"Confidence in the economy continues to slide, according to the most recent surveys of CEOs. The Conference Board's poll of about 100 business leaders in a wide range of industries posted another decline in the third quarter, down to 44 from 45 in the second quarter (50 is neutral). Perhaps more relevant to the Lexington area is the Vistage CEO Confidence Index, which gathers the opinions of over 2,000 CEOs of small and mid-size companies across the United States. Such businesses account for 75 percent of all new jobs and contribute 50 percent of all sales revenues in the United States. The Vistage index also showed a drop in CEO confidence, down to 81.4 (versus 100 when the survey began in 2003). Leaders of small and mid-size firms are concerned with the availability and cost of capital, slower revenue and profit growth, and finding and retaining qualified staff.
Some businesses, particularly those with weak balance sheets, are hunkering down to weather the storm. Trimming expenses, delaying capital investments and shedding employees might be the right course of action for them in uncertain economic times. However, for companies with strong balance sheets and robust value propositions, now is the time to make hay. Let's consider several factors in the current economy and explore how entrepreneurial, growth-oriented business leaders might take advantage of prevailing economic conditions.
The credit crunch
While there is a liquidity crisis in certain segments of the global economy, the fact is that capital is available at reasonable rates for commercial borrowers with strong balance sheets and solid business plans. Stinging from bad loans, primarily in the sub-prime mortgage market, lenders are competing for high-quality loans on the local level. This may be a good time to finance an expansion, especially if capital equipment is purchased in the United States. Similarly, acquisitions should be evaluated, particularly of companies with solid assets (physical, commercial or intellectual) that cannot finance ongoing operations.
The weak dollar
Consumer and capital goods purchased overseas are more expensive due to the weakness of the dollar (and the rising cost of fuel for transportation). The cost of outsourced back-office services is also increasing, exacerbated by rising wages in countries like India. This would be a good time to dust off that business plan for increasing production in the United States. You may find customers who will transfer business to you at the expense of your weaker competitors.
The profit squeeze
Assuming you are pursuing a growth strategy, now is not the time to "cut spending." That is not to say that you should neglect productivity. In fact, there are always ways to improve productivity (of labor, capital, energy, space and time), no matter how efficient you think you are. If you doubt this premise, pay a visit to the Toyota assembly plant in Georgetown.
The slowdown
What to do when revenue growth declines? Crank up sales! Resist the temptation to accept orders at skinny margins and "make it up on volume." It doesn't work. This is the time to develop that marketing plan that you've been thinking about but never had the time to do. Marketing (not sales) is the process that results in a steady stream of qualified leads for your business. So, when sales are sluggish, you have ready access to new sources of revenue.
The shortage of qualified workers
There has been a shortage of qualified workers in the United States for most of the last decade. So, the best people are able to seek out the best opportunities. What are you doing to offer a secure and rewarding experience for current and prospective employees? Are you cutting costs, delaying capital investments, laying off staff and complaining about how tough the economy is? Or, are you empowering employees to work as teams to improve productivity? Investing to create new opportunities for your people? Adding only top-shelf team members who bring new talents and ways of thinking to your workforce? Communicating a compelling vision of growth in a sluggish economy?
Even though the Vistage CEO Confidence Index is at the lowest point in four years, 67 percent of CEOs expect to increase revenues, 55 percent expect higher profits, 40 percent will increase investment, and 53 percent will increase employment. So, if you need to hunker down to survive, I wish you luck. I've been there and feel your pain. But watch out for the entrepreneurial CEOs who will take advantage of current economic conditions to come out the other end bigger, stronger and more profitable. Carpe diem!
Louis Allegra is president of Allegra Management Consulting, Inc. He chairs CEO advisory boards in affiliation with Vistage International, the world's largest CEO membership organization, to help Lexington-area executives become better leaders, make better decisions and get better results. Lou can be reached Louis@AllegraManagement.com.