Stepping on the Accelerator
November 23, 2009
Case categories include: Operations Strategy & Planning
CEOs share insights and indicators about when it’s time to hit the gas
By Warren Lutz
Sam Allen is always thinking about how fast they should be going, but more often than usual these days.
“In the economic environment we’ve got today, it’s kind of a Catch-22,” said Allen (308), CEO of Burlingame-based ScanCafe, a photo scanning service. “Business is down, so to get it back up you need to invest – and then if you spiral downward, it scares you off.”
The question nagging Allen is the same that nags most CEOs. Whether it’s increasing your market expenditures, launching new products, considering an acquisition, or growing your team, everyone wants to know: When is it time to step on the accelerator?
Fortunately, the business signs that Allen relies on are crystal clear. Being an entirely online business allows the company to instantly gauge the results of its marketing efforts.
“I can track every order, and everything about every order, down to the customer,” Allen said. “I can cut the data any way I want. We basically manage the business on a week-to-week basis.”
“We’re a very metrics-driven business, he says. ”When you know your metrics pretty well, you know what kind of bang you’re getting for your buck.”
“It’s a matter of what switches you turn on,” Allen said. “We can look at what has been most profitable in the past, and focus on that, right out of the gate.”
On the other end of the spectrum—in the offline, manufacturing world—the signs aren’t as easy as calculating hit rates on a website.
Bentek, an electronic manufacturing services company that builds very complex electronic devices and equipment, began to see its business “start to tank” about two years ago, then fall off the table one year ago, said CEO Mitch Schoch (302).
“We were facing eminent death,” Schoch said. “It wasn’t just like a little slowdown; it was a complete shut down.”
The company headed into “lifeboat strategy,” Schoch added, reducing its headcount and cutting costs. But it also did something strange. Instead of hitting the gas, it found another road leading to growth: solar products.
“A year ago we began to look at designing our own products, private labeled, for the solar industry,” Schoch said. “We started building solar combiners, which makes electricity from solar arrays, and that business started to grow rapidly.”
Bentek found a partner interested in carrying its new product exclusively. Recently, the company shipped eight combiners. With its new business taking off, Bentek is seeing its old business pick up again, too. Orders have jumped between three to five fold.
But it’s stepping on the old accelerator slowly.
“We’re starting to look at bringing people in as contractors,” Schoch said. “Nobody’s really sure yet if this is a pick up in the economy, or if it’s a dead cat bounce.”
But even an upturn, he said, comes with challenges. “It’s the second worst environment,” Schoch said. “The worst is when we have no orders. The second worse is when we have an upturn. Our customers wait until the very last minute, and then they want it instantly.”
The question of when to step on the accelerator is a highly relative one. Some CEOs are already stepping on the gas. But in the recession’s wake, they are doing so with care.
Jim Finch (307), CEO of Los Gatos-based Amalfi Semiconductors, is at an enviable place. Amalfi’s revenues are growing fast, so Finch’s foot is on the accelerator. Just not all the way.
But what Finch sees in 2010—in particular, a growing demand for headset equipment, especially from China— leaves him optimistic.
“We are hiring at a slightly higher clip, but not aggressively,” Finch said. “We’re doing critical hires, but we’re not significantly growing or accelerating the head count.”
The company launched new products in the third quarter that “just had huge customer demand,” Finch said. “It just sort of went through the roof.”
Millie Olson (210), CEO of San Francisco- based Amazon Advertising, is also moving at full speed – and her attitude is also cautious.
“For us, the work has never slowed down,” Olson said. “We’re not doing huge advertising things, but we’re doing small things.”
Yet her business is very closely tied to the nerves of its clients, which have been shaky due to the economy. But like most CEOs, Olson is not prepared to fully accelerate until the overall climate improves.
In her words: “You don’t want to lose control of the boat.”
Don Massaro (Q100), CEO of Send- Mail, doesn’t place a lot of stock in economic indicators. “You can read all these statistics that the government has, and they usually go in reverse the next month,” he said.
Based in Emeryville, SendMail provides appliance-based products, applications and services that enable enterprises and government agencies to modernize their messaging infrastructures.
When the economy began to slow, Massaro began clamping down and went with a “flat” business plan—one that centered on no growth. The company has since made its first quarter, struggled in the second, and now looks to make the third.
But making a quarter isn’t automatic, even when planning for a flat year. To Massaro, that means that it’s not yet time to ramp things up.
“We’re going to be on the bottom for some time,” he said. “When it’s easier to close a quarter, then I think we’ll see more opportunities.”
On the other hand, Barry Karlin (Q100), CEO of Cupertino-based CRC Health Corporation, believes in keeping a “watchful eye” on certain indicators for signs of improvement in the economy.
When the economy fell, Karlin saw an immediate decline in private payers seeking treatment. “To the extent that they could defer treatment, they’d rather not spend any money,” he said. When that trend turns around, it may be a sign to hit the gas, he said.
Timing is everything, Karlin added. “If it’s too soon, you could be making investments that don’t bear any fruit,” he said. “If your timing is reasonable, at the moment you’re doing it, it looks a bit odd. But of course, six months later, when the market starts to turn around, you’re in a really great place to capitalize.”
Warren Lutz is Editor of the Alliance of Chief Executives newsletter. He may be contacted at firstname.lastname@example.org.