What to do next? Business Lessons for the Post-Recession Economy
By Mark Monchek − March 10, 2010
“It was the best of times. It was the worst of times. It was the age of wisdom. It was the age of foolishness. It was the epoch of belief. It was the epoch of incredulity. It was the season of hope. It was the season of despair.” Charles Dickens from A Tale of Two Cities.
Where We Are Now
Government economists tell us that the recession officially began in December 2007 and ended in June 2009. However, 14.8 million of the United States labor force is still unemployed, a record 2.8 million homes in 2009 were threatened with foreclosure, and the real estate market is still in gridlock.
Still, in some important ways we are out of the recession. The vast majority of businesses no longer use the economy as an excuse for standing still. Most businesses now understand that they have to do something different if they don’t want to join the 200,000 businesses that went belly up in 2009. Seth Godin in his new book, Linchpin- Are You Indispensable? makes a compelling argument that the only form of job security in the new economy is becoming someone who cannot be replaced because their contribution is unique and invaluable.
Is Your Business Indispensable?
The same case can be made for businesses. The painful truth is that we have more employees and more businesses than we need, given our current economic structure. Just walk down Main Street or stroll through your nearby mall. Count the number of businesses selling products or services that we really need. Tanning salons, jewelry stores, fast food restaurants, drugstore chains, Cinnabon, a nail salon, Starbucks, and a bank on every block? Consumers are slowly but surely making more conscious choices about how and where to spend their money. The savings rate, for many years at around 0%, soared to 6.9% in 2009.
Maybe one of the gifts of the recession of 2009 is that we finally understand that we don’t need so much stuff, that there is something more satisfying than material possessions. We want meaning, gratitude, and we want to make a contribution with our lives. After spending the first three quarters of the 20th Century building a society that could provide a much higher standard of living for the majority of Americans and greater equality and access for women, gay people, and diverse ethnic groups, we’ve spent the last 35 years squandering it through overconsumption, excessive debt, and environmental neglect.
The Road To Growth Is Off The Ground
Now with the lessons of the recession that was almost a depression beginning to sink in, maybe we are ready to create and innovate our way to a new era of growth. This time we must focus on sustainable growth that provides even more opportunity for more people and addresses the profound issues of debt, the environment, education, unemployment, and affordable housing.
Recently two term senator from Indiana, Evan Bayh, , announced that he would not seek re-election in the fall. This is not because of an impending scandal, or to spend more time with his family, or because he might lose the election (he had $13 million in his campaign war chest and was well in front in the polls). He wants to make a contribution and he realized that the United States Congress was not the place he could do it. Government may be largely to blame for the mess we are in, but if we are really honest about it, we are all responsible. In fact, we are the government. We finance it through our taxes, elect it through our votes, and can communicate with its representatives in more ways than ever.
The government is in gridlock now and unless we change the rules, we will be stuck in neutral for years to come. That leaves it to those of us who work in business and nonprofit organizations to lead the way to sustainable growth. We can vote by the jobs we choose, the way we do those jobs, how and where we spend our money, and by starting and growing businesses and organizations that do well by doing good.
A New Kind of Security
We here at PerformXcellence and The Opportunity Show continue to learn the lessons of the post recession economy. In early 2008, which in retrospect feels like decades ago, we understood that the essential element in dealing with the recession was being able to manage fear. The speed of the fall of Lehman Brothers, Bear Stearns, AIG, General Motors, and the Madoff Empire sent us into emotional freefall. Everything we thought we knew about the path for success: get good grades, work hard, buy a home and retire with a comfortable lifestyle is now way out of date. The path is no longer viable.
Seth Godin argues for a new type of business powered by Linchpin individuals who become indispensable by exhibiting a can-do attitude, a passion for life and work, and a willingness to use passion to improve whatever we do in the world.
While it is essential that we encourage linchpins to help build the new sustainable economy, we need a linchpin organization for them to work in and grow with. Linchpin businesses are indispensable to their customers, employees, investors, and external business partners. They promote a product or customer experience that cannot be measured in dollars. What they offer in the marketplace becomes an essential part of our lives. Think about Google, Apple, National Public Radio, The New York Times, Netflix, the compassionate and responsive primary care physician, an accountant who really knows your business. There probably are not enough Linchpin companies in our life.
