Hanging Tough When Things Get Rough
With signs appearing that the U.S. economy may have bottomed out, you might expect to hear a collective sigh of relief from the nation's business leaders. It hasn't happened yet, however. Economists predict an upturn in 2002, but they aren't being very specific about when. And after the unthinkable has taken place -- terrorists killing thousands on American soil and the nation's seventh-largest company imploding in the biggest bankruptcy in U.S. history -- it's hard not to wonder what the next shock will be.
There has rarely been a more perilous or unpredictable time to be a top manager. Bank on better times in the near term by launching new products, building up inventories, or adding staff and you risk overextending if the economy doesn't pick up. Fail to adequately anticipate the rebound and your company could get caught flatfooted, losing sales, customers, and perhaps employees to rivals.
"People who hunker down too much can miss opportunities or miss moves that their competitors make," says Russ Hagey, managing director of consulting firm Bain&Co.'s Los Angeles office. "When things improve, [such companies] will find themselves vulnerable."
So what's a manager to do to make it through uncertain times? Execs are coming up with many answers to that question -- and displaying a degree of ingenuity last seen a decade or more ago.
CROSS-TRAINING. One example is Harry Gruber, chief executive of Kintera, a privately held San Diego company that sells software used by nonprofit groups doing online fund-raising. Gruber's strategy: "Hope for the best and prepare for the worst." So far in 2002, Kintera has already received commitments from more than 1,700 customers, vs. the 100 or so it got last year after launching the product. But until the cash actually arrives, Gruber is wary of expanding. So he's finding ways to work with what he has.
To handle the surge in demand, he has cross-trained his administrative staff as customer-service reps, essentially enlarging that group to nine employees from six without increasing expenses. "We are planning for how to grow," he says, "but we are not prepared to open the spigots and spend a lot of money."
Many execs have turned unusually cautious, says Paul Bernard, a career coach who counsels mid- to senior-level executives, mainly in the Northeast. "I've never seen clients so anxious before," says Bernard, president of Paul Bernard&Associates in New York. "They're scared. Many are saying that the skills they have don't seem to apply anymore."
MANAGER BE NIMBLE. Their fears could be well-founded. During the boom years of the late '90s, Bernard says, companies made do with one-note managers -- financial wizards or tech gurus, for instance -- who might be minor geniuses in their fields but didn't know much about anything else, such as sales or leading people.
When times were good, a misstep or two with a new product or service was rarely fatal, since a bustling economy hid all manner of sins and venture capital flowed like champagne at a wedding. Today, though, "you don't have much wiggle room," Bernard says.
Now, especially in the wake of the Enron accounting scandal, Bernard says the 21st century requirement is for managers who clearly understand what really goes on inside their business. They also must be nimble generalists who can motivate employee teams to produce as efficiently as possible -- and have the ability to change directions fast. Notes Bain&Co.'s Hagey: "You have to be ready to invest if there are signs of a turnaround. But you have to have the flexibility to pull back if there continue to be bumps in the road."
THEN -- AND NOW. Paul Thiel, chief executive of TruCost Food Systems, a San Diego provider of information to the food-service industry, sees that as a delicate balance. Thiel wants to position TruCost, which sells pricing information on perishables used by restaurants and other food companies, as an intermediary that could help purchasing departments negotiate better deals with suppliers. To do so, however, would mean hiring perhaps four more employees. Without a contract in hand, Thiel feels he would be foolish to bring more folks on board just now -- a risk he says he might have taken in boom times.
Yet Thiel doesn't want to miss out on the opportunity should he find a taker. So he's keeping his options open by talking up his new service -- and continuing to interview potential employees. "In addition to pitching the service to clients, we also have a supply of labor already identified and courted," he says. "So if someone said tomorrow, 'We want the service,' we could turn it around in two weeks. That's the only way to do things at the moment."
Now isn't the time to be driving full-bore into a new business, agrees Eric Kintz, who heads the San Francisco office of consulting firm Roland Berger. "The best thing to do right now is really focus on your core business and be the best in terms of cost management, battling your competitors, and identifying areas of growth for the future," he says.
