When Down Turns Up

February 12, 2009

Case categories include: Strategy & Planning   

These CEOs aren’t waiting until times get better - they’re preparing for them now.

By Warren Lutz

When asked what his company is doing to prepare for the next upturn in the economy, Peter Sortwell (Group 107), CEO of Arborwell, a commercial and residential tree care company, couldn’t help but chuckle. “We’re just trying not to dis-improve!” he said.

The joke was a brief reminder that these are not easy times for CEOs. But Sortwell and other members of the Alliance of Chief Executives aren’t content merely riding out the current economic storm. These leaders are acting—right now—to gain advantages for when the financial cycle is back on the upswing.

For many, the first order of business is taking a look at prices. Sortwell compares his numbers with his competition’s, because he knows his customers are shopping around. “Everyone is going out and getting other numbers,” he said. “We’re just having to sharpen our pencil just a little bit more.”

Others are looking for ways to keep prices low. “We know that we have to be able to hit aggressive price points,” said CEO Paul Levitan (Group 212), CEO of Richmond-based Galaxy Desserts, a leading U.S. producer of individual gourmet desserts. “That means, for us, that we have to get even better at our manufacturing process and reduce our relative cost position.”

Along with competitive pricing, smart CEOs recognize this is no time to ignore client needs in general. “We’re reaching out, making sure we understand their business, understand their challenges, and to the extent we can, react,” said Mike Gregoire (Q100), CEO of Dublin-based Taleo Corporation, the leading provider of on-demand talent management solutions.

“We think that pays off in customer satisfaction and long-term goodwill,” Gregoire added. “What a lot of companies will do is to lower head count in customer support… In my opinion, that is a negative spiral.”

David Hayes (Group 272), CEO of San Francisco-based Skyline Construction, did something odd, considering the current financial climate: His firm increased its sales and marketing budget 25 percent.

When projects start back up, Hayes hopes Skyline—a full-service general contractor committed to green building—will be the first one his customers remember. “We feel this is the time to spend more money on the relationships you have.”

How did Hayes afford it? Skyline had planned “a very large office expansion,” but nixed it and redirected the funds. “We decided to stay lean.”

Besides buckling down, however, some CEOs are making moves on offense, as well. Recruiting is popular, as savvy leaders know there’s some top talent available right now.

“We’ve taken on two or three people from other companies that were let go,” Sortwell said. “It’s probably, in the short term, not a smart move for us. But in the long term, we’ll have more talent to take advantage of.”

Skyline is on “a really aggressive recruiting run,” says Hayes. “We think it’s going to be a great year to steal talent.”

Hayes’ company is hiring only LEED AP construction management grads and placing them in LEED projects to get real experience. “We became a certified Green Business to walk the walk and attract talent,” he said.

For some, it’s also a good time to be looking for acquisitions and partnerships.

Levitan said his company is “always” looking for deals. “We see an even bigger opportunity now, since some of our competitors may be retrenching and just trying to survive,” he said. “We’re in a strong position. I’m sure some of our competitors aren’t… We want to be aggressive out there, and build a business.”

JR Matthews (Group 305), a principal at Tregaron Capital Company, stressed the importance of being careful making deals in the current economic environment. “Actually we’re very skeptical about the revenue claims of companies we’re ready to buy,” Matthews said. “But then, we’re looking heavily at acquisition opportunities right now.”

Tregaron, which invests in small to mid-sized companies with EBITDA between $2 and $10 million, said when competition closes down, it creates a “better landscape” in which to compete. “That’s a little Darwinian,” Matthews said. “But that’s the nature of business, right?”

However, it’s clear that a major focus of these CEOs is on improving from within, with strategies focused on implementing more efficient communications and better organizational structures.

Andy Coan (Group 305), CEO of San Mateo-based network service provider Splice Communications, said his company plans to “really focus and double our efforts” in the New Year, including cross-training staff and becoming “a potently lean and efficient company.”

“Another key business practice will be to thoroughly track performance across all segments of our business, and make very quick business decisions in 2009,” Coan said. “Businesses cannot afford to delay decision-making in this uncertain economy.”

Others find it a great time to restructure. At the beginning of the year, Skyline Construction switched to a “pod” management structure, creating teams focused on their specific areas that run their own P&L.

The goal is two-fold. “We are hoping to capture the entrepreneurial fire of a small start up team for each pod and hopefully grow them into strong business units,” Hayes said. “The other goal, he said, is preparing senior management to take on new business ventures in the future.

Staff retention is also a key focus. In an uncertain economy, there is always a threat that a top member of your team could leave.

According to Gregoire, the loyalty of Generation ‘Y’ employees can be fragile. They’ll move on if they are feeling they can’t “win” – which means Taleo is trying to be as transparent and communicative as possible. “We are properly picking up the cadence of our communications, and celebrating our wins a little bit more robustly, and being very careful with where we spend our money,” Gregoire said.

Although Galaxy Desserts has gotten more conservative with salaries and bonuses, it has “re-instituted” a “daily huddle” for senior staff. Levitan said it’s been energizing.

There’s a few simple rules: The meeting lasts five to ten minutes. No one can sit down. There are three agenda points. Everyone gives a quick update on what they’re doing. “We know we have to be able to react quickly to take advantage of opportunities,” Levitan said. “Great internal communication is vital.”

Sadly, letting people go is sometimes vital, too.

“We’ve taken an opportunity to really look hard at the company and see where we’re weak,” Levitan said. “We let a few people go who just weren’t doing a great job… You gotta make sure everybody’s pulling their own weight.”

By aggressively focusing their organizations on better times ahead, these CEOs are certainly doing their share.