None of us have worked through a period of such fundamental change to the way we do business as that experienced during the last year. The old days of plenty are dead. The credit crunch and emergency Budget signal a sustained era of frugality. Now, less is definitely more. Austerity is the new black.
The savage cuts to public expenditure and planned tax rises are underpinned by a seismic shift from abundance to austerity. Despite the end of the freefall economy, the diminished pools of confidence, certainty, finance and natural resources point to business life remaining tough for some time to come. ‘Double-dip’ has entered the economics lexicon.
The combined burden of our accumulated national public sector debt (currently over £1m a day), private sector debt, which is among the highest in the western world, and colossal under-funded pension commitments is going to be a heavy weight to bear.
Business is not going to return to ‘normal’ any time soon and we need to re-adjust to a new set of fundamentals.
Entrepreneurial saviours
On the plus side, as entrepreneurs, we face a future where our value has never been more critical to the nation.As the name in French describes, our role is to operate entre, or ‘between’, the two means of production at our disposal (labour and capital), and to preneur, or ‘grab’, handfuls of each in such a way as to bring them together to produce more than the sum of the parts. It is this act of value creation that is the well from which all taxation and income ultimately springs.
In the end, it pays for everything we own, from baby incubators to flak jackets.
Sadly, we face a future with less of both means of production. First, with a rapidly ageing population and a slow down in immigration, it seems obvious the labour pool in which we fish is going to dwindle, even if as OAPs we continue to put our arthritic shoulders to the economic cause. Bringing the millions of people who’ve decided that they’d rather stay in bed on benefits back into work will grow the workforce, but you do wonder at the quality and likely industry expected of these people. Add to this the general and seemingly inexorable shift in wealth from West to East, plus our schadenfreude compulsion to bring bankers to their knees, and the finances at our disposal are also set to dwindle as wealth migrates to other more welcoming locations in the Orient.
Serious challenges and opportunities have, therefore, emerged at the coalface of business, driven by this massively disruptive moment, and it is essential to sweep away our outdated instincts and conditioning quickly. Remember, some very smart people wanted to believe for a long time that the world was still flat, that men would never fly, and that there was no possible market for handheld music devices. We don’t have the time for such errors of judgement.
In the end, business is a competition. If you’re not a winner, you’re a loser. If you’re not staying with the times, you’re falling behind.
If you’re not adapting to change, you are a victim of it. Of course, spotting change and pontificating about it counts for nothing unless you take action.
At the coalface, running businesses, we know that the small changes can sometimes make the biggest difference. Ultimately, it all starts and ends with us as leaders. Never mind fruit and veg, here’s a business five-a-day checklist to promote a healthy mindset.
1) Am I in denial?
When you wake up, there can be a temptation to pull the duvet back over your head when times are tough, to switch off to the world outside in the hope that when you come up for air everything will be reassuringly back to normal. This didn’t work for the dinosaurs. It hasn’t worked for the British motor industry. It won’t work for you either.
There is not just an austerity breeze blowing through. Those who profit most will find ways to pick themselves up and dust themselves off faster than the rest of the pack. This would be a great moment to get over yourself.
2) Is my glass half-full?
We entrepreneurial types are generally an optimistic bunch. We tend to see the opportunity in any moment, well before the accompanying risks emerge over the horizon. In the course of our day-to-day work, we like to see chances, not chores; pleasure, not pain; more ‘get to dos’ than ‘got to dos’. Pessimists, on the other hand, see the missing thimble in a pint glass and will find plenty to complain about at the best of times. You need to kill the pessimists – be ruthless about this.
It’s staying purposeful, refining what we are good at and playing to our strengths that builds competitive advantage. And remember, there’s no shame in a laugh.
3) Am I open and transparent?
People drive the profits made in most businesses. Talent, by its very definition, is not stupid. The best people in any company will sniff out fear and indecision, and will spot insincerity, no matter how well camouflaged you think it is. The best leaders foster their followers and stop fear turning to paralysis by being upfront, open and cheerfully admitting what they don’t know. So what news are you going to share today?
