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Business Belt Tightening
Sometimes, when the building’s on fire, the lone man battling the flames on the second story really needs the broader perspective of the chief outside, on the ground below. Today’s businesspeople are fighting an economic blaze fueled by headlines of panic all around them. Tales of corporate giants like Chrysler slashing their workforce 25 percent entice others to go and do likewise.
Where is the sane voice? For the Garden State business community, it definitely does not lie in the general national news or the Asian/European Economic Summit reports. In Biz4NJ’s previous cover story, “Our Stormy Economy,” all interviewed business leaders agreed unanimously that New Jersey does not entirely mirror the nation’s current business situation. With few exceptions, most New Jersey industries came through the foreclosure and the credit crunches, and the market failures far less scathed than the national norm. Of course, we are scarcely immune.
Obviously, some belt tightening must take place in all size businesses if we are to navigate this current crisis - just as when complacent U.S. companies of the 1970’s were jolted into the globalization of the 1980’s. To help provide some general guidelines for where business people can best pour their dwindling resources - what to sacrifice and what to save - we sought that broader perspective from within and without. In addition to our Biz4NJ staff and Circle of Experts, we queried
Tom Owens - veteran dealmaking CFO, who has a reputation for uncovering and profitably employing undiscovered assets.
Lorraine Allen - serial entrepreneur and director of the College of New Jersey’s Small Business Development Center.
Paul Dorf - whose Compensation Resources, Inc. surveys thousands of firms annually on a score of human resource practices. Here’s what they advised.
* Relax Your Mind. Two currently popular attitudes will almost assure your failure in this extended spate of lean times. First is panic. At a recent trade show, one Biz4NJ writer overheard a cluster of independent shippers tick off the firms who had gone under. He noted that not one of these viewed this as reduced competition, but only as a foreboding of their own fate. They stood glum and petrified.
Allen cites the case of a phone call made last week to a longtime kayak and canoe builder. This business owner, over the years had established a strong niche among the whitewater boaters and had expanded steadily. The call was from his bank, asking if he wanted to borrow money. “This proves it,” says Allen. “People are still doing business. Banks are still lending money; that’s their business. Commerce goes on. People are still spending. It becomes our job to figure out where.” The credit crunch will be felt strongly in the margins but less in the mainstream.
The second mental mode to avoid is what Dorf calls the lock-down, siege mentality. “People become afraid to hire, afraid to make moves. They take on the entire attitude that any change is bad,” he says. “More now than ever, this is a death knell.” In fact, all advisors are insisting that this crunch demands major adaptations.
* Clean Sheet Budgeting. “Now more than ever is the time to uncover new needs,” states Owens. The veteran CFO suggests surveys of customers - both formal, written and more personal face-to-face style - to determine what new services one’s company can perform. Allen agrees with this re-monitoring of the market, noting that while trade still goes on, you can count on this economy to alter the standard needs of most clients.
In addition to outside advice, Dorf suggests looking within. “Now is the time for clean sheet budgeting,” he says. Even if your spending formula has continually led you further in the black, don’t depend on it to carry you through these contorted times. “I know there a lot of companies out there that don’t run on a budget at all,” he adds. “Now definitely is the time to start.” A bit more cautious than Ms. Allen, both Mssrs. Dorf and Owens feel that a wait -and-see budget is probably the best move. Those accessories used to make a first impression of success, might now be considered frills, and prudently be cut.
* Operations Float. “Grow or die” has been the American business model since John Astor first first traded liquor for furs with the Indians. Yet Dorf hints that these may be days to set aside old maxims. In this situation, he favors organic growth, via sales and customer expansion, as opposed to acquisition. After all, acquisitions invariably bring a certain trauma to a firm. Adding this to the already unsettling times will probably prove more than most companies can handle.
In dealing with existent operations, Owens feels that now is a time for re-instituting closer control. Global telecommunications offer wondrous tools, but they clearly do not replace frequent personal oversight. For one of his clients, he has recently shifted manufacture from Estonia to a local outsource. The CEO now meets frequently with the contractor, who feels his presence nearby. “There is a saying the companies don’t go overseas because it’s cheaper there,” says Owens, “but because it grows exorbitant over here.”
But maybe, notes Owens, it is not so exorbitant as owners may think. By offering a competitive monthly price to an outsource, plus some warrant issues, deals in this market look particularly attractive. “You not only get the best of breed, but by controlling costs nearby, you often get a greater savings,” he says. “If nothing else, oversight travel is cheaper.”