What we have are mostly commodity-like companies who compete on price or convenience. For a 10% discount on your prescription, you switch pharmacies. You like Home Depot but if there is a Lowe’s closer to you, you’ll probably go there. You have no particular loyalty to TV networks anymore. If Jon Stewart moved to HBO, you’d follow him.
Our Strategy: Build a Linchpin Business
Therein lays the opportunity for your business. Become a linchpin business and you’ll grow even in an economy when your competitors are going out of business. That’s what we’ve done with our clients. Together, we’ve learned the lessons needed to succeed in the new world of business.
Retailing that Wins on Value, Not Price
Take our client, a national retailer of cameras and consumer-electronics. Facing a market with shrinking margins, excess inventory, and non-essential products, they chose the road not taken by their competitors. Rather than shrink in fear by cutting staff, inventories, and prices, they gathered their team and saw the opportunities that always surface in times of crisis. They knew that their customers were not only cost-conscious, but looking to see how they might put together a little extra cash by unloading stuff they didn’t need. So they revved up their used camera business, using their national footprint to buy as many used cameras and photo equipment as they could then sell them to bargain-hunting customers. They promoted the standard practice of trading in your used camera every you purchase a new one, as is done in the car industry. Want to buy a new camera? Trade in the used one that’s collecting dust and make your purchase much more affordable. Not sure you’re ready to buy an expensive camera? Rent one and see how you like it. Deduct the cost of the rental from the purchase if you decide to buy.
Rather than lay off employees, they worked to make each associate more productive. We helped their managers measure the performance of their departments to see how they could eliminate unnecessary steps in the supply chain, use technology more effectively and train staff to produce more knowledgeable and response service to customers. We encouraged them to enhance educational programs for customers both online and with live workshops, asking suppliers to provide teachers and financial support whenever possible.
The core beliefs driving these innovations was our client’s confidence in the value provided to their customers. Together, we set the goal of becoming even more indispensable to our customers, employees, and suppliers.
Conquering Fear in the Real Estate Business
Our private equity real estate firm was in a much tougher spot than our retailing client. A private equity real estate firm, they had grown substantially from their inception in 2002 up through the 2008 recession. Beginning with three partners in a cramped Manhattan office, they built an impressive real estate portfolio across America and raised four funds, each one larger than the next. They acquired a due diligence firm and developed a full service real estate investment organization that included origination, due diligence, legal, asset management, and finance and investor relations functions.
Even though they were focused and disciplined in their approach, they bought or invested in some properties that sank enough in value during the downturn to be problematic. Credit tightened, investors became skittish and properties became increasingly difficult to underwrite because no one knew which way the market was headed.
All this happened in the middle of raising money for their fifth fund. What was going to be an $800 million fund to provide the firm with the resources necessary to achieve the next level of growth, ended up sputtering, stalling, and finally coming to a dead stop. Real estate prices were in freefall, prospective tenants or buyers were walking away and few deals were getting done. The real estate industry went into panic mode. Successful developers, investors, and property managers went under or moved out of the real estate business. What was our client going to do? We took their executive team offsite to take a careful look at the good, the bad, and the ugly of their situation. We worked with them to create a painstaking, albeit painful, reevaluation of their entire portfolio with a detailed action plan for each asset. There was a need for more aggressive or creative marketing of the vacant units, refinancing when possible, taking over a property from an incapable or underfinanced partner, cutting costs, and generating fees from third-party asset management and due diligence. We helped them look at their own organization and how they could be more efficient, reduce expenses, add more value to their clients, investors, creditors. The most trying part of this exercise was looking at the staff and determining who might not be essential to the revamped organization, or was not performing up to expectations. This company was more like a clan than a traditional business. They traveled together, ate and drank together, and many had worked together at other firms and had come of age in the rough and tumble world of New York City real estate. The firm valued loyalty and the core value was to provide the opportunity for each employee to provide a good life for their family. Laying someone off to adapt to a downturn was neither part of the culture nor its short history. When the few layoffs that did occur were discussed, it was with great respect and sensitivity. Employees were given fair severances and the conversations were handled thoughtfully.
