Firms Share Lessons of the Recession
In the brutal economic slump, few companies have been left untouched. Businesses told us they’ll do things differently in the future.
As the economy starts to pick up, consider the lessons learned in this recession. We asked owners and managers of U.S. businesses -- big and small, public and private -- to share what the brutal slump of the past two years has taught them. Here’s what they told us:
Borrow less, save more. The biggest change businesses say that they’ll make is to exercise more caution about debt and make a stronger commitment to beefing up their rainy-day funds.
It wasn’t just the rapid evaporation of demand that left them determined to make changes. It was also that many felt blindsided by the financial crisis --caught in a maelstrom not of their own making. For example, a large commercial truck dealership that serves several Southern states was stung badly by a big interest rate hike, even though its credit rating and balance sheet were rock solid: It was the bank backing the firm’s corporate bonds that went wobbly.
Diversify. A Kentucky machinery business acquired a new appreciation for its broad customer base…about 5,000 customers, none of them accounting for more than 15% of the firm’s business. A Florida builder learned the hard way when some of its few, large clients unexpectedly faltered.
Be flexible. A Virginia firm that makes compressors expects to reap lasting benefits from its newfound responsiveness to its customers’ needs. The company’s product mix has shifted, and it’s finding more demand for customized goods and less for standard products in its catalog.
Stay vigilant on costs.company owners and managers confess to complacency in the years leading up to the slump. Administrative expenses -- office supplies, paperwork requirements and so on -- plus personnel costs had escalated too far. Clauses for automatic increases had crept into contracts with outside vendors. And small charges for nonessential niceties were adding up to big bucks.
Many businesses say the recession forced them to look more closely at their operations. Economies forced on them by hard times now will add to their bottom lines when the economy picks up.
Make compensation more flexible -- more closely tied to both performance and workload. Some companies are slicing expenses by shifting middle managers, who can account for a big chunk of payroll, off salaries and on to day wages. An anesthesiology practice moved nurses from salaries to hourly wages and doctors from salaries to a share of profits. There’ll be more bonuses and fewer salary hikes, even for strong performers, and more folks will work on commission.
Upgrade your workforce. Recessions are not only a time for judicious pruning, they’re also an opportunity to nab top-notch workers. A Midwest accounting company, for example, let subpar workers go. It expects to benefit from more productive new hires for years.
When cuts are necessary, don’t dawdle. Most firms that bit the bullet early credit their doing so for their survival. Many that didn’t act swiftly wish that they had and avoided digging themselves into a deeper hole.
But there are exceptions: A Tennessee scrap metal operation that stubbornly held on to its workers was the only local firm with the resources to do the job when several big new contracts turned up. If you choose to take the risk, be sure your decision is based on more than wishful thinking.
Finally, focus on marketing. A Michigan construction firm that advertised throughout the slump is now gaining market share, while rivals that abandoned marketing as business thinned out are gone. As one metals company owner says succinctly, “Only sales will get you out of a hole.”
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