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Tuesday, July 7, 2009

When Bad Things Happen to Good Businesses

When the economic times turn tough even the best managed, the best positioned businesses have difficulty aside from the few industries that flourish in a downturn (think bankruptcy attorneys).. If you are in an industry that is badly affected by the downturn you might be fighting for economic survival. What can do you do when bad things happen to good businesses?

Some businesses do nothing but hope or pray that things will get better. Some become more aggressive marketers attempting to increase market share and cash to help them weather the storm. Others cut expenses to the bone figuring they will be able to stay longer and still be around when conditions improve. What is the best strategy?

I wish there was a hard and fast rule for this but, since each business is different, even in the same industry, there isn't a "one size fits all" solution. But there is a practical process to help determine the best strategy for each business. Since no one knows what the future business climate will really look like, it's best to prepare for a wide range of possibilities. The first critical step is to assess the situation honestly, face up to the facts and grapple with the answers to these questions: What will happen to this company in three months, six months, and one year if:

a) sales trends continue as they have the past six months?
b) sales trends get 5%, 10%, 20% worse than they have in the past six months?
c) sales trends get 5%, 10%, 20% better than they have in the past six months?

This gives you a series of outcomes for a wide range of different scenarios.

Now, using this series of outcomes as a baseline, determine what your best reaction would be for each scenario. Then think proactively. Monitor the changing incoming data constantly and, if one scenario seems to be playing out, your strategy is ready to be implemented and, of course, monitored closely. Well managed businesses prepare for contingencies and implement based on planning and proactively when times are good or bad.


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