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How to panic sensibly – strategies for overcoming a business reversal

How to panic sensibly – strategies for overcoming a business reversal
Pic courtesy of freeimages.co.uk

Pic courtesy of freeimages.co.uk

In most businesses there is always a risk of a sudden and serious reversal. A big customer stops buying, a supplier kills a product range, there is a strike in your sector, a major competitor appears, or any one of many potential threats occurs. Turnover slows and profits fall below breakeven and turn to losses.

Usually the business owner now exhibits some degree of panic. Common responses include the owner (male or female, the male gender is used only for convenience in this article) punishing himself by taking out less money, adding to his worries and possibly getting into personal debt. Then he delays paying creditors as long as possible and as a reward may have raw material or inventory deliveries being suspended because his account is not up to date. Often he holds off paying his VAT and incurs penalties. He may institute some special offers for new customers to regain the lost turnover, but this will affect his margins and alienate his regular customers who are paying a higher price.

He will usually ride his sales force hard, expecting them to make their original quota despite the new situation and at a time where their commission cheques are already reduced. He may reduce the quality of his raw materials or delay deliveries to make up full loads, and distress his customers as a result. He will probably cut back on marketing and training and think about retrenching staff, frightening his workers and losing skills in the process. If he does retrench the people he will get rid of are deliverymen, salespeople, receptionists and clerks – all the people directly involved in customer service. Or the older slower moving staff members. The ones with huge stores of know-how and experience.

Does this sound like a familiar story?

Analyse what he has done. He has added massively to his personal stress, made his suppliers wary of him, added costs to buy cash flow, irritated his best customers, compromised quality and customer service, demoralised his salespeople and cut his gross margins. He has made his staff fear for their jobs and lost irreplaceable know-how. He may not know if these measures are adequate and there is little long term solutions planning. Why would any entrepreneur be so foolish? And yet it is an easy trap to fall into – it happens all the time.

Now what if he tackled this differently? Let’s say he sat back before doing anything and thought strategically – setting some goals like:

    • To immediately stop losing money – overwhelmingly the first priority;
    • To protect the relationship and sales volumes of his best customers at all costs;
    • To make sure he gets an uninterrupted flow of raw materials or goods for resale exactly when he needs them;
    • To motivate his sales force so that they would be even more enthused;
    • To make sure he does not add to his personal stress, recognising he will need all his strength and ability from now on;
    • To protect his company’s skills and know-how, and remove the fear of job losses from his workers;
    • To return to previous profit levels or better as a medium term goal.

It sounds like an impossible dream. But it is actually very achievable. The twin secrets are to plan and talk. He should talk especially to customers, staff and suppliers. He must enlist their help and goodwill and promise something in return. For instance if staff and suppliers work together to increase the quality of products and customer service, costs will be reduced, jobs secured, customers pleased and opportunities created to increase market share and pay suppliers promptly. A win-win-win-win situation.

He should involve the staff with the solution, rather than seeing them as an expense and therefore part of the problem. Motivated and trusted people can do wonders in bringing new customers and ideas – and saving costs. Customers who are fully informed will often be amazingly supportive. And crucially, the aura given off by an energised company tackling its problems with vigour and skill will attract support from all around.

And it will be fun too – try it!

About Ed Hatton
Ed Hatton had a successful career in sales and marketing management in the IT industry before launching consulting company The Marketing Director almost 20 years ago. Ed is passionate about entrepreneurs and the need to develop the SME sector. He co-authored a textbook on Entrepreneurship and writes the advice column “Start Up Coach” for Entrepreneur Magazine.
More information is available here or send Ed an e-mail

About The Marketing Director
This consulting company advises and mentors small and medium enterprises with a particular focus on strategy, marketing and sales, and the inter-relationship between these disciplines. The company has been operational for almost 20 years and has consulted to a wide range of IT, manufacturing, services based, and distribution SMEs. The success ratio of client companies is far ahead of industry norms, meaning that clients of The Marketing Director are generally high flyers in their sectors, and survivors when other fail.
More information is available here, or by e-mail.

©copyright  Ed Hatton. All rights reserved. You may republish this article or extracts from it provided you acknowledge me as the author and acknowledge my copyright.

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