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Diversifying in a Stressed Economy, Part 1

By: Michael Bleau

Wednesday, April 01, 2009
 
In a stressed economy, how do you quickly steer your company into new industries and sources of revenue? This is a question facing many executives within our industry and others. Long-standing companies with stellar track records are faced with the daunting task of maintaining a break-even point while executing painful layoffs and chasing a shrinking marketplace. Assuming that market entry via acquisition is not an option, where do you start and how do you execute?

Before we begin outlining the effort behind the answer, let’s address a few items related to the sales force. Appropriately loading your sales resources is important in guarding against erosion of your current customer share while you approach new markets. The goal is to grow your top line while reducing your percentage of revenue dependency on any one market or set of customers.

To be successful, you need to avoid a few pitfalls of traditional crisis management. First, critically review your sales staff and eliminate nonperformers. This said, it is a good time to reinforce your sales ranks and consider approaching top sales producers from competitors and other industries of interest to you as a means of replacing your less productive sales people—replace order takers with order makers. In doing so, maintain your overall sales capacity.

While the conventional-wisdom support for

 Diversifying in a stressed economy, part 1
across-the-board layoffs may satisfy the need to play fair with other department managers, such action will feed a self-defeating cycle of revenue loss and further workforce reductions. Another problem to avoid is arbitrary spending limits. Carefully review spending and reduce nonessentials without hampering the effectiveness of your sales force. Many companies quickly curtail sales and marketing spending and limit or eliminate sales travel expenses to reduce costs—another quick to ensure reductions in revenues. Keeping a close eye on costs and stepping down some forms of elaborate entertainment is prudent, but a harsh retraction is a mistake. Take advantage of your competitors that do and use the extra face time with customers to reinforce relationships and forge stronger ties to potential customers who tend to prefer your competition. Balance is key. You need to spend a large portion of time chasing new opportunities without abandoning existing customers.

A third temptation that may be the hardest of all to resist: burying your sales staff in lengthy opportunity review meetings and paperwork. In stressed economies, executives tend to have a stronger than usual urge to track every aspect of the sales process, create a gimmicky sales contest or impose the latest process-driven sales approach that sits atop the New York Times Best Sellers list. While exploring new approaches and staying in the loop is good practice, do so in moderation. Taking it too far can create other roadblocks to sales success and unhealthy tension within the sales ranks. Work to remove roadblocks and empower your sales professionals to do what they do best. To use an old-school term, your sales staff needs to be on the road “pressing the flesh.” The question that you need to answer with your sales team is, with whom?

Now let’s quickly cover a few more essential elements of success, including the right attitude going in and top-down support. From the standpoint of attitude, think in terms of taking advantage of the opportunities presented when your competition makes all of the usual, incorrect moves presented in previous paragraphs. Think in terms of investment in your company by redirecting a percentage of sales resources to diversify your customer portfolio. With your focus on growth and a strong, funded marketing and sales team, you are ready to stay close to current customers to fend off opportunistic competitors while redirecting substantial efforts on the task of market diversity. Before jumping in, ensure that everyone in the company understands how important their contribution in effort will be to the success of the venture. Ensure other departments that their back-office customer support is just as important as that of front-line sales and that as revenues increase so will their budgets.

Ground rules laid, let’s break this down and get our arms around some actions necessary to make the shift into new industries. The following activities identify some of the tasks that will start moving you into new industrial spaces.

Please take the time before the second installment of this column to perform a strengths, weaknesses, opportunities and threats analysis (SWOT) to consider a set of questions regarding your capabilities in entering new industrial markets.

SWOT is one part of a strategic planning process used to identify and quantify a company’s strengths and weaknesses and environmental threats and opportunities in a given situation. It’s a simple process that highlights where strengths and opportunities intersect. To start, bring a few people together from your organization that broadly represent your business and conduct a few SWOTs, the first being your present industry position. Then conduct other SWOTs, looking at new market or industry opportunities. SWOT analysis can be used in several s, but for this exercise you need to define a desired end state or objective, without which the exercise will lose focus. Be honest and open with your observations, as this will be a useful tool as you move forward.

Since you certainly have skill sets that fit well within other industries, this step will prepare you to identify which abilities best meet the needs and desired skills most valued by prospective customers in unrelated industries. The quickest into a new industry is to align your strengths and skills with opportunities that may present themselves as supply-chain gaps. Simply coming into a new industry as a alternative to established suppliers is achievable when the demand greatly outpaces capacity, such as is the present case in the aerospace and wind-energy industries. But you may find more success more quickly by standing apart from the crowd, which might also present opportunities for improved margins. So my advice: Look for a niche.

Before initiating the SWOT analysis, research and compare production outputs and capacities of industrial sectors to identify where needs exist. For example, aerospace and defense, and alternative energy such as wind and solar, are in desperate need of suppliers, as their ability to produce lags well behind the demand for their products. Identify which components, assemblies and service needs your company can meet. Define your stated objectives, one per SWOT, and begin. Before you start, have a 5-min. lineup meeting one week before so that participants can prepare. Identify specific tasks for each to explore and have them bring any data on paper. When meeting, your best results will come by convening in a closed conference room, with all cell phones and laptops turned off. This exercise can be achieved using a whiteboard and a few colored markers.

Come prepared, and next month we’ll tackle some steps for moving into new industrial spaces. MF

 


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