SARDINE-STYLE. Often, that means getting by with fewer employees, though managers also have to be on the lookout for signs that they're running staffers too ragged. "If you've had layoffs, there is a tremendous burden on the walking wounded who remain," says Bernard. "You can't assume that everyone will be grateful just to have a job. If you put too much pressure on the superstars who are left, they will walk."
How do you prevent that? Gruber is mindful that his 67 employees, motivated as they may be by the thrill of contributing to a new enterprise, still need a little extra incentive. And it isn't enough for them to know that Kintera, which recorded less than $1 million in revenue last year, has been lucky to avoid layoffs thanks in part to venture-capital funding that Gruber says should keep his company humming until it goes public, perhaps later this year. So Gruber has decided to boost compensation in another way: by distributing additional shares in the fledgling company. Says Gruber: "We aren't using up cash, but are still rewarding performance."
Indeed, managing in these times often means putting off expenditures that would have been routine in less volatile times, managers and other experts say. Kintera's staff is jammed into 4,500 square feet in an office tower in San Diego's high-tech enclave, Gruber says. Ideally, his workers need a space twice that size -- about 150 square feet per person, he says. There's room to grow on his floor, thanks to the dot-com collapse, and Gruber may one day grab the additional space. But not until he's sure more business is coming in.
SAFE BETS. In fact, one thing the current environment has proven is that the smartest bets today are sure things -- or as close as you can get. Paul Pruett, chief operations officer at ZonePerfect Nutrition in Boston, says his company has adjusted its marketing strategy to ensure a better chance of getting a payoff. The company, which makes nutrition bars and other food products, has shifted dollars from advertising into promotions that allow retailers to price its products more aggressively. In tough times, "people tend to move a little away from premium-price products," says Pruett. Combating that tendency with promotions "obviously helps increase unit sales," he adds.
In an age of so much uncertainty, the most successful managers will be the ones who can quickly come up with novel solutions to old problems. Although the economy appears to be on a path to recovery, there also seem to be plenty of booby traps along the road.
"The ability to deal with ambiguity is the key skill that all senior managers are going to need moving forward," says Bernard. For managers used to operating in a straightforward environment, that could be a sobering change
There has rarely been a more perilous or unpredictable time to be a top manager. Bank on better times in the near term by launching new products, building up inventories, or adding staff and you risk overextending if the economy doesn't pick up. Fail to adequately anticipate the rebound and your company could get caught flatfooted, losing sales, customers, and perhaps employees to rivals.
"People who hunker down too much can miss opportunities or miss moves that their competitors make," says Russ Hagey, managing director of consulting firm Bain&Co.'s Los Angeles office. "When things improve, [such companies] will find themselves vulnerable."
So what's a manager to do to make it through uncertain times? Execs are coming up with many answers to that question -- and displaying a degree of ingenuity last seen a decade or more ago.
CROSS-TRAINING. One example is Harry Gruber, chief executive of Kintera, a privately held San Diego company that sells software used by nonprofit groups doing online fund-raising. Gruber's strategy: "Hope for the best and prepare for the worst." So far in 2002, Kintera has already received commitments from more than 1,700 customers, vs. the 100 or so it got last year after launching the product. But until the cash actually arrives, Gruber is wary of expanding. So he's finding ways to work with what he has.
To handle the surge in demand, he has cross-trained his administrative staff as customer-service reps, essentially enlarging that group to nine employees from six without increasing expenses. "We are planning for how to grow," he says, "but we are not prepared to open the spigots and spend a lot of money."
Many execs have turned unusually cautious, says Paul Bernard, a career coach who counsels mid- to senior-level executives, mainly in the Northeast. "I've never seen clients so anxious before," says Bernard, president of Paul Bernard&Associates in New York. "They're scared. Many are saying that the skills they have don't seem to apply anymore."
MANAGER BE NIMBLE. Their fears could be well-founded. During the boom years of the late '90s, Bernard says, companies made do with one-note managers -- financial wizards or tech gurus, for instance -- who might be minor geniuses in their fields but didn't know much about anything else, such as sales or leading people.
