Learning to thrive Featured

7:00pm EDT January 26, 2010

Last year marked a major evolution in the psychology of business owners. David Janus, the president and CEO of FirstMerit Bank’s Cleveland region, has observed his clients’ transition from a “bunker” mentality to aggressively reducing costs to preserve profit margins.

“They’ve gone from hiding to surviving to thriving in a very flat business market,” Janus says. “The successful companies have re-engineered their processes to make their labor cuts sustainable over the long run while still being able to deliver on their value propositions in a thoughtful way rather than having to work people to death in order to do it.”

“In fact, these entities have right-sized their companies for the revenue that exists in the current business environment.”

Smart Business spoke with Janus about how some businesses have adjusted to beat the recession.

How have companies adapted to economic changes?

One of my clients told me that between Thanksgiving and New Year’s of 2008, he was hunkered down. He went home and cried at night. Now he feels like his company is positioned to attack the marketplace — and that’s consistent with many businesses.

There are other strategies that businesses are using, as well. First, they’ve worked hard to reduce inventories so they only have what they need to meet today’s sales demands. However, businesses that were late in the expansion cycle built up their inventories, fearing that they would not have enough on hand when sales came in. Therefore, they found themselves oversupplied.

Since then, these businesses have done a great job of shrinking inventories to fit their current needs. They have become very good at managing their accounts receivable to reduce the receivable collection cycle.

Based on feedback from clients, I don’t believe that they have plans to go back and fatten their inventories. They may spot fill based on minor areas where they feel a little too thin, but they have no intention of being oversupplied again.

How can businesses thrive in a flat environment if revenues aren’t on the horizon?

Businesses should explore ways to cut further. Many companies that successfully reduced their size have also reduced their debt. They freed up cash by bringing inventory levels down, by decreasing the days on hand for receivables, by improving receivable collection, and by paying down their debt. Now, they are in a position where they are lean, mean, and hopefully thinking, ‘How do I go out and attack the marketplace?’

What are today’s companies doing to attack the marketplace?

My clients are taking action in a number of ways. Gaining market share is one focus. Taking customers and clients away from the competition will help them get that natural lift when the market does return. Businesses shouldn’t expect huge revenue growth from this activity, but having more clients in their stable — in addition to clients currently on their books — will enable companies to enjoy a higher sales level when the economy rebounds.

Another strategy companies are employing is geographic expansion. Businesses take their current product set and go further from home to do business. In addition, some companies are expanding what they do for their existing client base by offering new services or products.

How are businesses succeeding with a leaner infrastructure?

One common theme I have seen is that businesses are taking this opportunity to improve the talent level of their current teams. If they had 10 employees and felt that they needed to eliminate three employees, they may have cut five instead and then hired two really top-notch new people.

Companies have really tried to upgrade their talent. They’re not just cutting people; they are looking at their whole work force and deciding who the best contributors are — and retaining those employees. Then they are actively searching for and finding people who can be top contributors to replace the capacity of those let go.

Business owners struggle with this issue because they sometimes find themselves in a position where they’ve had to let longtime employees go. Because those employees weren’t contributing, executives have had to make those tough decisions and hire someone that will be a more productive member of the team.

In addition, those companies that are in a position to make acquisitions are starting to gear up to do so. Much of the debt reduction they have made has been in an effort to invest in new products, new service offerings and gaining market share; however, some of the debt reduction was accomplished to make acquisitions when certain companies become available. There is a growing optimism among my clients, which has encouraged them to look for ways to thrive instead of just survive in today’s economy.

How can a company develop its own plan to thrive?

Business owners should challenge themselves to mentally make the shift. Learn how to thrive in a flat market, which means not being satisfied with ‘flat.’ Figure out how to grow. Make sure you’ve cut as much out of the organization as you can, and institutionalize those cuts by re-engineering all of the work processes to make those cuts sustainable, while still delivering on time.

DAVID JANUS is the president and CEO of FirstMerit Bank’s Cleveland region. Reach him at david.janus@firstmerit.com or (216) 694-5658.