Sunday, January 29, 2012

What’s the Best Recession Strategy? Ostrich? Gimmick? Fold The Tent? Analysis?

What’s the best Recession strategy for your business? I can’t give you a one word answer, but I can tell you how to get to the exactly correct answer for your business.

Here are a few scenarios that I have encountered recently with several (rightfully so) frustrated entrepreneurs. Take a look and see if you can identify with any of these scenarios or traits and what you can do to help your business through these frigid waters.

The High End Product Start Up – As a person with higher educational degrees, this entrepreneur did all of the right research on his industry. He made all of the right supplier connections, developed smart and memorable branding and established the highest quality of customer service standards to cater to his high end clientele. With a (then) booming market, the target market for vanity/high end products was quite large. Then the market changed.

This entrepreneur is now struggling. As many providers have experienced, the  market for his product shrank (virtually) over night as the middle class found that they couldn’t afford the million dollar plus home they were living in, the cars they were driving, the clothes they were wearing nor the vanity products offered by this entrepreneur.

With the coffers of the business dwindling, this entrepreneur looked for the cheapest quick fix --- email marketing. This is a pattern many businesses , large and small, run to under situations like this. It seems to be the one size fits all alluring elixir that many count on when in trouble.

Having signed up with one of the many DIY email providers, this entrepreneur bought a large list and started emailing product offers. The product offer emails then turned into product “deal” emails and some sales came but the infrastructure established to cater to a high-end clientele was time consuming and costly and therefore the margins on the meager sales flipped the P&L upside down faster than you can say, “We’re in trouble”.

As illustrated, the Start Up Entrepreneur took the Gimmick route and as you can see, it did not pay off.

The Right Time, Right Place and Right Product Success Model – Looking for a way to make a living, a detail oriented woman started tinkering with some ideas from home and in the garage. Through hard work, building a network of others who were doing the same thing, this woman quickly moved from the garage to her own facility. Due to the “ground up” and “built from scratch” involvement from the beginning, this entrepreneur built a methodical manufacturing environment to ensure that her product came off the assembly line with an extremely low level of “rejects”. The product quality was very high.

Along with intimate knowledge and being the driving force in developing the product and manufacturing process, this entrepreneur entered the market place very early. Being a pioneer in the industry helped in building relationships, customer trust and a good symbiotic relationship of a feedback loop for receiving customer and colleague feedback.

Another benefit in favor of this entrepreneur was timing. There was (and is) a “green” element in her business and as Al Gore and others were beginning to really saturate the media with societies' need and responsibility as Earth’s citizens to be less wasteful and look for little and big ways that each of us can daily reduce waste. This entrepreneur was able to ride the wave of these high cost and impactful media campaigns launched by others without spending a dime. The beauty of scenarios like this is that in this example, the “sell” for this entrepreneur was made much easier as she pitched her product because of the millions of dollars spent by others impressing people to “go green”.  Had these millions of dollars not been spent and the road paved for buyers to be open to “green” products, the road to success would have been much harder. But as luck would have it, she was able to make the most of the “spend” of others and build her business faster than may have happened without the “Al Gores” of the world making us think about being more “green”.

As often happens, even though this entrepreneur had the idea before the “green” movement campaigns were airing everywhere, others saw this opportunity to exploit the situation and therefore, in entered the competition. Thankfully, due to her intimate knowledge of her industry, product and a deep commitment to quality, she was able to outlive many of the competitors. Today, she is one of the few early entry players to still be in business.

So far, this is a great success story as the business not only survived, but it thrived and grew. But then, as often happens in profitable niche markets, a big player with big backers entered the marketplace. Instead of knocking out the competition, they began buying them up. Many of the pioneers were beginning to struggle and the offer to sell and get out was a pleasant relief to them so they took it.  

Now the game has changed. Whereas before the financial playing field was relatively even with the competition. Now the playing field was uneven. It was a David and Goliath situation. The entrepreneur recognized this competition and was aware of its maneuvers but was certain that her successful strategies in the past of delivering a high quality product, continuous product development and caring relationships with their customers and vendors would continue to keep this business from being impacted by the monster sized competitor. Simultaneously, more start ups entered the market and the economy fell into a Recession. Now what?

Her response to this complicated situation was to continue to do what she had always done. She worked day by day, focusing on building and delivering products and the result was a superior product but a drastic decline in sales. The Ostrich had entered the building.

 Stay the Same or Expand?

A small town tavern with “comfort foods”, those found mostly at amusement parks, wasn’t thriving but they were servicing their customers - who by the way came to this facility to do sports activities. The tavern was not losing its shorts but it wasn’t thriving. Could they improve it – YES! Could they leave it alone- YES! The owner entered into an agreement with a partner who specialized in the food business. This partner had their own vision of what she wanted the “tavern-style” eatery to evolve into. As the “new vision” was implemented, it was not supported by the mainstream customers nor the surrounding neighborhood. The reasons for that were complicated, but the bottom line was a round peg was being shoved into a square hole. All of the things that the past patrons enjoyed about the tavern disappeared and they were swiftly replaced with unreasonable customer un-friendly policies and procedures that left a poor taste in patrons’ mouths (in more ways than one). The sales never went above the red line. It never even reached flat-lined. This business was a corpse now.  They deployed both techniques above, Gimmicks and Ostrich. Through legal maneuverings, the deal was nullified and the tavern control came back to the facility management. As it stands now, the tavern is limping along. It is not as it was and it is not what it was tried to be turned into. In effect, they have Folded Up The Tents and are not fiscally where they were before nor in the red as they became, so I will leave it to you to decide if they “won”.

Now What?

I’m sure you’ve guessed by now, by I haven’t posed a bad scenario for Analysis. Now, believe me, I have been in bureaucratic establishments and I know ALL too well about analysis paralysis and I’m not a fan. I am a fan of thoughtful, well organized and key indicator business reviews which often lead to a business re-set so that the business can face the new challenges that it is currently dealing with as well as be flexible enough to adapt to the changes to come.

Please keep these lessons in mind:

·        Your original business plan may have produced success but it may not carry you through market changes.

·        Quick fixes and Gimmicks rarely work. They are designed to have a very short LTV (lifetime value). By design they use a blitz media and advertising approach, make their money and then Fold Up the Tent and laugh all the way to the bank – until they come up with the next Gimmick.

·        Reach out to a third party who only has your best interests in mind. Don’t hire a “yes person”. Expect to hear things you don’t like, but if the business plan is sound, the proper analysis was done and the key success indicators were reviewed – Go ahead and re-tool your business for continued success. All long-lived American establishments have done it so it might be good enough for you too ;)

I’ll give you one example who missed the boat…Sears. They will sadly go by the waste side because they didn’t monopolize the Holiday market as they once had with the Wish Book. This was something ever kid in America waited for to come in the mail. Millions of kids dog eared pages, circled items for their wish list with crayons, pens and pencils and hoped they’d been good enough that year to get at least ONE THING from the Wish Book. Instead, they eliminated it. They never really embraced online shopping and they  buried their heads in their brick and mortar buildings. They underestimated the Wish Book and the love  that kids have developed for technology. Had they re-tooled their business to build an online “Wish Book” and put it online for a sign up audience only, they may have had Black Fridays that kept them afloat. (Disclaimer: this is just an educated guess as I have not reviewed or analyzed their business model thoroughly*wink*)

Take a step back and be open to someone who cares about your success as much as you do.

If I can help you at all please contact me at


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