OFFENSIVE STRATEGIES DURING DIFFICULT TIMES

Screen-Shot-2016-02-19-at-11.00.46-AMIt has been said, ?necessity is the mother of all invention.?

Likewise, a?recession and layoffs can?prompt many people to consider the path of entrepreneurship.? A recent report by the Kauffman Foundation, a leading entrepreneurial think tank, validates this trend.? The report showed that approximately 530,000 businesses per month were created last year compared to approximately 519,000 per month in 2007.? Notably, the formation of high potential income new businesses was down compared to low and middle-income potential businesses which were up. This trend indicates that many of the new businesses were probably formed out of necessity.

There is a myth that entrepreneurship is only for those with a high tolerance for risk.?

The truth is that successful startups are founded by people from all ages and backgrounds with a passion to bring their goods and/or service to the market and who effectively manage risk in changing environments.?

Whether you are exploring a career shift to being an entrepreneur or your business is trying to consider how to weather this storm, I have listed below some of the ways savvy individuals and companies are capitalizing on the state of the current economy:

  1. Offer More for Less.? Most businesses are trying to stay competitive in a difficult economy utilizing less. Often with fewer people and less budget, managers are being challenged to squeeze increased productivity out of their limited resources. If your value proposition allows your target customer to do more with less, then you will always have a market.
  2. Find Your Treasure in Another Person?s Trash.? Many businesses are buying up fixtures and supplies at a fraction of the cost from companies that are downsizing or closing their doors.? Similarly, proactive entrepreneurs are buying up distressed real estate, businesses, bank loans, and even whole banks at incredible bargains.?? These are people who don?t adopt a doom and gloom mentality but think clearly in times of difficulty and make sound long term investments.
  3. Go on the Offense When Your Competition is on the Defense.?? As companies are pulling back their spending and hunkering down, customer service, marketing, and? product development often suffers.? This is a golden opportunity to go on the offense to grow your market-share. As big companies have frozen their R&D budgets, now is the time to bring your innovations to market.? Also, many companies are re-evaluating their supplier relationships to find cost savings. Again, this allows you to step in and offer ?more for less?.??? As one entrepreneur stated ?the hungriest wolves hunt best.??? This is the time to be on the hunt, not playing defense.
  4. Go Fishing for Talent.? Whether you are looking for full time employees or part time contractors, now is the time to find talent at reasonable rates.?? Big companies are not just laying off their poor performers, many are laying off some of their best and brightest people as whole divisions are being forced to close.? This is a great time to strengthen your organization by attracting top talent to join your team.??? Don?t get caught up trying to make everyone a fulltime employee. Skillful entrepreneurs know the value in ?renting? mind share from the best and brightest people.
  5. Show Me the Money.? Even though bank financing is still a scarcity, you may discover that finding investors is an available option for your business.? Since most real estate and stocks are not attractive alternatives right now, there is a tremendous amount of cash waiting to be deployed.? I am finding that the right deals are still being funded by those wanting to deploy cash in ?real? businesses.

I don?t discount at all the pain and hardship that many people are enduring as a result of an?economic meltdown.? However, I want to encourage those who seek to find opportunity out of difficult circumstances.? Those with a ?glass half full? mindset may find that even career and business decisions driven out of necessity may turn out to be tremendous blessings in the long run if strategic thought and action is properly applied.

5 WAYS TO RAISE CASH FOR YOUR BUSINESS

For many entrepreneurs, these are trying and uncertain times. Cash is critical and many companies are facing the twin fronts of attack of vendors wanting their money up front and customers delaying payments.? All the while, employees still need their regular paychecks. Therefore, if a business is experiencing a liquidity crisis, management (and their key advisors) must act quickly to assess the situation and determine the appropriate plan of action.

The first course of action is to determine whether, and on what terms, additional cash resources might be made available.? There are a number of ways a business can free up cash.? The determination of what options to pursue will depend on the specific facts and circumstances and must take into account the health of key relationships (i.e. vendors and bankers) and the general economic climate.? Below is a list of some of the options available for entrepreneurs:

  1. Trim the fat: Reduce overhead and cut expenses

Most businesses wisely start here because the decision to cut expenses is within the control of management and generally does not require the need to get approval from outside parties such as lenders. This cost reduction could include closing unprofitable store locations or divisions. Sound accounting and reporting makes this analysis and cost reduction process much easier.? However, from a strategic standpoint, you need to make sure the cuts are not so deep that they disrupt the business? core economic engines.

  1. Get stingy:? Aggressively monitor collections and trade credit (especially to new customers)

A liquidity crisis often happens in an economic slow-down (like the current one we are experiencing) when all businesses are fighting over limited cash resources.? Therefore, many customers become ?slow pay? or ?no pay? and cash receipts begin to shrink. If your business is owed money, you need to obtain it.? Even if you have to bonus your collections personnel or use an outside agency, this additional cost is worth it if it brings precious cash in the door.?? Keep in mind, however, that aggressive collections also requires a balance ? you don?t want to alienate key relationships.

  1. Consider your leverage: Cash out or refinance existing debt

If your company is paying above-market interest rates on debt or is carrying debt against assets with substantial equity, then you should exhaust every effort to refinance the debt to cash out equity or to lower its interest carry.? However, it would be better to keep above market debt (especially if is revolver with an additional room for draws), then to obtain a new loan with financial covenants that will ultimately restrict flexibility and further distress the company.? Also, the time required (and closing costs involved) must be considered in determining whether refinancing current debt is a feasible option.

