Posted by Tom Ball
Discussing the crunch over lunch
The book, ‘The Wisdom of Crowds’, states that a crowd is wise if: there is diversity of opinion, independence, decentralisation and some form of aggregation. Most articles about the recession take their data from experts - who can be expected to be a skewed data sample. We got the most diverse people we could think of and held a series of dinners over October and November to debate the recession - pulling together many wise minds from different industries. The diagnosis was mixed: It’s going to get very nasty - but that opportunities will abound for those nimble enough to reach them.
To state the obvious, the big challenge for businesses is cash - businesses are likely to be squeezed from all sides:
- Sales volume down
- Prices down in some areas
- Increase in bad debts
- Invoices paid later
- Customers reduce stock
To quote Jon Moulton “Everything we do to prepare will make the recession worse - but to not react will kill our own businesses”
No-one knows the answer and this is by no means scientific - but from dozens of articles and hundreds of conversations, here are our crowd’s top tips to survive and prosper in a recession:
1. React to changing buying habits
The usual rules have changed. There appear to be many, often conflicting, changes happening across different industries. For example, people go out half as often but spend more on those nights - and consequently have higher expectations (if it’s your one night out this month, it had better be good!).
People are going out less but appear to be spending more time and money at home. Escapism, nostalgia and comfort food are up. Most people are cutting back - what becomes redefined as a ‘luxury’ remains to be seen. More people are fixing things and making things - helping places like Halfords and craft shops. The ‘buying cycles’ are getting extended - people that replace their car every two years wait one more year. Some people choose to go to the dentist every nine months rather than every six. These are tiny individual decisions, but with a huge impact when the whole world acts as a herd.
In summary the world is changing - and figuring out or choosing your new role is not obvious.
2. Cheap is no longer a four letter word
Lots of cheaper alternatives are gaining. Lidl was up 40%. Cheaper supermarkets seem to be gaining at the expense of posher ones as the stigma of being seen in Aldi recedes. But it’s more complex than that. Waitrose is being hit as people move to cheaper alternatives - but gaining as people host ready-made dinner parties as cheaper alternatives to restaurants. Is cheap the new bling?
Of course, labelling cost cutting as ‘focusing on reducing our carbon footprint’ - such as reducing corporate travel - makes the change green and lean. There are many opportunities to cut costs in the name of the planet which would have been ignored in fatter days.
3. Meet higher expectations
Because spending money is now a rarer occurrence, we have higher expectations when we do spend money.
4. Get back to basics
Most of the actions being proposed and planned are true of business itself. Like the best of us, companies get fat in boom periods - now is the time to focus. Focus on key clients. Focus on delivery. Focus on the core business.
5. Underlying trends will accelerate
There are seismic shifts that have been predicted for years: the death of television advertising; the rise of telecommuting and video conferencing; the changes in population as the baby boomers give way to the ‘millennials’ or ‘digital natives’ (people born after the world wide web - and therefore never seen life without it).
The inertia of success has allowed them to be largely ignored - but as everything is revisited, those seismic shifts will start to erupt. Upcoming generations may sit forlorn by the side of the career ladder - or they may start the next wave of new companies.
6. Focus on fast R.O.I.
There is a polarisation happening in buying decisions. Ignoring the blanket ‘spending freezes’ that are delaying everything there is an obvious focus on short term results. Anything with a clear R.O.I. of less than six months is more likely to happen, albeit needing sign-off from the CEO down. Huge ‘change the planet’ five year programmes and long R.O.I. projects will happen only in far-sighted, cash-rich firms preparing for the future. So make sure your sales team focus on fast R.O.I. If a client has a spending freeze in your area, move on and focus elsewhere.
7. Work on cash from all three angles
To quote Lord Harris (CEO of CarpetRight - now 3% owned by Bill Gates!) “Look after your cash. I’ve never known anyone go bust with cash in the bank”.
There are three ways to have more cash in the bank: Sell more, spend less and move payment dates to conserve your cash. This could be an article in itself
8. Be prepared for the waves that follow
We have not seen the worst of it yet. Hopefully the Government’s swift reaction will minimise the damage - but the dominoes continue to fall as firms are hit by the effects of each day’s bad news. The effects seem worst felt closer to Banks and international corporations - and least felt in rural areas such as Devon where it has yet to have real impact.
9. Stand out from the crowd
Now is the time to be exceptional. Buyers are more cost conscious than ever - but seem more risk averse. If you really need project X to succeed, can you risk hiring the B-team? What constitutes the best appears to be changing - the cult of ‘bigger is better’ is fading - with companies hiring smaller, more focussed teams who are the best in their field. We are already seeing clearer priorities being set and pursued more rapidly. Decisions lower down may be mired in sign-off procedures but decisions coming from the board-room down are happening faster than ever.
10. Go against the herd
The wise herd will be busy being prudent, cutting back ... so if everyone is selling who is buying? It takes two opinions to make a market - you need one person that wants to sell and another that wants to buy. So if there are lots of sellers, it could be a great time to be a buyer! For most, the bottom is yet to come. R.O.B. is at an all time high. But more about that in the article about Christmas!
So what do you do with all this conflicting information? At Cognac, we have focussed on areas that people really to need to get right - such as effectively communicating their complex proposition to enable them to increase sales. We have worked hard to ‘widen the net’ and talk to more people - knowing that many will have spending freezes today - but could need us tomorrow. We’re tracking sales pipeline tighter than ever - so we can predict our revenue before it happens. Now is a great time to grow - if it’s driven by revenue not a business plan!
Please feel free to share this around - and please do let us know your tips - and where you agree or disagree with our crowd!
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