Rules of Business Permanently Changed - It’s Time for a Strategy Tune-up

Today, the worst thing executives can do is cut their way to prosperity. Leaders which believe in aggressive cost management as the primary tool in their company’s strategy are missing the forest for the trees. The side benefit of global economic implosion is the spotlight on excessive spending practices has been brought into focus. But this focus on lack of effective cost controls and the required changes to bring them in line should have been addressed when times were good.

It is amazing how some marquee companies have become bloated. What is really annoying to me is that they have taken advantage of writing off the “one time” costs of these reductions when they believe that Wall Street will give them a “hall pass” on the company’s valuation. Some even had their valuations increase as a result. It’s just nuts. They should have taken the opportunity to shed unnecessary costs when times were good. “Annual” Wells Fargo Executive Planning Meeting in Vegas? – need I say more!

In my conversations over the last week with CEO’s, one of the key takeaways was the business landscape has permanently changed. Changes that will shape the future are:

- As customers come back to the table, they will be more selective and will request better value from their purchases.
- Industry competitors and partners are changing position on the “strength chart” or are disappearing all together.
- Government intervention and control across the globe is increasing.
- Large pools of experienced talent are readily available.

True visionary leaders will seize this opportunity and take advantage of changing market conditions to revise their strategies adapting to the new business landscape. Others will make selective adjustments (“pruning the trees”) to their business in hope that minor changes will get them through another quarter.

With the true impact of the U.S stimulus package and changes in the tax laws unknown, it is clear that the new business rules are still under development. This uncertainty in rules of engagement is causing individual and small investment funds to hold back from financing start-ups and early funding rounds. This ambiguity will clear as the true impacts of these changes are understood. It could be sooner than most economists think. Perhaps as soon as the 3rd quarter of 2009. People of wealth are fed up with investment returns of less than 5%. They certainly won’t go back to investing in the stock market where they have no say over how their money will be used. That would be just crazy!

The time to set a new course for each business is now while the road is being paved and the sign posts are being installed. These new rules of the road will allow a clear view of the forest without getting distracted by the need to trim every tree along the way. I am convinced this is the right time for each business to take a serious look at their strategic plans. Making any necessary revisions required to leverage the changing business, competitive, and legislative landscapes. This review needs to examine all areas including people, product, and operating model assumptions to create a holistic foundation to move our industries forward – to keep a “forest” view of what is important. Sound strategic vision and plans will lead to a focus on growing our way out of this funk.

If you agree, dust off that strategic plan and take a hard look at where your assumptions need to change. If not, go back to sleep. We will see who comes out of the gate ahead with a clear path on this virgin road when the money to fuel growth starts flowing again. Let me know if you agree with my assessment or have a different viewpoint.

How the Business Landscape has Changed – In More Ways than You Realize!

I woke up today and realized the business world had changed for the better. You are likely saying to yourself that I am nuts. With unemployment up to record levels and consumer spending still depressed, what must I be thinking? But a newly available talent pool created by this craziness is a good thing for America. Let me tell you why I am so optimistic about the future.

Just eight short months ago, our business landscape looked like a normal bell curve. We had 70% of our enterprises working against their approved business plans. We had 15% of the players that were upping their sights on something more aggressive. Additionally, there was 15% of the business population in trouble. The landscape reflected the chart below with the majority of great talent locked in their existing organizations.


Wow, what a difference a few months made. The companies just “working to plan” has dramatically shrunk to 20%. The number of companies in trouble has tripled to 45%. But the number of companies that are aggressively re-positioning themselves has grown to 35%. That reflects more than a 200% increase in companies that are poised for substantial growth. Why are they well positioned? Strong Balance Sheets! The business landscape today is reflected in the chart below and has several very important silver linings including a wealth of available, motivated, and highly qualified talent.

Two key lessons to learn from this current challenge come from history. One, the majority of new job creation as we climb out of this recession will come from smaller/start-up companies, not large coporations. Two, great new companies are born from economic downturns. And with the shift in talent pools and capital focus, now I understand why.

All the ingredients necessary to form great companies are just starting to come together. Great talent combined with innovative ideas with access to capital can do great things. Let’s take a quick look at why each of these ingredients is becoming available.

· Great Talent – I have had a chance to spend time with many displaced leaders and employees over the last few months – this is a very talented group and not like “reductions-in-force” in the past where the poor talent was being released. This time entire business units are being shutdown freeing up great talent.

· Innovative Ideas – We have seen a number of significant game changing ideas in clean energy, bio-technology, environmental management, and communications that are poised to make real differences in the world. These new solutions along with a changing political landscape create a great opportunity to solve new problems with government alignment and sponsorship.

· Access to Funding – Available funding for start-up companies and expansion round needs for growth companies is just coming back to the market. These companies are not funded by the large venture capital or private equity firms, but gain their funding from small investor groups or individual angel investors. These smaller investors are just returning to the investment game after getting burned last year by their institutional investments. They are ready to move from Cash and Treasury Bonds to something with a better return potential. But that money is not going back to Wall Street. They will be investing a lot more into smaller companies where they can develop personal relationships with the founders and potentially have a greater say about how their investments are leveraged.

I am convinced that the human spirit in this displaced talent pool and those who believe in “what can be” will turn this country around. I just hope that the new administration appreciates the lessons of history and places some of this “bailout” investment money into where real jobs will be created – the small business market. What do you think about my reflection on the current business environment? Are the large markets (New York, Los Angeles, Boston, etc.) significantly different than the middle market cities (Denver, Kansas City, Dallas, Silicon Valley, etc.)? I look forward to your thoughts and comments.