It’s too bad that Professor Jim Collins’ latest book, Great By Choice, wasn’t published during the good years, well before the Banking Panic of 2008. A lot more kitchen/bath dealers who would have read the book, and heeded his teachings, would still be in business today.
Collins and his team studied a bunch of companies that operated in volatile markets and succeeded spectacularly compared to the competition. A common management trait he found among these companies was simply this: they led with “productive paranoia.” Because these management teams recognized that business conditions can unexpectedly change, they constantly asked “what if” questions. In other words, management recognized that the most important decisions they could make would be those made before something happens.
Strategies for Success
The first strategy adopted in support of “productive paranoia” was building buffers and shock absorbers for unexpected events, bad luck or opportunities. Most often these contingencies took the form of building significant cash reserves.
Now it’s true that a high level of cash on your Balance Sheet is inefficient most of the time, unless invested in your business. But in rare scenarios – like surviving the Great Recession or buying a business to gain a hammerlock market share – easy access to this cash can keep you advancing on your “20-Mile March” to the promised land.
A second strategy used extensively by these successful, publicly held companies was to diminish, manage or completely avoid risk. They became expert in “time-based” risk – tying the degree of risk to the pace of events. They would go slowly with a decision when they could, and go faster when they must.
Witness the difference in management behaviors between those companies that were successful dealing with risk and those that were not:
The question the successful companies would ask is this: How much time is there before the risk profile changes? They would remain calm and let the situation unfold to gain clarity. Collins called this management technique “Zoom in, Zoom out.” These successful companies would “zoom out” by stepping away from their operations to gain perspective, calibrate the pace of decision-making time, assess the need for a disruption in the strategic plan and formulate a considered response to the change in conditions.
Once there has been disciplined thought given to the situation, the successful companies would “zoom in” to take disciplined action, focusing on supreme execution of their new plans and objectives. They would neither freeze up nor immediately react to fast-moving threats. They would think first, even if they had to think fast.
It’s been said that the only mistakes you learn from are the ones you survive! So, as survivors of the Great Recession, and with Collins’ “productive paranoia” conclusions freshly minted, let’s chronicle the lessons that should have been learned over the last five years:
- Build liquid cash reserves equal to at least 12 months of fixed expenses, including owner’s market-rate salary, to survive a second banking panic or capitalize on a grand business opportunity that presents itself;
- Develop an annual budget (and correct price formula so you are profitable and can build the requisite cash reserves) with a set of contingencies, should objectives not be met;
- Become a student of financial/business management to balance out your design skill set;
- Have your company’s financial performance “benchmarked” compared to that of a select group of successful dealers, so you know where the focus of improvements should be;
- Avoid buying a building; it’s an illiquid asset with little equity to tap during a recession;
- Hire an industry-specific business coach, or create a board of directors (primarily of other businesspeople), to help you “zoom out” and calmly assess a possible change in market conditions and/or “zoom in” to undertake disciplined actions;
- Develop a strategic plan – with a written vision of what your business will look like when it’s all grown up or when you expect to sell it and retire – so the actions that may have to be taken in response to unexpected circumstances are not too disruptive;
- Downsize your showroom footprint, using more mobile displays and technologies to still improve the customer experience while increasing your total asset turnover and return on assets – typically the factors adversely impacting a kitchen/bath dealer’s profitability;
- Implement software that can help you manage your operation from accurately measuring lead counts, costs per lead, closing percentages per lead source and closing percentages per sales designer to cash flow projections three months out;
- Invest at least 3-4% of revenue in effective marketing (more if your company is less than eight years old);
- Use a professional SEO company to earn higher Google rankings and generate more quality leads from your site;
- Tap social media on a regular basis to spread the word on the value of your services;
- Invest heavily in sales training to convert your sales designers from order-takers to professional closers, enabling them to motivate people to buy even during tough times;
- Develop a proven, disciplined sales process that all sales designers use in your company to lift prospects off the market quickly by earning a retainer;
- Develop relationships with allied professionals – remodeling contractors, architects, interior designers, and select builders – so as to generate a residual stream of leads.
Not all time in life is equal. Life serves up some moments – like the Great Recession – that count more than others. What if one or more big banks take too-big risks tomorrow and put the world into the economic ditch yet again? Will your company be ready to endure the pain? Or will arrogance play a role in blinding you to what changes should be made?
Now is the time to cultivate that sense of “productive paranoia” and take disciplined action on any of these Great Recession lessons not yet executed.
Ken Peterson, CKD, LPBC, is president of the Chapel Hill, NC-based SEN Design Group, which co-produces with KBDN a 2013 seminar entitled “Systemizing Your Sales Approach For Maximum Profit.” Peterson can be reached at 1-800-991-1711 or firstname.lastname@example.org.