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What should a Technology Company do in a Stagnant Economy?

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By Scott S. Elliott, Principal and Founder, TechZecs LLC

The economy is slow and maybe your sales are flat. There is much uncertainty in your market and in the world economy.  What strategic steps should you take to protect your market share and brand? Here is our advice:

1. Manage cash flow carefully.

2. Get flexible.

3. Plan some scenarios.

4. Retool for the next upcycle.

5. Look for opportunities.

 

1. Manage cash flow carefully.  In this economy, cash is king and should be used wisely. We are not saying to stop spending, just minimize spending on unnecessary items. For example, you can minimize employee travel and instead use videoconferencing and internet communication tools such as GoToMeeting and Webex. When used properly, these tools can be nearly as effective as face-to-face communications and avoid the high cost, time consumption and stress of travel. There also may be opportunities to defer spending on construction of new facilities, postpone buying capital equipment that is not absolutely necessary, etc. Do whatever is necessary to keep a positive cash flow position.

2. Get flexible. If you have attrition or need new workers, think about hiring contract workers, outsourcing or partnering with other companies. A good rule of thumb during a recession or stagnant economy is 50-50; half employees and half temps or partners. Permanent employees are needed to keep your company culture and intellectual property fresh and growing, and to maintain your core competencies. But much of the work does not involve a core competency and can be done by non-employees.  Contractors and consultants may seem to cost more per hour, but generally they net-out to about the same cost when you factor in overhead expenses such as employee support costs, benefits and paid vacations. Having a "stable" of good contract workers and partners and knowing how to manage them wisely puts you in a great position to thrive through a roller-coaster economic situation.

3. Plan some scenarios. Convene the strategic management team and run through some "what if. . ." scenarios.  Pick at least three scenarios: a) What if our sales decrease by 50%? b) What if the sales stay (or become) flat?  c) What if sales double suddenly?  You might have other scenarios specific to your type of business or market; like potential regulatory changes, federal budget changes, etc. Play out those scenarios and decide in advance what your company would do. Then define the trigger points.  For example, if orders slipped by more than 10% for three straight months, that might trigger your plan for the disaster scenario. If you did a good job of getting flexible, you should be able to manage well through any of the scenarios.

4. Retool for the next upcycle. Here is our law of economic gravity: what goes down must come up! The only questions are: when and how far up? If you are managing flexibly through the down or flat cycle, you should be confident that you will survive and start planning for the next growth cycle. The best way to do that is to review your Value Propositions and your Value Delivery processes. Use any excess management and worker mindshare and capacity to improve those key business fundamentals.  Doing so has the side benefit of improving morale in your company.  If you show your team that you are confident in the future and engage them to participate in preparing for the next upturn, they will return your trust with full energy and productivity.

5. Look for opportunities. The chances are that some of your competitors will not be so successful in managing through the turmoil. You can use your positive cash position to acquire market share, IP, and resources at very low cost.  Also, re-scan the market to  see if new opportunities have developed. Look for these opportunities and be ready to act.

If you are in a good cash position, economic stagnations and downturns do not have to be a nightmare. They can present a great opportunity to increase your management agility and flexibility, increase your market share, and be in a stronger position for the next upturn in your market.

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1 comment

  • Comment Link Patty Azar Friday, 02 September 2011 18:36 posted by Patty Azar

    This is a great time for Technololgy to align with every business unit to uncover ways to lower the cost of customer acquisition, improve customer loyalty, while at the same time ensure the product roadmap supports the revenue-producing business units. Plus, it should align with the servicing units of the organization, by providing ease-of-use tools to reduce churn, and improve customer retention. With all of this said, in parallel, all internal systems must be built to ensure scalability and ease of use for the employee, which directly impacts COA, customer loyalty and life cycle of the customer.

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TechZecs, LLC
1730 Kearny Street,
Suite F-3
San Francisco,  California
94133 USA

Principal and Founder

Dr. Scott S. Elliott
Telephone: +1.415.830.5520
Email: scott.elliott@techzecs.com
           info@techzecs.com

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