Corner Office-The Recession Battle
Many people today are worried about where the economy is headed. Although at the time of this writing no one in our nation’s capital has officially declared the “R” word, there are enough signs of trouble for me to believe we are in a recession. Here are some key strategies to help your company defend itself against one.
Know the Enemy
Before going into a battle, it’s important to understand the enemy. General George Patton (1885–1945), who is regarded as one of the most successful U.S. field commanders ever, once said, “You shouldn’t underestimate an enemy, but it’s just as fatal to overestimate him.”
Therefore, it’s important to understand exactly what a recession is and to have some notion of how long it might last. Economists define a recession as a significant decline in gross domestic product and other key indicators that lasts for more than a few months—rising unemployment, falling levels of output and investment, reduced retail and auto sales, slowing of housing sales.
When conditions are right, even one major event can send the economy into this downward spiral. High oil prices, for example, are forcing consumers to cut back their spending on clothing, televisions, and cars simply because they are paying more at the gas pump.
At the same time, businesses are scaling back on new strategies, expansion plans, employment, and compensation because banks are squeezing their credit.
Get the picture? Once a recession starts, like an unchecked enemy army, it advances. Every business that sells less buys less from its suppliers, and so on down the line. Then employees get laid off, which means they have less to spend, so they are buying less as well. Unlike the trickle-down theory of supply-side economics, a recession becomes a trickle-up issue where the trickle becomes a stream, and before you know it, you’re staring at the Grand Canyon.
Principles of Military Strategy
Consequently, fighting the momentum of a recession can seem as difficult as holding back the Colorado River! That’s why I consider preparing your business to survive a recession similar to preparing for war. It takes dogged determination and grit, solid strategies, and laser-beam concentration to achieve victory.
To get into the proper mindset, let’s review some fundamental concepts of military strategy, as defined in the United States Army Field Manual of Military Operations (sections 4-32 to 4-39):
1. Objective—Direct every military operation toward a clearly defined, decisive, and attainable objective.
2. Offensive—Seize, retain, and exploit the initiative.
3. Mass—Concentrate combat power at the decisive place and time.
4. Economy of Force—Allocate minimum essential combat power to secondary efforts.
5. Maneuver—Place the enemy in a disadvantageous position through the flexible application of combat power.
6. Unity of Command—For every objective, ensure unity of effort under one responsible commander.
7. Security—Never permit the enemy to acquire an unexpected advantage.
8. Surprise—Strike the enemy at a time, at a place, or in a manner for which he is unprepared.
9. Simplicity—Prepare clear, uncomplicated plans and clear, concise orders to ensure thorough understanding.
Although these principles are written for a military audience, they are surprisingly applicable to business leaders doing battle against a recession. As General Patton notes, “In war, the only sure defense is offense, and the efficiency of the offense depends on the warlike souls of those conducting it.”
Going Into Battle
Prepare for a recession by thinking through the details of how it will affect your business. For instance, if your bank tightens your credit line and your customers are taking longer to pay, while at the same time your vendors are demanding timely payments, what will you do? Remember what General Patton said: “A good plan, violently executed now, is better than a perfect plan next week.”
One tried-and-true offensive strategy is to stockpile cash (your equivalent of ammunition). My rule of thumb is to have at least three months’ worth of operating cash stashed away, and getting through a recession may require even more. Practice strong cash management by putting a full-court press on collecting receivables. Give someone the job of fire-fighting customers who take 60 or more days to pay, and conduct payment-history checks on new customers. Maximize or renegotiate longer terms on your payables. Doing this takes effort, but as the good general said, “A pint of sweat will save a gallon of blood.”
The Element of Surprise
During a recession, going about business as usual means you’ll lose daily battles in a declining economy, and eventually lose the recession war. The only way your company can survive is by “attacking rapidly, ruthlessly, viciously, without rest. However tired and hungry you may be, the enemy will be more tired, and more hungry. Keep punching,” General Patton said.
Instill a sense of urgency: Remind everyone in your company that promises get broken and expectations get crushed. Be prepared for unexpected situations such as regular customers reducing or even stopping their orders, competitors slashing prices and creating an industry-wide price war, or a major supplier going out of business.
Put mass and economy of force into achieving security,
diversifying income sources to reduce dependence upon the areas most affected by recession. If you produce luxury items, for example, now would be the time to diversify your product line to include more staple products. A slow economy can be good for those who take calculated, educated risks and think outside the box. (Or as General Patton said, “If everybody is thinking alike, then somebody isn’t thinking.”)
Be In Control
Two more words of wisdom from the military: good leadership. Now, more than ever, your employees need to know that you are in control and are going to lead them through the recession’s minefields. Explain your vision of how a recession affects your business. Communicate your battle plans clearly, concisely, and regularly.
And don’t hang out in endless management meetings analyzing the numbers ad nauseam! Be involved: at the front line talking to customers, at the back line checking on production, and every place in between. Great military leaders gain the respect of their soldiers through their actions, not through their words. As General Patton said, “Do everything you ask of those you command. Do more than is required of you. Say what you mean and mean what you say. Wars might be fought with wea-pons, but they are won by men. It is the spirit of the men who follow and of the man who leads that gains the victory.”
So, my fellow commanders, are you ready? Is your enemy defined? Are your goals and vision clear? Generals, lieutenants, and soldiers trained and ready?
Remember this advice from General Patton: “You’re never beaten until you admit it,” so carry on!