  1. Go back to the drawing board:? Seek concessions from existing creditors

If new financing is not available, then existing creditors are another option to consider.?? Keep in mind that ?creditors? includes not only traditional lenders, but also includes vendors that may provide goods and/or services on short-term credit.? Therefore, among the options for resolving a liquidity crisis is to ask vendors to extend payment terms, grant discounts, or provide other forms of relief.

  1. Get a shot in the arm:? Obtain cash through an equity injection

There are many investors that are not afraid to look for value in the form of distressed companies.? However, the ?cost of equity? is often far greater than the cost of debt ? particularly in high-risk scenarios.?? Furthermore, these investors will usually want to protect their cash via a controlling economic and/or voting interest in the company.?? This option often does not sit well with management, particularly if the company is still in control of its founders.

Again, these are just a few of the many options available.? Some of the most successful companies were founded in recessions (e.g. Southwest, Microsoft, Genetech).? By proactively and realistically addressing the liquidity crunches in their businesses, hopefully many companies will weather the current storm and potentially even turn this downturn into an opportunity for growth.

 

Originally published in Pointe Innovation Magazine

MULTIPLIERS

Here?s the problem.? Most employers only get about 50% of the potential out of their employees. Research has validated this point.? Gallup, Inc., the national polling and consulting company, has done extensive analysis on the engagement level of employees in organizations and the overall impact on company results.? Gallup?s research showed that in the average organization, 30% of the employees are engaged, 50% are disengaged, and 20% are actively disengaged.? However, they found that in world-class organizations, 63% of the employees are engaged, 29% are disengaged, and only 8% are actively disengaged.

?Disengaged? employees are clock-punchers.? They give minimal effort and do just enough to keep their jobs.? They don?t give their employers their discretionary effort and tend to react passively to problems.? ?Actively Disengaged? employees are the poison pills in the organization.? They are the trouble-makers.? They like to stir things up.? Actively Disengaged employees blame others for their problems and make excuses.? They erode a company?s bottom line and bring down the morale of an organization.? In contrast, ?Engaged? employees have a positive attitude, take personal responsibility for their actions, and are passionate and committed to the company?s goals.? Engaged employees contribute their discretionary effort to the company, and they are solution oriented.? They are the ?A? players on the team.

It seems very obvious then that we should all try to have Engaged employees to put our companies on the path to success.? Of course, that?s easier said than done.? To have great employees, you need great leadership.? Liz Wiseman, a former global leader for Human Resource Development at Oracle, has done extensive research into the way leaders can dramatically impact the productivity and attitudes of their teams. In her recent book, Multipliers, Wiseman summarizes her findings that there is a continuum of leadership with ?Diminishers? on one end and ?Multipliers? at the other end of the spectrum.

Diminishers are the kind of people you hate to work for.? They ?diminish? the productivity and potential of their subordinates.? They are tyrants that keep everyone on edge.? They can be micro-managers that make you second-guess yourself.? They keep people in the dark and make unilateral decisions without seeking input.? Multipliers, in contrast, are great bosses.? They empower people, foster real debate and thinking, and get the most out of their employees.? Multipliers are the kind of people everyone wants to work for.

Wiseman describes Multipliers as ?genius makers.?? She rightly points out that Multipliers are not wimpy, feel-good leaders.? They are tough and demanding, but fair.? They push people to achieve their best.? Wiseman argues that we all can improve our ability to be Multipliers.? She points to five disciplines of the Multiplier: (i) attracting and optimizing talent, (ii) creating intensity that requires best thinking, (iii) extending challenges, (iv) debating decisions, and (v) creating ownership and accountability.

Wiseman?s work provides useful language to think about leadership and ideas on how to be better at getting the most out of the resources we have.? This is important given the fact that we have significant challenges in business today with limited resources.? We don?t have the luxury of having our employees operating at 50% of capacity.? The problem is that we get lulled into a sense of complacency and accept minimal performance as the standard.? The research shows that we can expect and get more.

If we are honest, we all can probably identify with both ends of this spectrum.? Even great leaders can slip into being a Diminisher on occasion.? Diminishers are usually bright people. In fact, it?s their success that usually leads to their managerial promotions.? Like the old ?Peter Principle,? people can be promoted past their level of competency and expertise. Being a great individual performer does not necessarily mean someone will automatically be a great leader.

From my perspective, Multipliers are really great coaches. As a former coach, I remember having to push my students to achieve their best.? We all have a certain amount of talent and potential waiting to be unlocked. A real coach knows how to do that.? They are demanding, but also inspiring.? They challenge you to new heights.? You don?t mind giving it your all, because you know you are on a worthy mission.

Here?s the reality.? Most managers are never really trained on how to be a great coach.? Managing can often be more about ?baby-sitting? and organizational reporting than performance optimization. I agree with Wiseman that these skills can be learned.? The question is whether it?s really worth the trouble to learn to be a Multiplier.

The good news is that the data shows tangible benefits of being a Multiplier.? Wiseman?s own research and others have shown that Multipliers get a 2x increase from their employees.? Similarly, Gallup?s clients that focused on increasing employee engagement have seen an increase of 26% in gross margin and 85% in sales growth compared to their competition.? The bottom line is that being a Multiplier can have a big impact on the real bottom line.? We all go to great lengths to try and improve our businesses.? We make significant investments in our technology, marketing, and real estate.? However, we tend to neglect the greatest asset we have ? the talent, skill, creativity, and energy of our employees.? While it?s certainly not easy, I think it?s clear that learning to be great Multipliers is one of the best investments we can make in our business.

Creative design from the South

Get in touch with us!