When times were good, a misstep or two with a new product or service was rarely fatal, since a bustling economy hid all manner of sins and venture capital flowed like champagne at a wedding. Today, though, "you don't have much wiggle room," Bernard says.
Now, especially in the wake of the Enron accounting scandal, Bernard says the 21st century requirement is for managers who clearly understand what really goes on inside their business. They also must be nimble generalists who can motivate employee teams to produce as efficiently as possible -- and have the ability to change directions fast. Notes Bain&Co.'s Hagey: "You have to be ready to invest if there are signs of a turnaround. But you have to have the flexibility to pull back if there continue to be bumps in the road."
THEN -- AND NOW. Paul Thiel, chief executive of TruCost Food Systems, a San Diego provider of information to the food-service industry, sees that as a delicate balance. Thiel wants to position TruCost, which sells pricing information on perishables used by restaurants and other food companies, as an intermediary that could help purchasing departments negotiate better deals with suppliers. To do so, however, would mean hiring perhaps four more employees. Without a contract in hand, Thiel feels he would be foolish to bring more folks on board just now -- a risk he says he might have taken in boom times.
Yet Thiel doesn't want to miss out on the opportunity should he find a taker. So he's keeping his options open by talking up his new service -- and continuing to interview potential employees. "In addition to pitching the service to clients, we also have a supply of labor already identified and courted," he says. "So if someone said tomorrow, 'We want the service,' we could turn it around in two weeks. That's the only way to do things at the moment."
Now isn't the time to be driving full-bore into a new business, agrees Eric Kintz, who heads the San Francisco office of consulting firm Roland Berger. "The best thing to do right now is really focus on your core business and be the best in terms of cost management, battling your competitors, and identifying areas of growth for the future," he says.
SARDINE-STYLE. Often, that means getting by with fewer employees, though managers also have to be on the lookout for signs that they're running staffers too ragged. "If you've had layoffs, there is a tremendous burden on the walking wounded who remain," says Bernard. "You can't assume that everyone will be grateful just to have a job. If you put too much pressure on the superstars who are left, they will walk."
How do you prevent that? Gruber is mindful that his 67 employees, motivated as they may be by the thrill of contributing to a new enterprise, still need a little extra incentive. And it isn't enough for them to know that Kintera, which recorded less than $1 million in revenue last year, has been lucky to avoid layoffs thanks in part to venture-capital funding that Gruber says should keep his company humming until it goes public, perhaps later this year. So Gruber has decided to boost compensation in another way: by distributing additional shares in the fledgling company. Says Gruber: "We aren't using up cash, but are still rewarding performance."
Indeed, managing in these times often means putting off expenditures that would have been routine in less volatile times, managers and other experts say. Kintera's staff is jammed into 4,500 square feet in an office tower in San Diego's high-tech enclave, Gruber says. Ideally, his workers need a space twice that size -- about 150 square feet per person, he says. There's room to grow on his floor, thanks to the dot-com collapse, and Gruber may one day grab the additional space. But not until he's sure more business is coming in.
SAFE BETS. In fact, one thing the current environment has proven is that the smartest bets today are sure things -- or as close as you can get. Paul Pruett, chief operations officer at ZonePerfect Nutrition in Boston, says his company has adjusted its marketing strategy to ensure a better chance of getting a payoff. The company, which makes nutrition bars and other food products, has shifted dollars from advertising into promotions that allow retailers to price its products more aggressively. In tough times, "people tend to move a little away from premium-price products," says Pruett. Combating that tendency with promotions "obviously helps increase unit sales," he adds.
In an age of so much uncertainty, the most successful managers will be the ones who can quickly come up with novel solutions to old problems. Although the economy appears to be on a path to recovery, there also seem to be plenty of booby traps along the road.
"The ability to deal with ambiguity is the key skill that all senior managers are going to need moving forward," says Bernard. For managers used to operating in a straightforward environment, that could be a sobering change
