring out how to adjust to all of the changes and impending changes in the world. You probably want to try to protect your children from them. You can’t. But you can involve them and help them learn what they need to know to be wiser stewards of all that you have tried to create for them.