So, what is this recovery going to look like. My primary economic forecasters, Alan and Brian Beaulieu are not expecting a double-dip, but they are predicting a long slow dig out.

Victor Cheng is issuing a strong warning anticipating a double-dip. Victor’s observations are based on conceptual trends and events, while Alan and Brian pay more attention to numeric indicators.

My sense is that we are looking, not at a V shape or U shape recovery, but something that looks more like an L shape recovery. Seven actions to take.

1. Examine your revenue budget to make sure it is realistic. From your budget, create at least a tactical 6 month forecast, aggressively updated every 30 days.
2. Take a long look at your personnel plan for the next 12 months. Determine which positions are absolutely necessary based on your revenue budget. Now, lay your tactical 6 month forecast on top of that personnel plan to see if, in the short term, it is survivable. Update aggressively every month.
3. Eliminate any operational function that is not necessary to meet your customer demands.
4. Simplify every operational process. It is likely, you will find an effective solution inside most of your methods and processes that is simpler and at a lower cost structure.
5. Consolidate methods and processes, so that similar tasks are staged and cross-trained. This will allow you to maintain operations in the event you have to reduce headcount.
6. Outsource any process that is not part of your core value stream. Outsourcing allows you to fix costs and jettison overhead in the event that process is no longer necessary.
7. Technology. Before adding headcount, explore technology to see if there is an alternative to labor intensive processes.

During this time of uncertainty, blessed are the flexible, for they will not get bent out of shape.

Credit to the Four Hour Work Week, for some of the central themes of survivability.

From the Ask Tom mailbag.

Question:
Ever since the recession, our company has been scrambling. There was a time when things were calmer, predictable. Now, our management meetings seem disorganized, we are all over the place, decisions are haphazard. We have an agenda, we follow the agenda, but our direction seems muddled.

Response:
You are clearly in the deep stages of Go-Go. You describe a normal organization, out of the start-up phase, yet still struggling out of its cocoon. And many companies were put here by the recession.

During the recession, our focus shifted from operating systems toward survival and sales. Get some sales, nothing else mattered. Get sales and get profitable.

To survive, we chased rabbits, abandoned our core, taking any opportunity that created a sale. We are now entrenched in opportunity seeking, reactive in our behavior.

We did this because we had to. We had no choice. We had to survive.

The counter-intuitive move is to slow down and think. Our markets have moved, they are different, now. Things are improving (slowly). There are patterns of viability forming and we have to pay attention. Market analysis is the next step. We have to move from being an opportunistic predator to an intentional sleuth. As our markets return, we have to understand their new patterns and adapt our internal systems carefully.

Logistically, this means drawing new pictures and flow charts, identifying market needs, not one-off opportunities. As we draw this picture, our market will become clearer and our decisions will make more sense.

Last in a series with Victor Cheng, a San Francisco based business coach, and author of the Recession Proof Business.

Tom:
It’s expensive to create a new product or engage new customers in a new service. How does a company make those decisions without getting spread too thin?

Victor:
Start small. Take baby steps.

In the software industry, companies “invent” new software technologies that exist only in the minds of the management team. First, they create a PowerPoint presentation describing the software (that does not yet exist). Then they market the product as if it existed.

This is known as “slide-ware” (software that does not exist in a form other than PowerPoint). Critics of this process call the product “vaporware” because it doesn’t yet exist in physical form.

In the direct marketing industry, this is called a “market-test”. They create a marketing promotion for a non-existent product, send the direct mail piece, and count the corresponding orders — then promptly refuse to take the customer’s money.

The idea is to see if the product will sell, before committing R&D dollars to actually creating the product.

Find the cheapest, easiest way to “market-test” demand. If you can present “slide-ware” and get a large purchase order out of it, that’s a very favorable sign the product is worth investing in development.
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You can download a free e-copy of Victor’s book, The Recession-Proof Business. This concludes our series with Victor Cheng. He’s a bright guy, check him out.

