“Dear Stan,
I’m CEO of a specialty adventure touring company which I and two others founded in 2006. While I had about a dozen years of experience in the industry prior to founding this new business, I had never led an organization that had outside investors. Myself, friends, family and other people we invited put several million dollars into the company to get it going. We had great plans for multiple locations in major markets and a good return for our shareholders. With the economic challenges we are facing now, there is little chance that our expectations will be met for several more years.
Our one location may not even survive and the investors are understandably concerned. I’m also seeing fracturing of the board, with some directors battling others, and all directors looking to me for the answers. Lately I’ve been feeling less confident of my abilities and I tend to bury my head in the daily work, not wanting to look up and see the complexities around me. Am I merely tired after years of exhausting work, or am I just not cut out to be the CEO?
Signed,
Swamped in the Swamp”
Dear Swamped,
You won’t know whether you’re cut out to be a CEO until after you finish living (and leading) through this economic trough. As many have said before me, it’s easy to lead in good times. But you don’t get your “stripes” as CEO until you’ve led through at least one recession in your industry.
By your years of experience, I’d guess you are in your mid-thirties. That means you began your career at the start of one of the longest periods of prosperity in American history. Between about 1993 and late 2008, there has been only one mild dip in the nearly linear growth. That growth may have been fueled by massive borrowing (in the form of our trade imbalance and our government deficits), but it has been growth nonetheless. The conditions that you have experienced have ill-prepared you for the challenges of hard times. That doesn’t mean you can’t learn, and it doesn’t mean you are incompetent as CEO. It just means you better learn fast.
In recent years, I have worked with several companies who asked for strategic advice. Having a career that spans multiple business cycles allowed me the perspective to see what was coming, so I advised these organizations to do three things: cut costs, maintain positive cash flow and focus on profitability. Six years ago, nobody was listening. Five years ago, nobody was listening. All of them had built their companies in the last twenty years. No one saw the urgency I tried to convey. But towards the end of 2007, some started to slowly wake up. As 2007 turned into 2008, and the slide continued, they began to take action. One waited too long and is now faced with potential bankruptcy. Some of the others are not yet out of danger.
By the time I started my first company, I had already experienced three recessions. And I began my entrepreneurial adventure just as we entered another sizable one, at the end of the Cold War. If I had to point to one over-arching factor in why my companies have done alright, it’s the advantage I had by having to learn how to build a business in hard times. It didn’t feel very advantageous while I was immersed in it, mind you, but in retrospect, it was a great boon.
In difficult economic periods, we learn the fundamentals of building a successful business, one that can be healthy in bad times and therefore perform well above peers in good times. Those fundamentals are simple to understand, and not so simple to employ. It’s easy to note that a company must offer a product or service that has market demand and which is differentiated from competitors in price and/or performance. Not so easy to do. It’s straightforward to suggest that positive cash flow and profitability will ensure the best credit terms available and an operating cushion during unexpected downturns. It’s hard to keep one’s eye on that objective when it seems that tomorrow’s revenue will continually exceed today’s.
My advice to you, Swamped, is similar: simple to understand, hard to do. Focus on those three things, i.e., reducing expenses, maintaining positive cash flow and ensuring profitability. That means you’re going to have to make hard decisions about compensation, negotiate with your landlord to reduce your rent, ask vendors for retroactive discounts and better terms going forward, and thus give yourself the margin room to be able to cut prices while maintaining top quality of your offering. You’re going to have to tell your directors to quit squabbling about their unrealized expectations, and inform them that the new strategic plan is “Stay in Business”.
And you’re going to need to quit questioning your own abilities. If you have the smarts, guts, drive and knowledge to start a business like yours, then you have the ability to learn and apply the invaluable lessons that only come during times like these.