We have all heard the expression “when the going gets tough, the tough get going”. We have tough times both in business and our lives outside of work. There are many variations and circumstances of difficult situations. That means the getting tough part also requires sometimes dramatic change and taking risks.
In business, particularly when building for a sale or exit strategy, those who get tough during “tough going” can not only survive but learn and flourish. Selling a business is always easier if the financial picture is appealing to the buyer. That often is most attractive with a favorable profit-and-loss statement.
Increasing profits often come with the reduction of costs. Cost reductions come in many forms. The most effective cost-cutting measures come from increased focus and improved efficiency. But so many times companies cut human resources and slash commercial spending to get profits up.
It is safe to say and easy to prove that eliminating the resource and commercial spending can also be detrimental to the long-term health of an organization. Not to say that there is never wasteful spending, but many times cutting costs “to the bone” can foster negative implications. From decreased customer service to reduced commercial effectiveness to poor employee morale, many adverse effects can result from dramatic cost-cutting.
With fewer human resources for customer service, implementation or other important functions such as financial management, detrimental impacts result. It can become a downward spiral as reputation is damaged when operational functions are abandoned when most needed.
Reduced commercial spending can result in less business, the lessening of presence, faded brand recognition and overall poor financial health. It seems ironic that companies speed up cost reduction when in sell mode to improve their positioning for an exit strategy. If buyers are aware and know what to look for they can flush out the deficiencies and the dangers of buying an organization based on EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company’s operating cash flow based on data from the company’s income statement). Driving the costs down to prop up EBITDA can have devastating long-term effects.
On the flip side of having to deal with reduced spending, a company can become more resourceful if they approach the situation with a “can do” attitude and the courage to take a different approach to win. My personal experience has proven that this approach can be very effective and a great learning situation for companies who fully engage. There is always a better way to do something than the way it is being done. You can take a marketing budget reduced by over 50% and get better results than the prior year. You can take a reduced sales force and achieve over 100% and become the top team compared to a 70% quota attainment the prior year. You must be creative, self-driven to improve and courageous about execution. Staying focused on doing the right thing is also a must. Innovation and improvisation can help you still get positive results when costs are being cut, but the quality is not being sacrificed.
Continuous Improvement is a mantra I have lived by for years and that same mantra can help companies with spending restrictions avoid the stranglehold of not having adequate resources to grow and prosper using traditional methodologies. You can implement continuous improvement using a thoughtful planning process that is executable and potentially contrary to conventional wisdom. Staying focused on the improvement and not relenting can become your “mother of invention” and help you figure out a new and better way to achieve your goals. Remember the movie, Rocky IV, when Rocky trained in Siberia in primitive conditions with unconventional tools? Never underestimate that “Rocky-like” spirit that may exist within you or your company. He was the underdog, but he won! And by-the-way, it works the same in your personal life. It may take some courage and willingness to change and differ from the so-called pack, but the rewards could cause not just improved EBITDA but also a long-term increased multiplier. Every single one of us could enjoy that!