Fourth in a series with Victor Cheng, a San Francisco based business coach, and author of the Recession Proof Business.

Tom:
How can a company best determine whether a new product or service is something their customer cares about?

Victor:
If the product or service is one that’s easily understood by customers, the easiest way, is to just ask them.

If the product or service is highly innovative, then this approach is unreliable. It’s like asking people who have never seen a mobile phone what they think of it. The cannot grasp the value of the innovation.

In this instance, the better approach is to ask yourself “What problem does this product/service fix for my customer?” and then ask customers how much they care about this problem.

So if I were market-testing the iPod + iTunes combined service, I would ask customers the following:

Q: “How do you find new singers/artists or songs that you might like”
A: “I listen to the radio at work/home”

Q: “And when you listen to the radio and come across a song you really like that you’d like to hear more often, what do you do?”
A: “I drive across town to go to the music store.

Q: “Do you buy the single or the whole album?”
A: “The whole album.”

Q: “Why do you buy the whole album, instead of just the song you like? How do you feel about this?”
A: “It’s the only way they sell the music. $15 for the one song I like. Expensive.”

Q: “How long does the whole trip take?”
A: “1 – 1.5 Hours.”

Hopefully you can see where I’m going with this line of questioning. If the breakthrough innovation is based on fixing a specific problem the customer is very familiar with, be darn sure the customer really cares about the problem a lot… and if they do, that’s a favorable sign that you’re on the right track.
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You can download a free e-copy of Victor’s book, The Recession-Proof Business. Our conversation continues tomorrow.

Third in a series with Victor Cheng, a San Francisco based business coach, and author of the Recession Proof Business.

Tom:
As companies expand their product and service offerings to fill holes in the market, created by retreating competitors, or even retreating suppliers, what should companies think about to increase their odds of success?

Victor:
Two things.

First, customer intimacy is a major competitive advantage in this kind of environment. The better you know your customer’s current (emphasis on the word “current”) situation and needs, the more likely you will win.

Our economy is going through massive change. This creates massive change for the consumer and businesses within the economy. You have to assume everything is different, take nothing for granted, and learn what your customers are up to, as if you’re meeting them for the first time.

Second, bring something unique or different to the table. If you’re going to fill the space left by a departing competitor, how will you distance your company from the remaining competitor? If you don’t differentiate enough, you have no assurances that your company isn’t the next one departing the marketplace?

Finding the competitive edge is much easier, when you know the customer really well. The two go hand-in-hand.

You can download a free e-copy of Victor’s book, The Recession-Proof Business. Our conversation continues tomorrow.

Second in a series with Victor Cheng, a San Francisco based business coach, and author of the Recession Proof Business.

Tom:
In an attempt to scratch out precious points in market share, what changes should companies design into their operating strategies?

Victor:
One pattern I’ve seen in the company’s I’ve worked with is that often the easiest market share gains are made in secondary market segments. Assume a business consists of Product lines A, B, and C or customer segments A, B, or C, where A is the largest revenue producing segment, and C is the smallest one.

In a number of cases, I’ve found the easiest way to grow a business and expand sure is in segment C. This is not to say that one should always look at the smallest segment for the most growth. However, I’ve seen this pattern of the “neglected”, smaller segment can sometimes have a counter-cyclical demand and less competitive aspect to it.

So, don’t just look at the biggest parts of your business. Examine the smaller slices too.

Finally, from an operations standpoint, the big thematic change that needs to be made is the willingness to experiment with growth options. If you’re not deliberately willing to seek out and tolerate many low-risk “failures”, it’s highly unlikely you’ll stumble upon the pockets of demand that always emerge in major structural shifts in demand such as the one we’re experiencing now.

You can download a free e-copy of Victor’s book, The Recession-Proof Business. Our conversation continues tomorrow.