You Must Get Your Mojo Back
It is a natural consequence of the market collapse and the downsizing to lose confidence. How could this have happened to us? There is enough blame to go around a few times. But rather than allow the human impact of the economic circumstances to throw the firm backwards, the partners engaged in honest discussions about what they needed to learn and what they would do differently. Feelings were expressed, differences aired and trust reestablished. Confidence in their endeavor slowly returned and their commitment to the difficult work of course correction began to pay off. In January of this year they closed their fifth fund, which was a huge boost to the organization, particularly because very few real estate investments are being made in a market that is still in turmoil. There are more success stories than you think
There are other success stories. An economic development firm in Columbia, Maryland is leveraging its eight years of learning and developing opportunities to employ the Treasury Department’s new market tax credits program to invest in rebuilding the devastated communities of the Gulf Coast, inner city communities of New York, Detroit and Baltimore, and the economically depressed towns and small cities of Puerto Rico. Tax credits are being used to build schools, hospitals, shopping centers, wind farms, and even to create a film production presence in low income neighborhoods that Hollywood rarely visits.
Build Flexibility and Adaptability into Your Value Proposition
Our executive suites client in Manhattan is creating innovative, flexible office space packages that include discounted package and mini-storage along with shared reception dining and conference rooms. Our apparel manufacturing client in Brooklyn, New York has built a manufacturing plant in Central America which employs 250 people at wages and incentives at the top of the market for the region. Using modular production, and advanced communications technology to link the El Salvador plant with the New York Company, they are increasing quality and productivity in a highly competitive marketplace.
What do our clients have in common? Are there “secrets” that lie behind their ability to outperform their peers in the toughest economy since the Great Depression?
The DNA of Resilient Businesses
Yes, they have a lot in common. Their “secrets” consists of three deeply held principles that are embedded in the DNA of these companies from different industries and business models. The first principle is a deeply embedded belief in the power of opportunity. They believe that opportunity is an inherent part of life and the world of business. They don’t think that the number or quality of opportunities diminishes in an economic downturn but rather that the types of opportunities and where to find them changes. When a market or the economy as a whole tanks, they don’t question if they will be able to stay in business- they figure out how their business should change and where the opportunities are. The owners of these businesses get scared, discouraged and confused just like anyone else. But they find a way to turn those emotions into the innate drive for creation. Entrepreneurs have an innate passion for building and for creating. They are the happiest and most energized when they are in the thick of the creative, generative process. Their creativity takes an infinite number of forms including new products, new services, new markets, new customers, new employees, better and faster ways of developing, manufacturing, packaging, shipping and merchandising products.
The Path of Least Resistance
Robert Fritz, who wrote a ground breaking but little-known masterpiece of a book called, The Path of Least Resistance, argues that we are the most successful when we allow ourselves to be taken over by our innate, unstoppable desire to create. Far too much time, he believes, has been spent analyzing the obstacles to creating and not nearly enough time spent on focusing our energies on exactly what it is we want to create. The refreshingly simple principle of creating anything, including the business you really want is this:
1.) Draw a dear measurable chart of the results you want to create.
2.) Your Current Situation
Make an honest, detailed inventory of your current situation
3.) Strategic Tension
Simply allow the creative tension between what you want to create and where you are now to motivate you.
By keeping your focus on your desired future, and at the same time acknowledging your current situation, you’ll be highly aware of the gap between them and what needs to get done to realize your creation.
Helping our clients take the path of least resistance is a core principle of ours and guides our approach to strategy. It is based on a belief that every business has the potential to grow and continue growing through the most difficult times. Our role is to help our clients define what’s really important to them (their values), what they are really exceptional at (their core competencies), and consequently discover the opportunities in the current marketplace that best suit them.
Opportunity is an Attitude and a Skill
The new world of business has constantly shifting realities: new technologies knock successful businesses on their ass; new competitors come out of nowhere; the rules change without notice. You need radar, not a roadmap. More than anything, your business will need to develop opportunity as an attitude and a skill. An attitude of opportunity is a belief that there is enough to go around; which means your central challenge is not whether you’ll find opportunities, but how you will manage to be aware enough to see what is possible. It also means that while there is enough for everyone, there isn’t any to waste. Opportunities are a gift from the source that creates all life, and we need to respect and care for the people and natural resources that are the building blocks of our organizations, if we want there to be enough to go around.