4) Do I believe in fact or fiction?
Ignorance may be bliss elsewhere in life, but in business, fresh reliable data is vital. We can all busk it in the good times, but knowing and watching the numbers is a matter of life or death when every penny counts.
Of course, train your eye on the cash, get your bank on side and keep it there, de-bloat your stock and make sure that there’s no weakest link in your supply chain. But more than that, interrogate the numbers to face the truth, and revisit every element of your business model and the dusty corners in your process to make it fit that new reality. Now is a good time to redesign the dashboard by which you drive your business.
5) Am I panicking or focusing?
Let’s face it, business has always been a bit of a roller coaster ride. It’s just that now the drop is more intense and adrenalin-soaked than we were expecting. Will you scream, shut your eyes and hold on for dear life, or relax and enjoy the ride and remember that the thrill was the reason you bought your ticket in the first place? Resist making knee-jerk reactions in the heat of the moment.
Net profit is sanity
In times of plenty, we focused on the pursuit of growth, on market share, or on dominating a particular sector. The answer to the ‘tell me about your company’ question has long been the turnover figure or the employee headcount – rarely the net profit, and certainly never the cashflow. Placing market share aspirations above long-term profitability has been an ingrained habit that is going to be tough to shake off in this new world. The efficiency with which you put your cash to work will increasingly give you your edge now – or not as the case may be.
In terms of my own top tips for trading more profitably, I’m afraid they all focus on the basics that we perhaps need to re-learn after a decade of financial illusion, when debt attained the status of a human right. In reality, of course, it’s an entitlement that needs to be afforded. Here are three questions you might want to ask yourself:
1) Am I pricing to win?
It’s a fact that most people who have bought from you would have paid a little more, sometimes a lot more. It is important to capture your fair share of the trade with every customer by changing this picture and not being led by the chatter around you into thinking that the route for prices is always down.
Of course, your customers prefer to pay less, and your salespeople will plead for keener pricing, but don’t be fooled. It’s amazing how few of us take a long hard professional look at how to get our prices right. And that’s astonishing when this number is known to be the single most important factor in driving profitability. Only one supplier can be the cheapest, so what’s your pricing strategy?
2) Am I carrying victims?
Take a look around the office. How many of your team just want to keep their noses clean and get through the day, and who’s desperate to improve and get better at what they do? For some reason we tend to shy away from those who want more training and are keen to develop themselves. This is a massive mistake when your people are your biggest cost, and driving up their productivity is, therefore, your biggest opportunity for efficiency gains. Cut people before training when times get tough.
3) Am I cutting the right things?
In the end, anyone can cut. The skill is all in making the right cutbacks at the right time. I can lose weight by cutting off a leg, but it’s a short-sighted solution with serious long-term consequences. By all means cut all the niceties and entitlements that can no longer be afforded, but don’t cut silly things like the water coolers and free coffee – it will panic your team.
The secret is to cut into your team once, cut deep and then rebuild from there, or those left will be forever looking over their shoulders for the next knife attack instead of being dedicated to getting you out of the hole.
It’s also a big mistake to disinvest in your customers, so by all means re-focus and re-target your marketing budget, but keep the overall spend up. A massive short-term profit improvement through cuts is almost certainly a sign of tomorrow’s business weakness. The maxim is to cut consumption and increase investment spend.
United for recovery
While Britain appears to have avoided the prospect of economic Armageddon, we face years of misery and a long, slow, painful recovery nonetheless. If you need an analogy just think of the England football team.
On the plus side, austerity conditions will feed a period of frugality that will push more of us into less complacency, and once again drive a hunger to work smarter and to compete to win in the modern gladiatorial contest that is business. There is a dawning realisation that it is we, the wealth creators, who now have the opportunity for greatness thrust upon us, not our politicians, nor our public servants.