I spent some time with Victor Cheng, a San Francisco based business coach, and author of the Recession Proof Business: Lessons from the Greatest Recession Success Stories of All Time. It was an interesting conversation.

Tom:
As we make this slow turn from recession to recovery, what are the biggest mistakes companies make attempting to re-engage their old markets, the ones, by necessity, they have contracted away from?

Victor:
This big mistake is assuming that what used to work pre-recession will work post-recession. The magnitude, severity, and duration of this recession has been significant. It’s my view that the contraction was not merely a correction to an otherwise robust growth trajectory, but rather a structural shift in demand.

The problem with structural shifts in demand is they tend to have far reaching cascade effects that are difficult to spot in advance, and only obvious in hindsight. If a company’s clients have gone away, it’s not a given they may come back. If one product line is no longer relevant in this new economy, it’s quite possible a different product line is now more relevant.

One has to be looking qualitatively and quantitatively for these shifts. The early “clues” that reveal these trends are often either passing remarks clients make about their situation, that foreshadow shifts in spending or unusual shifts in revenue mix across products, services, or customer segments.

It is difficult to reliably extrapolate these small early signs to find the longer term trend, but those who are willing to tolerate getting it wrong sometimes, will have a major first mover advantage to capitalizing on how a re-structured customer demand is expressing itself in the new economy.

You can download a free e-copy of Victor’s book, The Recession-Proof Business. Our conversation continues tomorrow.

Lydia remembered a year ago. “We brought in our Balance Sheets,” she described. “I used to spend time poring over my Income Statement, so understanding the Balance Sheet, I mean, really paying attention to the Balance Sheet, was new to me.”

“Why did we do that?” I asked.

“You said that we could still make a profit and go out of business. That, making a profit was important, but elements on the Balance Sheet could be fatal.”

“So, what did we focus on?”

“Liquidity. Liquidity. Liquidity,” Lydia recited. “Cash, cash flow, accounts receivable, credit.”

“And why did we start working on this two years ago?” I reminded her.

“You said if we got to where we are, now, and needed a Line of Credit, the bank would not give us one. Because banks never give you credit when you need it, they only give you credit when you don’t need it.”

“How will you decide?” I asked. “How will you select the person who has to go?”

Lydia shook her head. “I need them all. I put a hiring freeze in January, and we’ve had some normal attrition. But at this point, if another has to go, we lose capacity. If things continue, we lose functionality.”

“How will you decide?” I repeated. “How will you continue? And here is a challenge. How will you work with a smaller team and not lose capacity?”

Lydia smiled, “Have my cake and eat it, too?”

“Face it, Lydia. This is going to be a long contraction in the business landscape. We have been preparing for two years, and now, it’s here,” I reminded her.

“You are right. This is not a bump in the road,” she admitted. “I know we have to be prepared for an extended downturn.”

“What did we work on first?” I asked.

Thanks to all those who posted comments last Friday in response to our post about forecasting. As promised, I will be sending out a copy of Real World Intelligence to those who participated.
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“We have an idea for a new product line,” Alicia sounded off. “It’s a logical extension of our core product. We all think it will be a winner.”

“How are you going to fund the startup and who are you going to assign to this new project?” I asked.

“Well, that’s a problem. We are currently under a hiring freeze and while we have a budget for Development, actually ramping into production is going to pinch,” she grimaced.

“What are you going to let go of?”

Alicia was a bit surprised. “We hadn’t really discussed shutting anything down.”

“Alicia, the biggest mistake that young companies make is that everything looks like an opportunity. Before long, all their resources are spread thin and their product portfolio is a hodgepodge. They can’t figure out if they are in the shoe business or the construction business.

“To be truly successful, the company has to decide on its focus, and create a discipline around that focus. Especially in times where resources are tight, we have to make sure we have enough staying power. This requires an approach of systematic abandonment. As you adapt to the market, it is important to cut off those projects that are no longer returning value.” -TF