Resizing a Business in a Downturn

Resizing a Business in a Downturn

Taking Positive Action to Add Stakeholder Value

We are all looking for some good news right now and the subject of this letter suggests the theme is negative.

Opposite.

This is a wake up to take positive action and encourage others to do the same.

"In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing."

- Theodore Roosevelt

The most successful businesses are those that anticipate early and react to changes quickly.

In good times, that may mean investment in hiring, expansion, new product lines and new geographies.

In tough times, that may mean resizing the business, slimming down operations and focusing on cost controls, debt and creditor relationships.

There is no way to tell if the economy has bottomed out, but we do know that eventually it will bounce back. When it will happen, how it will happen and what the new economy will look like is the million dollar question.

Even without that information, you should be taking positive steps to ensure that your business survives and thrives.

In this article, we will consider 9 Success Factors to downsize your business, look at socially responsible ways to increase loyalty and performance and look at Restructuring and Reconditioning.

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10 Success Factors to Downsizing your Business

To start with, we need to remember critical lessons from previous downturns: trust, reputation and communication. The community, customers and employees will judge your business on its behavior during these tough times.

1) Redesign the Organization to Create Value, Not just to cut costs
Revenue growth covers the flaws in an organization's structure and business model. If a company is failing, because of poor strategy, firing employees doesn't fix the problem. You'll lower payroll costs, but still have the same problems.

2) Consider Tactical Improvements
Hiring and pay freezes, reduce travel, re-evaluate all departmental budgets, reduce discretionary spending, reduce other identified SG&A costs and make incremental process improvements.

3) Get more value from your employees
Identify areas to improve efficiencies in the business operations. Create standard operating procedures. Create Key Performance Indicators. Incentivize each employee to create new ways to improve their department's efficiency.

4) Improve openness and communication during downsizing
Now is the time to be clear, open and honest about your intentions and reasons for the changes. If you withhold information from your stakeholders which include your employees, misinformation will prevail. More often than not, the rumor mill will be worse than the real story.

5) Involve mid-level and lower-level managers
If they participate in the downsizing process, they are more likely buy into the process and more likely to communicate a positive story and effectively implement the new plan. They are on the front line and have valuable knowledge on the workings of the operations. Encourage them to challenge your plans, but mandate they provide an alternative solution.

6) Think carefully about which employees to let go.
A percentage cut across the board does not fix the problem. Carefully select those to go and create increased responsibility, increased opportunities and increased efficiency for those who remain. Everyone needs to feel like a team to pull through the tough times together.

7) Give advanced notice or severance pay
This may cost more in the short-term, but those still working for you need to understand that you will look after them if the worst happens. Again, make your employees feel as safe as possible about what the future may hold.

8) Tell employees in person
Losing a job is humiliating and hurts an employee's confidence and pride. Be considerate in how you communicate layoffs. Your employees will judge you on how you treat their former co-workers. Moreover, at some stage in the future, talent may be scarce again and you need to be the employer of choice to attract ex-employees and new hires.

9) Consider alternatives to layoffs
Reduction of hours, redeployment to another employer, job redesign, or partially paid sabbaticals with benefits and contributions.

10) Time to be a responsible leader
If the time has come that you and other stakeholders would be able to make better choices with the assistance of experts, it is time to make the call. Consider the value of being able to brainstorm with experts who have been through troubled business situations many times before. Consider how much value they can bring from lessons they have learned. It takes confidence and strength of character to ask for help, but sometimes it is the smartest, most responsible and valuable course of action.

Being Socially Responsible Increases Loyalty and Performance

Few companies will avoid the need to reorganize, restructure, downsize, acquire, divest, outsource or enter into joint ventures. For most industries and most companies, if the recession has not already caused a significant decline in demand, it almost certainly will at some point. For some companies, the worst may be yet to come.

If you need to resize your company, you need to think about how you are going to make the cuts and how you will deliver the news to stakeholders in your business. The process of change can determine the success and long-term benefits of the restructuring process, as much as the substance of what is actually done.

There are positive steps you can take today to ensure, not only that you can pick up market share while other companies fail, but also structure your company so that you exit the recession on a firm footing, in a lean condition and ready to accelerate revenue growth and improve your margins.

Points to remember:

* Show commitment to stakeholders (including employees) and you will reap the rewards when the economy turns around.
* Consider the values of your own company when making tough decisions.
* Focus on MAXIMIZING VALUE for all stakeholders.

Restructuring and Reconditioning

If you owned a sports franchise and your team had just won the championship, you should spend your off season analyzing why you succeeded last year and finding new ways to improve next year.

Your athletes need to train even harder in the off season to win by a higher margin next year.

Maintaining last year's performance does not win championships. You need to improve every year.

Whether or not you have made tactical improvements in recent years, you need to spend some time considering tactical changes that can and should be made. You are playing a different game on a different field. You need to make wholesale changes to adapt to the new game.

Remember that doing nothing can quickly lead to failure. You need to consider every option you have open to you and brainstorm every structural change that you could make. Talk through all of your options and ideas.

You need to be able to make changes for the sake of your company and for the sake of your employees.

You need to be able not only to survive, but also to outperform your competitors during a time of reduced volume.

Out of every recession, new market leaders will emerge. There are always a few surprise winners and a few surprise failures. If your company fails, everyone loses except your competitors.

One thing is critical. You need to Act Now. Structural changes can start delivering changes immediately.

All rights reserved. Copyright: ClearRidge Capital, LLC, 2009.

ClearRidge provides Restructuring, Corporate Finance, Merger & Acquisition and Turnaround services for midsize companies.

Restructuring includes financial, operational, strategic and pre-Sale restructuring.

Corporate Finance includes advisory for raising and replacing senior, subordinated or mezzanine debt, as well as raising and replacing equity to provide the lowest cost of capital.

Mergers & Aquisitions includes buying, selling, merging and valuing midsize companies.

Turnaround, Bankruptcy and Crisis Management services include debtor and creditor advisory, bankruptcy support and turnaround management.

ClearRidge provides Top Tier advice and relationships with Middle America values and work ethic.

We have directly owned, operated and managed midsize companies. We know the business from your perspective.