By: Stephen Reisler, ROCG Montreal

Have you adjusted your business strategy to the “new normal”?

Most business owners and managers today maintain a continuing concern and a crisis mentality dealing with the future economy. Why then is there still not more optimism and positive future planning? The reason is that while most executives are coping relatively well with the demands and effects of the economic crisis, they have not yet adjusted to the “new normal”.  However the “new normal” is not new at all. It represents a return to old-fashioned business values of using leverage judiciously, watching cash flow rigorously, investing in people and systems, and keeping an eye out for growth. This recession presents an unprecedented opportunity, at least in a generation, when small to medium sized businesses have access to a large pool of well-trained and highly experienced personnel; yet people problems loom on the horizon.

Owners and managers around the world are working longer hours, taking on additional responsibilities, and experiencing higher levels of stress. However, middle managers, compared with their owners and superiors, are working just as hard, with similar levels of stress, but are much less enthusiastic about their work, less satisfied with their own performance, less committed to staying with their companies, and far less satisfied with how their bosses are fairing.

Most owners say their organizations’ financial performance has suffered as a result of the crisis. Not surprising, many say their companies have already taken steps to reduce operating costs, or plan to do so in the second half of 2009, and most are planning to reduce capital investments and increase productivity. Owner/Managers are working harder in this environment—more hours per week on average, compared with before the crisis. They report spending more time than before on directly monitoring or managing operating performance and cash flow, which of course is a good thing. However, the extra hours being worked are not focused on setting growth strategy and motivating employees; rather they are being spent dealing with immediate and unforeseen problems and engaging with customers, suppliers, and other external stakeholders.

Adjusting to the “new normal” is about managing PEOPLE better

Motivating your people by talking about your company’s values or direction and the financial performance is not nearly as effective as expressing interest in their lives outside of work or trying to make individual connections with your employees. Look carefully at yourselves in the mirror. Are you pleased with how well you are positioning your business for future growth, and how well you are working to retain, develop and attract future leaders? Thriving when the “dust settles” depends on you adjusting this way to the “new normal”. Taking more of your  time away from routine operating procedures to address these issues will be a key to your company’s recovery in the months ahead.

 Adjusting to the “new normal” is also about looking for opportunities to pick up bargain-basement assets that will help grow and create future company value

Successful businesses owners instinctively know and accept the maxim “Invest in a downturn,” but few act on it. In other words, of the potential strategic moves companies can take to grow in this downturn—divest, acquire, invest to gain market share; all can be effective.  Acquisition strategy has traditionally created significant value for owners and today is no different.

Why then do companies often behave in counterproductive ways? Many of the owners we talk with aren’t interested in making acquisitions in downturns; rather they report having done so previously in the previous periods of economic growth. Significantly more of them tell us that because they need cash now, they are more likely to sell their businesses or divisions now in the downturn rather than in the upturns.

During a downturn, a thoughtful acquisition strategy is particularly important—but many companies don’t have one or even want to consider developing one.

On the surface, when “cash is king”, all of this seems understandable. As revenues slow and margins are squeezed, owners naturally switch their focus to cutting costs and maintaining earnings. The company protects its balance sheet and defers or shelves low-priority investments, or acquisitions, and considers the sale of assets. Many other companies simply choose to do nothing and freeze; no moves at all in downturns and also ill-prepared and likely not to consider making any moves in the upturns which are sure to follow.

Irrespective of whether or not they have the cash, the best growth companies take a different approach. They view a downturn as a time to make acquisitions and increase their leads. They pounce on opportunities, becoming active deal makers and finding the financing required.

We’re not saying companies should go on a spending spree in a downturn and tighten their belts in an upturn. We are also very aware that some companies simply aren’t in the financial position to exploit the opportunities this downturn presents. Debt financing is certainly much more of a challenge to secure in this risk averse banking environment, and this well might become the norm moving forward. However, companies and their owners should counterbalance the natural tendency, which if unchecked, is likely to harm the future value of their businesses. Simply put, countercyclical investment or a robust acquisition strategy can separate you as a leader from the “have beens” and financing is more likely to come your way for growth purposes.  We would argue that growth in a downturn is far less risky and more valuable than it is in an upturn period.

Thriving in the “new normal”

 In a recent Globe and Mail article, it was reported that behind the scenes, there is considerable momentum to provide the seed funding to promising SMEs and to a new generations of companies that will create new jobs and new wealth. Today the most important SME resource is knowledge. Thomas Friedman, a well-respected author and commentator on business issues, had the right idea for our times when he said, “Start-ups, not bailouts” should be the focus of company owners and executives. Success, particularly here in North America, now depends on companies harnessing their intellectual property and providing the leadership that will inspire a new generation of innovative products and services, leading us out of this economic malaise.