Advices to CEO
My fiend, who owns a software outsourcing company is worried about the future due to the current financial crisis. He said:” The business is in serious problem with many customers cancel contracts or not be able to pay for services. Business is slowing to almost a stop. Everything is uncertain. I do not have much money to pay my people. I do not know how long I can keep this business going. In my career, I never see anything like this”.
I told him: “This is a special case because of globalization where every company is impacted. However, history shows that the better managed companies always emerged from tough economic times stronger. Nobody knows when this bad time will end and how long it will last. I think most companies in developing countries will probably improve slower than developed countries. From what I know, larger companies all have plans in place to mitigate risks, reduce spending, creating differentiation from competitors, and preparing for the recovery to come. However, smaller companies, run by young management team may not be able to prepare for the challenge. The key issue is they do not have reserved capital to withstand this crisis if it continues for few more months. As money becoming scarce, many companies were left in a stressful capital situation.
My friend agreed: “You understand our situation very well but I do not know what I must do without capital for the next few months. I am very worry. What do you suggest?”
I told him:” You can not worry too much because this is a global issue and not your fault. You should look at today’s economic crisis as a business opportunity. As other companies take the attitude of “wait and see” and not doing anything you must have plan to prepare for the better time. You must use this downturn to create differentiation between your company and your competitors. This is not easy without a good plan but you must demonstrate your leadership now. First you must look across the company and identify all expenditures. For each money spend you must ask “Do we really need to spend that money?” Will spending it really generates a good business? If the answer is “no,” it needs to be cut. This will help you to conserve your capital. However reduce spending is not the only thing. You also must ask which investment you could do today to prepare for the next few years. Will the investments allow you to differentiate your business during the current time, as well as position your company for success in the better time?
My friend laughed:”As a professional software person you advise like a financial person. Where do you learn that kind of advises?”
I told him:” As a senior manager of a large company, I have to learn everything about financial. With over 30 years of experiences in the software business, I have learned enough to lead my group to overcome problems and be successful. A good manager must know both technical and business.
As a leader, you must communicate your plan clearly to people in your company. First, the entire company must focus on keeping old customers and acquiring new customers to keep the business stable and growing and during this crisis everybody need to involve in marketing your company. You must contact all customers and discuss your services with them, understand their issues, helps them to overcome their problems. Most of all, you need to understand that they may not have money to pay during this time so you could grant them credits with installed payments. Even in bad time, they still need your support and that is why you still need to keep old customers for the business to continue. During this crisis, every company around the world are being directed to cut costs so the key message is how much your service will help them to reduce costs and improve their financial situation. Outsourcing is the best solution for cost saving now so if you could help them to reduce costs, you are the solution. Instead of discuss anything else; you must focus on the solution to their problem by help them to reduce their costs. When other companies are “Freezing”, you must be actively going out to get more businesses, acquiring new customers so when things is improving, you will have a larger market share. This will help your business by driving your weaker competitors out of the business. You must look at all of your customers and identify who will survive and who will not. Focus on the stronger one and shut down the weaker customers who are now struggling to stay in business since they may not be able to pay you. It is best to stay focus on the business and reduce risks.
My friend agreed: “I like your advice but I also have to reduce costs by reducing some of my people. What do you think?”
I told him: “As the owner of a company, you should be very careful about morale in the company. The key success factors of small company are loyalty and teamwork so it is important to nurture this spirit and not destroy it. If you must reduce people then you must do it with careful consideration to maintaining the working environment, rather than harming it. My view is everybody in your company understands your business situation and they are worry too so instead of letting few people, who may not have the right skills to leave; you may want to demonstrate your leadership by investing in additional trainings for them. As I mentioned to you that bad time is also an opportunity for good time. My advice to you is a slowdown economy is a great time to hire not to fire. As other companies begin to fail, their top performers may want to leave and look for a more secure opportunity. If they see your company is offering more training and not laying off than they may want to work for you. Top performers typically do not leave their company and it is difficult to recruit them so this is a golden opportunity for you to hire all the best people.
Of course, you will need capital to do that. My suggestion is to expand your business into new market. Even in this global crisis, there are some markets, especially in countries like China, India who are still doing well in information technology. You may want to expand your business there. This is a good time to ask yourself where to do business, what geographic markets should you be focusing in. How do your global efforts fit into this? China’s market is healthier than the US or Europe. If your company can do business there, it might be worth serious consideration. As the successful owner of a good company, you need to lead your company out of this crisis by not panic, not reacting hastily to external factor but lead with a clear vision of the future on how your company will grow despite the tough economy. You must lead by staying in the front of customers and employees, assuring them that your company will be strong, will survive and will thrive for success. This is the time where everybody will look for a leader and you must be the one.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
