Adapting: A Key Skill for Thriving in 2010
Good riddance 2009! Most people are happy to say good-bye to the sobering economic realities of last year. For many family businesses, ’09 was a time of significant adjustments. Much of this past year was spent implementing painful decisions with hard human consequences. From eliminating jobs, cutting 401k matches, and closing branches, to slicing dividends, reducing health care coverage and implementing pay cuts, it sometimes seemed as though each month brought new sacrifices. In some tough cases, family members’ roles in the business were changed, reduced or even eliminated. All difficult actions, but needed to get the business through the crisis.
So bring on 2010! Just as the bird always sing after a storm, so too, does every recession inevitably transition into a recovery phase. Some economists have begun to breathe a tentative sigh of relief as parts of the economy, particularly the financial markets, started to rebound in ’09. But how will this translate to Main Street, and the average family business? Are we truly moving out of the economic storm that constricted the world economy more than 20 percent? If so, what will 2010 look like, and how are family businesses responding?
Projecting the future has always been tough, as Yogi Berra once professed: “Prediction is difficult, especially when it’s about the future.” No one clearly predicted the severity of the worldwide meltdown of the past couple years, so how can we expect to understand how this new year will unfold and properly plan the family business for a hopeful continuous upturn? While reliable predictions are difficult, business owners do need to make reasoned projections about the upcoming year’s economic outlook as this informs decisions and actions you will take for your family business. So let’s look at V, L, U and W – letters economists often use to help describe recovery scenarios.
V – This is the quick snap-back-to-normalcy scenario. Most agree this is NOT at all likely to happen for most economies or family businesses. Although the stock market has shown some V-like characteristics, the general economy, driven by employment and consumer spending, has not shown a rebound as quickly and steeply as it fell.
L – No obvious sign of recovery under this “hockey-stick” picture. It may suggest that the bottom we hit is now the “new normal.” This is a worst case scenario, and fortunately, we are already seeing enough uptick to label this scenario as somewhat unlikely for 2010.
U – This scenario tends to fall between V and L. We could very well be still in the trough of the U, lasting for a few more months, and perhaps a more gradual upturn over many months than the U letter suggests. Many economists suggest this “modified U” appears most likely.
W – This is the double-dip roller coaster ride! This occurs when it appears that we are on an upswing, only to suddenly and precipitously drop again. We may experience some “whiplash” effect if the economy continues to look like a “jobless” recovery. This fearful scenario is one reason why family businesses have not rehired many lost employees of ’09.
Regardless of the specific scenario you predict, there are enough positive signals of a continued uptick in the economy that many family businesses are preparing for modest growth in 2010 – yet within a very different environment. Our economic world has changed. Credit is tighter, savings are up, spending is down, and higher growth is happening outside the United States. So how does a family business take advantage of this different type of upturn? Starting in mid ’09, when the first “green shoots” began to sprout, a number of family business members started to express their opinions on what actions should be taken.
Following is a sample of 10 “thought starters” from family business leaders who view the economy as improving. They are moving the family business from the survival mode to the revival mode:
Discipline: Keep in place most of the adjustments already made.
Benefits: Bring back selected benefits that had been curtailed, like matching 401k and performance bonus programs, which motivate people to perform at their best.
People: Keep developing and rewarding multi-dimensional people; those who can perform multiple roles.
Financial: Continue to conduct cash flow analysis at least weekly using different assumptions. Shockingly, more businesses go under during growth periods than pull-backs, primarily because they run out of cash or borrowing power to fund the operations and accounts receivable.
Business Development: Aggressively move towards more innovation and diversification of product and service offerings.
Go DIGITAL: Move from a website that is more e-info based to one that is more e-commerce based – actually doing business on the new technology platforms. And focus on Search Engine Optimization. SEOs ensure your site pops up high on a search.
Growth: Acquire weakened competitors that still have value (e.g. a customer list) that you can capitalize on.
Marketing: Redo marketing and sales plan. Step up promotions around your go-to-market strategies. Roll out new offerings or simplified branding strategy.
Global Development: Investigate and move more domestic resources toward international markets where the wind is at your back.
Family Leadership: Accelerate the range of responsibility for the younger generation, keeping in mind that some young people will rise to the occasion when tested. Fill education gaps quickly.
One important trait woven throughout these suggestions and displayed in successful multi-generation family businesses is adaptability. As we were reminded last year during the 150th anniversary of Darwin’s publication “On the Origin of Species:” “For a species to survive it must adapt.” This is also true with the family business species. Those that have learned to adapt – to new technologies, distribution channels, markets, cultures, governance models, product and service offerings, and next generation thinking – have successfully morphed into renewed entities. How are families adapting, and doing it quickly, in this highly-transformative economic environment? Following are three examples of family businesses in different sectors that are in the midst of adapting.
Automotive – Arguably one of the markets most adversely impacted over the past two years. A third-generation global manufacturer of automotive testing equipment began to aggressively investigate diversification options. Thanks to extensive and persistent searching, they discovered that they could take their inspection technology and apply it to other industries. Through this process they learned that their greatest strength was providing worldwide service within 24 hours to keep equipment up and running. As they had developed this global network strength over years of keeping automotive lines up, they are now in a position to provide this unique service to other industries, like food packaging that must keep lines operating 24/7. “This is the time to play on your strengths,” declares management guru Tom Peters.
Composites – Mr. McGuire’s advice to Dustin Hoffman in “The Graduate,” about plastics being the future proved prophetic for the trend in materials. Today composite man-made materials continue to provide opportunities for growth and innovation. A family business with the first three generations working in the business have leveraged this opportunity in their strategic visioning, deciding to pursue new applications for the core competency they have developed in fiberglass hulls for boats. As the boat business shrank by more than 50 percent, family members stepped up and focused on evolving their materials knowledge into composites for different applications, like the propellers on wind turbines and the outer skins of new mass transit vehicles. A new subsidiary, dedicated engineering resources, and website promotions are in the works – “Our transformation is underway,” proclaims one second-generation family member championing this diversification.
Furniture – A third/fourth-generation family business designing and manufacturing high-end office furniture decided to move more aggressively to a greater range of product offerings. The major leadership decision was to place a fourth-generation family member as head of the New Business Development process. Rising to the task, the young “next gen” leader has created a process with a robust screen to help determine which ideas will have the most positive impact on the diversification of the family business. A key part of this process is to select a balance of opportunities that moves the family away from its high dependence on office furniture. “Let’s be in a position to weather future downturns more positively,” states the third-generation chairman, who is solidly behind the next generation leading the company into a new array of products.
How will your family business adapt in 2010 to the changing times? Projecting economic scenarios, sharing thought starters and incorporating ways other family businesses have responded – all can help lead towards meaningful actions for your family business. Rigorous discussions around these topics can rekindle a new spirit in your organization that helps take advantage of a rebounding economy. As we continue to emerge from this economic storm, will your family business be one of those that successfully adapts? Here’s to a hopeful new year!