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The pressures that come with a downturn can provoke bad business decisions. (david franklin)
The pressures that come with a downturn can provoke bad business decisions. (david franklin)

Four crucial mistakes companies make during downturns Add to ...

With the worst of the downturn behind us, it’s key to assess where we’ve been, the mistakes we’ve made, and how to course-correct for the next burst of growth.

Here’s the reality: Companies make mistakes all the time. In an economic downturn, however, avoiding the big slip-ups becomes all the more crucial. When the heat is on some chief executive officers will react impulsively, and while this may earn them some points for courage and speed, in a rough economy one needs to take the long view and pace themselves.

To get funded, stay funded, and even stretch out your day-to-day cash flow, you’ll need to avoid some key mistakes. And if you’ve made them already, it’s time for a strong course-correction. Please know that I’ve made every single one of the following … which is why I am so passionate about helping to prevent these energy- and time-suckers.

Here are my top four mistakes to avoid during a downturn.

Hasty hiring

Result: Bad hires who are costly and time consuming.

It’s better to try out new staff members as independent contractors first. Then, after you’re confident that they work well with your team and share your values, bring them on as permanent hires.

When you’re overwhelmed and overworked, it’s easy to make hiring mistakes. That’s why relying on contractors is a great policy. Rates can be surprisingly low. And don’t make the mistake of staffing up fully, only to discover that your business operates in waves. Have a lean team, and hire extra hands for the heavier times. Try out your team members before making them permanent.

Profit paring

Result: Financial pressure due to propping up ailing products, divisions, accounts.

Sometimes you can sell your way out of a recession, yet at all times you need to streamline expenses and adjust your financial strategy. One of our clients recently outsourced an entire division of their company. It hadn’t been profitable, and the other divisions were supporting it financially. Yes, the decision was painful and resulted in a layoff. Yet it had to happen for the health of the company. The outsourced division now generates a healthy profit.

Another client pays increased commission for selling higher-margin products. We laid out a super compelling plan and the sales force is now focused on the products that are best for the company’s bottom line, and coincidentally, best for the customer.

Now is the time to course-correct if you’ve undercharged clients too. This often happens when we’re desperate to close a sale without keeping an eye on generating enough profit. We’re helping two of our clients to right-size some of their clients. With a stronger, more resonant value proposition this is doable. Craft the message, collaborate with the client on key success metrics, report on the metrics monthly, and get the account to the level that is fair and profitable for you. Resenting a client because you undercharged them is something you never want to do. Ever.

Scrapping the six-month plan

Result: “Strategy of the second” – and very little accomplished.

It’s better to map out the next six months, and if a new project comes up, swap it out with one of equal complexity that is already on your plan. Entrepreneurial CEOs can be excessive idea generators. With a six-month plan, you will have mapped out the projects for the immediate, foreseeable future and can skillfully avoid manic distractions with poor results.

Consider the perils of one company, with the painful “strategy-of-the-second” plan. Each time its mercurial CEO returned from a conference, he’d have a new idea. Were they good ones? Often. But his already stretched staff had no spare energy. Since they had not learned to communicate clearly with one another, they would take on the new project, but all sorts of key tasks would (of course) get dropped or delayed, and no one was happy.

Ultimately, you need a gatekeeper for the six-month plan if you want your company to run efficiently. This is someone who will ensure the new projects are either scheduled later or will replace existing project(s) of equal size. Someone who will constantly see the big picture, tackle the small details, and facilitate real results every step of the way is key.

By the way, once the CEO in question put a six-month plan in place, his staff was happier, fewer tasks were dropped, and their revenue ramped up considerably.

Chasing all sales leads

Result: Wasting time on “prospects” who will not become clients.

A CEO of a consulting company complained recently that she had chased a key account for four months. Four months! She finally lost hope that they would ever become a client. When asked if she had a disqualification process, she hesitated. Here’s the net-net: you only want to spend time with real prospects. Create a disqualification process so you can quickly remove contacts from your sales pipeline that will most likely never buy your product or service or have no intention to buy it in the near term. In tough economic times especially, you must focus your energies on productive revenue streams.

We have all made mistakes in business. The point is to course-correct constantly. Spot a mistake and take action to correct it. What are you grappling with right now?

 

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