Even if you don’t choose to contract nearby, Allen suggests you can slash costs considerably by partnering locally. This need not be with competitors or companies in the same field. Do you really know the firms in your office complex? Have you introduced yourself and tried to pool purchases with them - with others in your professional association? (If your association has a staff, they often can handle the logistics.)
* Realizing Your Prime Assets. “This is the economy not to have fewer people,” insists Owens, “but to make each person more valuable to the company.” Bite the bullet, and invest in training. Purchase new technology, since technology has become the most evident method of expanding an individual’s value to a company. Owens has always touted the Southwest Airlines model. “They see their people as their prime assets and they always shift operations to avoid laying anyone off.”
This said, both he and Dorf agree that the time has come to
place productivity over length of service and loyalty. “We’ve got to eliminate the old discriminations - last hired, first fired - or getting rid of the fewest, oldest, highest paid workers to reach a savings target,” Dorf states. “Don’t make a target - make an analysis and make the machine lean.” Owens adds a fix-or-fire approach to this analysis plan. If you find an individual who for the last year has dropped from producer to deadwood, find out why. If the change results from e.g. a shift in work environment, then repair it. If it is an individual’s personal life problem, you may not be able to keep him on.
The Biz4NJ staff and all three experts agreed that not just maintaining, but boosting morale must remain a major goal. People are scared. Productivity incentives, Dorf notes, keep employees focused on success, not a precarious survival environment. The same surveys Owens suggested for seeking customer advice, should be applied to the staff. And here again, adding creativity incentives in cash, warrants, perks, or simple praise set minds on personal advancement, and demonstrates a positive corporate outlook.
In all aspects, this is an era where we can fritter away nothing - particularly employees’ time. A worker’s hours should be costed out as asset units, and spent only with precise efficiency. “Sales people should be directed where they can produce the most with the least effort,” says Dorf. “Concentrate on those 20 percent core customers who typically deliver 80 percent of the income. Further, review old prospects who have fallen through the cracks. It is time to use a rifle, not a shotgun approach.”
Finally, Allen asks us to step back and view our current crunch in perspective. “Historically, when American markets have taken an enormous plunge, they return to pre-plunge levels within 18 months,” Allen reminds us. In the meantime, unemployment will almost assuredly rise. But for those who have survived, competition has diminished. Those businesses facing the blaze who are able to hear the voice of the chief down below, may just be able to adapt and keep flames at bay while more prosperous times gradually creep back in.
Biz4
Tom Owens is the CFO you want when you’re groping for those necessary assets to transact that sweetheart deal. Hailing originally from the Empire State, Owens earned his Bachelor’s in accounting at Fordham University in l978, then took his MBA in finance from Pace University. He stepped right up to overseeing audit teams for Fortune 500 companies, working for Touch Ross & Company, then Hays & Company.
Moving to New Jersey, he became partner in the regional accounting firm, Demetrius and Company. Since 1992, Owens has run his own firm, Thomas J. Owens CPA, in Hohokus, in which currently he serves as CFO for larger startups and companies with specific expansion challenges. In this dithering economic climate, Owens is this week purchasing another accounting enterprise.
Lorraine Allen’s impressive business accomplishments are beyond listing. Her savvy has been forged on surprisingly diverse anvils of commercial experience. A Garden State native, she attended MIllersville University’s Moore College of Art, intending to use her innate artistic abilities. Instead she found herself acting as tour director for Tauk Tours and Starr Tours.
Then turning her energies to real estate, she handled marketing and operations for several retail and wholesale firms. Since 2002, Allen has served as the markedly innovative regional director of the College of New Jersey’s Small Business Development Center. During this time she has initiated Trenton Small Business Week, MIddlesex Small Business Week, Mercer Chamber’s Technical Assistance Center, and the first Procurement Center to assist women and minority businesses.
Paul Dorf has developed an uncanny sense of exactly how to reward individuals at all levels of employment. A native of New York, Dorf earned his Bachelor’s in business administration and labor relations from Hofstra University in l961. Upon graduation, he joined the U.S. Marines, going from Private to Captain in barely four years. “It was here that I really learned what motivated people,” he recalls.
Dorf then studied law at La Salle University in Philadelphia and later gained his MBA in industrial relations from the University of Bridgeport and the College of William and Mary, and a Ph.D. in management analysis from Cambridge International University and Walden University.
From l965 on, Dorf served several corporations as human resource and compensation expert. In 1983, he took the entrepreneurial leap and founded the first version of what is now Compensation Resources. He sold the company in l985, then bought it back in l989 and has acted as managing director ever since.
For the past 27 years, he has been on the faculty and taught human resource and compensation courses at various universities, including Boston University, Temple University, and Rider University. For the last eight years he has taught at Seton Hall. |
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