Contrarian Thinking and Collaboration

Stop competing and start collaborating – it will improve your success and accelerate the economic recovery.

 

We all know that business is competitive – it’s bred into us.  We compete from a very early age, be it school yard games, organized sports, or many other aspects of life.  In this economic climate, the competition is even more acute because there is less spending and more companies attempting to capture those fewer dollars. 

 

We also know that contrarian thinking often works well in tough economic times.  For example, while everyone else is tightening down, you go on an acquisition spree.  Or, go against the norm and aggressively market your firm in this time of less spending.  Or, introduce new products and services that further your reach and value in the marketplace. 

 

Now, bring these two apparently disparate trends together – be contrarian and don’t compete, but rather collaborate.  Reach out to other firms and work with them as opposed to competing or remaining neutral to them.  Be honest, each of us only has a true handful of competitors.  Everyone else is just on parallel paths with us, trying to maintain sustainability and growth.  Work with your parallel traveling companions and share what you know, what works, what doesn’t work, and offer to help.  The value you receive from giving will come back to you in significant multiples. 

 

The entrepreneur is the engine that is going to drive this economy for the next 10+ years.  Entrepreneurial fervor is based on the need to control your world and pursue your dreams head-on.  This independence is great.  However, being independent does not mean being alone.  None of us can get there alone. 

 

Collaboration is the great multiplier to accelerate our recovery from this recession.  Be contrarian.  Collaborate.  Elevate your success.  Elevate the success of others. 

 

Top Ten Things to do to Combat the Recession

Over the past months business leaders — peers – have been getting together and discussing specific things they can do to combat the impact of the recession.  Below is a compilation of some of their best thinking and ideas.

 

1. Ask yourself four questions –

What do we do best?

Where do we best do it?

What expenses are necessary to do it?

What assets do we need to do it?

The answers to these four questions define the products, markets, and resources you need to most profitably operate and survive in a tough environment.  Everything that falls outside of the answers to these four questions should be jettisoned or shelved for now.

1. Stay very close to your customers.  Nurture them and protect them, visiting or talking to them almost daily.
2. Focus on your receivables.  The “squeaky wheel” gets greased, and if your client can only pay “3 of the 5 people they owe”, be in front of them so you are one of the three.
3. Closely monitor your cash flow and build as many multiple sources of cash as possible.
4. Your employees are scared.  Stay connected with them and communicate to them the current situation and projections for the business.
5. Upgrade your marginal performers.  Replace them and hire good people because they are available.  Good people are free – their production and return on their efforts exceeds what they cost.
6. Promote and sell in a crisis.  Focus on the markets where you are best, find opportunities in those markets, and sell to them.  Energize your sales team to do the same. 
7. Apply the 80 / 20 Rule to your business.  Focus on the 20% of the customers who give you 80% of your revenue and expand that customer base.  Look at your inventory and sell off the 80% of the inventory that is sitting there costing your money. 
8. Examine the price elasticity of your good inventory.  Determine if the solutions you offer can demand a higher price in the market (and more margin for you).
9. Take a look at all of the lines on your P&L.  Cut expenses where you can, e.g., renegotiate your leases and put in back-end payments for reduced current rates.

 

Lastly, don’t sit still.  Even in a down economy the idle will be passed by those that seek and seize opportunities.

Bridge the Gap for Small Businesses

 

All of us have heard about the $700 Billion bailout of Wall Street.  Regardless of your opinion of it, at least the federal government finally thought like an investor and took equity in the firms to which it was giving the money.  However, the fact that so much money is going to so few firms that collectively self-inflicted their financial calamities is bothersome, to say the least. 

 

I’ve got a suggestion that may make at least part of this bailout a little more palatable – set aside some of the money – say 10% or $70 Billion – for small businesses.  This is needed because the ripple effect of the Wall Street debacle is reaching small business in the form of tightening credit to no credit lines at all.  The banks screwed up, the small business owner is feeling the impact, and the small business should be able to benefit in some direct way from the rescue efforts. 

 

Make the money available in the form of mezzanine (or bridge) type financing.  Mezzanine financing makes sense because it is a hybrid of debt and equity financing. It is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies. So, when the banks finally get themselves sorted out in 1-5 years, they can then take over any remaining debt owed by companies.

Mezzanine financing is usually provided to the borrower very quickly with little due diligence on the part of the lender and little or no collateral on the part of the borrower.  This type of financing is usually aggressively priced with the lender seeking a return in the 20-30% range.   Since the credit crunch is not the fault of the small business owner, I’m suggesting the government offer this financing at much more attractive rates, e.g. around the prime interest rate, or at least the rate for preferred borrowers.  When the banks do roll the debt into their portfolio in the future, they have to honor the original rates.

 

There’s a lot of detail that needs to fill in under this idea.  But on a macro level it offers a sense of fairness, and frankly a better prospect for job creation and financial recovery than investing in Wall Street does.  At least the recipients of the funds are companies that manufacture things and provide services and hire people.

 

The federal government should, just one time, consider putting its money where its mouth is – invest in the small business sector at a level that is significant, timely and needed.  Most politicians say small business is the “engine” of our economy.  Well, it’s time to fuel that engine.

 

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