Vern Harnish: Recession-proof your business

RECESSION or not, during these volatile economic times it’s worth taking a look at the playbook of turnaround specialists. And for many growth firms, which face the normal challenges of managing constant change, it can feel like a perpetual turnaround situation even during boom times. One of my favorite turnaround stars is Greg Brenneman, founder of Houston-based TurnWorks. Credited with the phenomenal turnaround of Continental Airlines, he’s now working his magic on sandwich franchise Quiznos. In fact, spend $6.50 and download the Harvard Business Review article Mr Brenneman wrote detailing the Continental Airlines turnaround. He shares five critical turnaround lessons that represent solid management advice for any company. It’s one of the best articles I’ve ever read on the subject and provides you a credible and detailed playbook. In every case, turnarounds revolve around just a handful of key strategic moves. Stop unprofitable activities Mr Brenneman immediately uncovered that 18 per cent of Continental’s routes were badly unprofitable and draining cash. He shut them down. What products, services, territories, or customers are draining you? Do you even know? The first step is to analyse profitability as granularly as possible. A huge weakness in small-to-midsize firms is the lack of accounting data and support. It’s a natural instinct for entrepreneurs, given a marginal dollar, to want to spend it on either making/buying more stuff or selling it i.e. fund sales and operations. Accounting, in turn, is often underfunded and seen simply as a necessary function to keep the tax office off your back. Hire an extra accounting clerk, have them pour over your specific numbers, and then deliver to you on a yellow legal pad (or Excel spreadsheet) the calculations of profitability by product/service line, customer, territory, store, sales person, etc. Then make the tough decisions. Pruning your operation is a healthy, ongoing activity. As for Quiznos, Mr Brenneman slashed discounting and reduced the menu from 29 to 21 items. This latter move also reduced operational complexity, again, particularly useful when the economy is tightening up. Focus on bv your best customers/ opportunities Neil Rackham, the famous sales researcher, studied sales teams during hard times and found that the less successful sales teams chased every deal they could, acting almost desperate at times. The successful sales teams, on the other hand, focused on their best customers and opportunities. As an interesting side note, Mr Rackham’s research found that customers do not buy on price during a recession but buy more based on safety. Why? Because during tough times, decisions are often made more by committees and they seem to choose the safer options i.e. the suppliers most likely to provide reliable service. And for this safety customers were willing to actually pay 12 per cent more! During a recession, people are walking on egg shells and don’t want to risk failures. Interesting psychology. Mr Brenneman had the executive team of Continental talk to what he called his ‘seat 9C’ customers, those full-fare business customers critical to an airline’s success. And he was careful to differentiate between what they wanted and what they were willing to pay for – customers can ‘want you’ to bankruptcy if you’re not careful. Based on their feedback, he made immediate improvements and won back his most highly profitable customers. John Whitney, who many consider the father of turnaround management, emphasises the importance of gathering intelligence directly from the customer. In his seminal Harvard Business Review article entitled ‘Turnaround Management Every Day’ he describes how one CEO of a $50 million firm executed a 30-day sales blitz where the senior officers, including himself, called on as many customers as they could, garnering important feedback that saved several key accounts and helped improve operations. Study what has worked in the past It’s never more important that you go back to basics than during a downturn. And since the 2001 recession wasn’t that long ago, take time to consider what worked and what didn’t work. Sam Goodner, founder of Austinbased Catapult Systems, did just this last summer. Anticipating the possibility of a recession, he assessed what helped his technology firm through the previous tech-bubble crash – and it was the 30 per cent in government business that his company served that helped him weather the storm. However, since the recovery, his company’s share of government business had dropped to 10 per cent, so he put a focus on pumping up that side of his business and was able to achieve the goal by the end of 2007. Communicate, communicate, communicate Above all, keep the communications flowing. Mr Brenneman and Gordon Bethune, Continental’s chairman and CEO, made it a point to talk to every employee they could, getting out to airports and in planes, loading baggage, and working the ticket counters. In addition, Mr Bethune recorded a voice mail every Friday, updating all the employees on the activities for the week. Stopping unprofitable activities; focusing on your best customers’ needs (and eliminating the ‘wants’); understanding the activities that have driven outstanding performance; and communicating weekly with customers and employees are not only excellent steps for turning around a company, but the kind of activities that will keep your company growing.