John Vespasian - SURVIVING DIFFICULT ECONOMIC TIMES: HOW TO AVOID EXCESSIVE RISKS

Change is great. We all love to see people try to improve things. Where would we be without adventurers and risk-takers? If you are in search of glory or wish to make a fortune, it obviously pays to be first. Nevertheless, during an economic depression, it can happen that early birds just get eaten first.

That does not mean that we should be sceptical about innovation, but only that, when money is tight, it is advisable to be extra careful. If you are running a business these days, you are probably watching your cash-flow like a hawk. Well done. My guess is that, right now, you need to make a major mistake like you need a hole in your head.

Managing a company in recession mode demands more of the ant than of the grasshopper in our souls. When the market recovers, there will be plenty of time for taking bold risks. In the meantime, a miser's frame of mind might be what you need to ensure business survival. In my view, in difficult times, one should keep in mind the following three principles:

1.- MAKE PRODUCTS FOR EASILY ACCESSIBLE MARKETS. If you are running a specialist service company in Minnesota, forget about the Chinese market for the moment. Chances are that you'll be able to detect better opportunities if you concentrate your attention on people next door. Transportation costs money and communication takes time. In times of deep economic trouble, I believe in focusing all efforts on the easiest markets and putting aside, temporarily, risky expansion ideas.

2.- USE QUALITY TO SAVE YOU MONEY. If you are delivering services, such as painting houses, what level of quality should you try to achieve? How often do you give grounds of complaint to your customers? If your answer is never, you are doing great. If not, that might be good news as well. Quality improvements, as perceived by customers, often involve negligible costs for business. Delivering impeccable quality saves you money. For this reason, during an economic recession, I wouldn't recommend launching new products with potential quality problems that might take you down beyond hope of recovery.

3.- EVALUATE EVERY COST AS AN INVESTMENT. An economic recession blurs the line between fixed and variable costs, production and overhead. When money is tight, you need to take immediate decisions about where your cash is going. Evaluating every expenditure as an investment is a technique that brings about outstanding results. Is your inventory going to make you a profit within the next two months? Which steps of your process could be eliminated without negative impact for customers? In periods of crisis, one should eliminate investments in new technologies with long payback periods, since they might eat up the cash that you need to survive right now.

When you look around and see people going bankrupt, it is not unwise to become risk-shy.

* Before you explore new countries, take a walk down the street.
* Before you invest in new technology, make sure that you can afford it.
* Before you take additional cargo, stabilize your ship.

One day, hopefully soon, the storm will be over and we will be able to go back to plain sailing, bold innovation, and massive expansion.

[Text: http://johnvespasian.blogspot.com]

[Image by tifotter under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]