Surviving and Thriving during Market Cycles
The risk for small business is that when the press says the market is getting weaker, we assume that that means our market is getting weaker.
That may or may not be the case.
The risk to small business is that its management becomes so stressed that they become myopic in their view. Cabinetmakers focus on making cabinets as opposed to managing their businesses. Accountants focus on the books and engineers go into the shop to tinker.
We all tend to do what brings us pleasure and comfort when we are stressed. This is not a response characteristic of upper management. We all do it. So what should you do?
Just as the economy cycles, the coaches at the Daley Institute for Business Transformation recommend a three-phase process that is repeated every three years.
The most successful businesses use such a three-year cycle to re-evaluate their business and its markets, and to set a direction for the upcoming years.
They seek to understand every aspect of their business and how it is doing within the context of their target market. (This is the era of information overload. Yet most businesses still do not collect sufficient information and/or analyze it routinely.)
Phase 1 – Diagnostic and Strategic Plan
The first phase of the cycle is to bring together a team of professionals that can evaluate the company with a 360-degree view.
This evaluation includes interviewing everyone possible inside your company, suppliers, customers, potential customers, lost customers and competitors.
It seeks to answer questions such as ”How lean is your company operating?” or “How efficient is your company operating?”
Once you understand how your company is doing within the context of your market, a clear picture emerges that allows you to know the precise phase of an economic cycle in which your company is operating. You also learn the degree to which your business is experiencing the economic slowdown or growth.
The next step is to understand how your market (customers) will evolve as the market cycles play out. Is your product or service offering going to be priced appropriately? Will the attributes of your product or service be valued the same?
Market slowdowns and growth cycles can be life-changing events. Technology, competition, customer needs, and resources evolve quickly.
Consider the interest in solar, wind, and other energy options and how they are being valued today compared to as little as two years ago. Look at how we listen to music compared to two years ago.
Once you understand your organization’s capabilities and how they relate to the changing needs and expectations of the market, you have the basis for developing a strategic plan of how to take advantage of the opportunities as they pertain to current and future markets within the scope of your organization’s capabilities.
Phase 2 – Building the foundation for the new goals
If you are attempting to build a 10-story building, you need a 10-story foundation (engineering wise).
The same rule applies for any business that plans reproducible, balanced growth. That 10-story foundation needs to be in place before you start building that business.
That foundation includes financing for the increased accounts payables and receivables. It could mean increased inventory and any additional staffing or equipment as well as appropriate resources for the projected production capacity required for the realization of the strategic plan. All of this –– and more –– need to be in place before you start growing sales.
I once explained to a pharmaceutical company that they needed a third shift for a drug that was being relaunched. They told us they would open the third shift when the sales were strong enough. Sales increased. The third shift was implemented. But before it produced enough product, the retail and hospital pharmacies ran out.
The pipeline was empty and patients were being switched to another drug. Doctors made it clear that would not be tolerated in the future.
This is one of the reasons most companies fail during growth. The answer is to make sure a strong foundation (in the form of infrastructure and capabilities) is in place before starting to grow sales.
Phase 3 – Execution of the strategic plan
This is probably the most difficult of the three phases.
This phase requires changing behavior and pushing people out of their comfort zones.
No one writes a business plan expecting to fail. But most fail due to poor or no execution.
Make sure that your team has someone to watch from outside –– to make sure your team does not slip back into old habits or comfort zones.
At the same time, make sure there are appropriate metrics in place to help you stay on track.
We use custom dashboards as a means for providing up-to-the-minute feedback as to the condition of the business. The dashboards, with built-in metrics, take information from a variety of people and departments and reports to top management, department heads, and the outside coaching team.
The third year, the process begins again with Phase 1.
Change is a fact of life. It is also a fact of corporate life. Every company should create a three-year cycle for itself –– evaluating their organization and how relevant they are to their market today and in years to come.
By doing so, you are able to differentiate between the noises emanating from the press and the reality of your own organization, and to what it is telling them about the condition of their foundation, where they are today, and where they can be as the economy cycles.
John Daley is CEO of the Daley Institute for Business Transformation with offices in St. Louis and New York. Gil Effron is the managing director of the New York office. Among other strategies to build stronger foundations and bring about significant, balanced growth, the institute utilizes a team coaching approach –– many coaches coming from many business disciplines that work as a team.
The coaches may be reached at askthecoach@daleygroup.org.
© 2008 John R. Daley
