Thinking Downturn - Or Up?

May 01, 2008

Case categories include: Strategy & Planning   

By Warren Lutz
Alex Dodd (Group 272) sees nothing wrong with the economy – at least on the surface.  When he walks down the street from the offices of M Squared Consulting, Inc. in San Francisco, where he serves as president and CEO, the retail stores look full. So do the restaurants.  It’s when he talks to business owners that he uncovers the real story: Everywhere he goes, sales are generally down 20 percent.

Among many of today's CEOs, there is growing uncertainty with the economy.  Stocks are struggling, while gas prices and the U.S. home foreclosure rates are going through the roof.

American businesses are starting to cut travel budgets, according to member Michael Depatie (Group Q100), CEO and president of San Francisco-based Kimpton Hotels & Restaurants.  “We’re starting to feel a little bit of deterioration,” Depatie says, adding the hotel industry generally lags three months behind the rest of the economy.  “It’s like we caught the virus but we don’t know when we’re going to get sick.”

There is little Depatie—or any CEO—can do to control general economic trends. But there are plenty of things CEOs can do to offset the impact on their own company.  Kimpton is offering “more aggressive” prices and Depatie got his team to help out.  “I asked all my senior executives to go back and look at each of their businesses and take ten percent off,” he said.

Planning helps companies navigate through a downturn in the economy.  John Rule (Group 108), president and CEO of Applied Aerospace Structures Corp., says funding for aerospace programs and services is being delayed.  But AASC, having weathered down times before, continually looks for ways to limit costs and mitigate market risk.

A decision two years ago to self-insure its workers proved to be a money-saver. The company also worked to diversify its products and client base. In the early 1990s, Boeing represented 80 percent of AASC’s business, compared to only 8 percent today.  “We will always reduce staff if it becomes necessary,” Rule said. “However, our last layoff was about four years ago. This is pretty good for our business, and I attribute (our) diversification efforts to minimizing layoffs.”

Diversification also helped San Ramon-based Carpenter/Robbins Commercial Real Estate, according to company principal John Carpenter (Group 105).  Carpenter/Robbins’ client mix includes customers from both public and private sectors.  And the financial health of government-run entities is more stable and often runs “counter-cyclical” to the overall economy.  “That stability allows us to respond to more private sector clients when they have needs,” Carpenter said. Because private industry is most heavily impacted by the downturn, he said, “we’re actually staffing up” to help clients in that sector.

Wait a sec. Hiring? With a recession looming?

That’s right. And Carpenter is not alone. In fact, Doug Dolton (Group 271), CEO at peer-to-peer lending company Zopa, is also growing his team. Turns out the credit crunch brought on by last year’s subprime mortgage mess eliminated many of Zopa’s competitors.  “It’s nice to be in a position to hire people when other people are letting them go,” Dolton said. “We’re actively recruiting now with that in mind.”

Even companies like Zopa are not cloaked from economic storms. Yet most CEOs interviewed for this story saw just as many opportunities in a challenging economy as they saw obstacles.  For example, Kimpton Hotels & Restaurants just acquired $250 million in funding with the intention of buying hotel properties and increasing market share, Depatie said. “We’re in an awfully good position,” Depatie said. “I’m trying to figure out what to wish for here.”

Other companies, such as San Francisco-based electronic direct mail firm Vertical Response, are looking at ways to capitalize on the economy by weaving the business climate into marketing.  “We’re looking at opportunities to get in front of small businesses and say, ‘Hey, we have a solution for you in this downturn, and it’s not going to cost you as much money,” said Vertical Response, CEO, president and co-founder, Janine Popick (Group 202). 

After seven years of mostly online advertising, Vertical Response is beginning to take its marketing dollars offline. It’s spreading word of its value proposition on buses and even through a street team.  “I would never go so far to say we’re recession proof,” Popick said. “There may be a lessening of demand … but we’re not going to stop.”

Takeaways:
• Planning ahead eases the impact of an economic downturn on your business.
• A slowdown in the economy often brings opportunities to increase market share.
• If a poor business climate makes your company the best choice in your market, say so!