Five Mistakes to Avoid During a Downturn

Five Mistakes to Avoid During a Downturn Our finance columnist offers a what-not-to-do list for small business owners facing tough times

by Christine Comaford-Lynch Companies make mistakes all the time. However, in an economic downturn, avoiding the big ones is crucial.

Small business owners tend to react to bad news impulsively, but they should take the long view and pace themselves. To get funded, stay funded, or just simply stretch your cash, you'll need to avoid the following common mistakes. If you've made them already, it's time to course-correct (BusinessWeek.com, 5/7/07), meaning spot mistakes and take action to fix them. Right away.

1. Hasty Hiring. Result? Bad hires who are costly and time-consuming. It's better to try out new people as contractors first (BusinessWeek SmallBiz, October/November, 2007). Then after you've ensured they fit within your organization, bring them on as permanent hires.

When you're overwhelmed and overworked, it's easy to make hiring mistakes. This is why relying on contractors is the best policy. Check out Web sites like AskSunday.com for administrative help—one of my friends raves about it, and she pays $12 per hour! For marketing, bookkeeping, and other help, see Workaholics4Hire.com or similar online marketplaces. Don't make the mistake of staffing up just to find out your business operates in waves. Have a lean team and occasional help for the busier times.

2. Expenses Before Revenue. Result? Financial pressure and being forced to fund your business with your own money. Better to live below your means and grow more slowly.

Consider the example of the clothing retailer who recently contacted me, desperate for a quick $200,000 loan.

She'd never built the credit of her 15-year-old business, because she'd been too busy spotting the latest fashion trends and buying inventory on her personal credit cards. Sure, she had racked up zillions of frequent-flier miles, but her company wasn't the least bit creditworthy. So when she hit some tough economic times, she had to scramble for a personal loan. Her credit score had been dinged significantly, since she'd missed a few payments on her six-digit credit-card balance. Yowch. Even my most forgiving online lending source (BusinessWeek.com, 12/21/07) wouldn't front her the $200,000.

3. Skipping the Six-Month Plan. Result? Getting very little accomplished. It's better to map out the next six months, and if a new project comes up, swap it out with one of equal complexity that is already on your plan.

Entrepreneurs can be excessive idea generators. I know I am. With a six-month plan, you have mapped out what the projects are for the foreseeable future. Consider the perils of the company that had what I call the "strategy of the second," because each time its mercurial CEO returned from a conference, he'd have a new idea. Were they good ones? Often. But his already stretched staff had no spare energy. And since they hadn't learned to communicate clearly with him, they'd take on the project, all sorts of key tasks would get dropped, and no one was happy. You need a gatekeeper for the six-month plan if you want your company to run efficiently. This is someone who will ensure the new project is either postponed or replaced with an existing project of equal size.

Once this CEO put a six-month plan in place, his staff was happier, fewer tasks were dropped, and the revenue came rolling in.

4. Pointless Partnerships. Result? Time-consuming meetings and planning that don't result in revenue. Better to only add partners for a specific purpose that can be monetized within the next 90 days.

Partnerships are not about press releases; they are about massive marketing benefit that will lead to revenue or direct revenue generation now—I can't emphasize the "now" part enough. You can waste a tremendous amount

of time on irrelevant partnerships that may have a long-term glorious future, but in the near term, they are simply not worth it. In difficult times, stay focused. Partner for benefits you can count on within 90 days or less, and push the longer-term deals off your plate. You'll get to them later, in more stable times.

5. Chase All Sales Leads. Result? Wasting time on prospects that have no hope of becoming clients.

A CEO complained to me recently that she'd been chasing a key account for four months. Four months! And she had finally lost hope they would ever actually sign an order with her. When asked if she had a disqualification process, she clearly was confused. Here's the net-net: You only want to spend time with prospects who are just that—prospective clients. Create a disqualification process so you can quickly remove people who will likely never buy. You must focus on high-probability selling, which I'll talk about more in future columns.

Hang in there and stay hopeful! I've made all the above mistakes, and numerous times at that. But I've gotten better at rebounding and reducing the amount of time before a lucrative exit. The point is to course-correct constantly. I'd like to hear about mistakes you're grappling with or biggies I didn't mention—let me know.

"Course-Correcting" for Growth Expanding a company is a process requiring constant change. One key quality for a leader is the ability to get back on track when something has gone awry

by Christine Comaford Sure, competency, reliability, professionalism, a positive attitude, and respect for others are the qualities that will get you into the leadership game. But what do you do once you're a player?

If there's one thing I've learned about leadership, it's that leaders are always course-correcting. If staffers aren't following directives, good leaders gently guide them back on track. To get your staff to follow you, tell them where to go and then course-correct when they start to stray.

Course-correct your entire company, and most important yourself. You'll make mistakes, as will your team, your customers, and your board. And you'll fix those mistakes by honestly taking stock and changing the way you do things.

Expanding a company is a dynamic process. You must constantly shift your strategy or approach as new competitors emerge, markets materialize (or fail to), and opportunities abound.

There's only so much you can plan for, so if you expect to correct your course as you go, you'll be better able to make decisions with less info than you'd like, and to adapt when conditions change. Let's look at what happens when leaders do, and don't, correct their course.

The Hidden CEO A chief executive officer I know named Jason talked his board into taking the company public before it was ready. The second quarter after the initial public offering, the company missed its earnings target. Wall Street was relentless—the stock was hammered down from $26 per share to $4.

What did Jason do? Did he get out on the road, visit customers, sell more product, fly around to the regional sales offices? Nope. He locked himself in his office and wrote ad copy. Would writing a killer ad save his company? I don't think so. Jason became invisible, and everyone knew he was hiding.

No course-correcting here—not by the CEO, not by the board. Two vice-presidents attempted course correction, and Jason promptly dismissed them. The situation went from bad to worse. Ultimately, six months too late, Jason was replaced. The company never recovered, and it was sold at a massive discount to a competitor.

A true leader would admit his mistake, rally the troops, reassure the customers, stare down that stock price, and turn it around. He would do this by handling customer and shareholder objections, pumping up the salespeople to keep them focused on closing deals, and buoying the staff to keep them motivated even though their stock was under water.

Patent Infringement Case Then there's Ray, the vice-president for engineering at a company that weathered an intellectual property fiasco.

Two key engineers had quit and decided to create a competitive product.

The engineers had, of course, signed employment contracts stating that whatever they developed was the company's property, yet they conveniently chose to forget this. Years later these two engineers—who had raised millions of dollars in financing—had the nerve to lob lawsuits at the company they'd left, claiming patent infringement.

The vice-president was initially freaked out—how could his former staff claim the product he'd paid for was theirs? They were better funded than his company was, and the thought of spending years and all his reserve cash mired in lawsuits left him frozen with fear.

He was worn out and considered throwing in the towel, angry as he was. Once he calmed down and took stock of the situation, he realized it was key to correct course. He rallied the troops and got them engaged in finding the solution.

He led his team through the crisis and quickly uncovered a series of "smoking gun" memos (in addition to the employment contracts) that supported his company's ownership of the product and patents. His CEO hired a killer intellectual property litigator and lobbed a countersuit at the two former employees.

Leaders Trust Their Instincts That was the easy part. Now he had to help the vice-president for sales with the customers and sales prospects who feared having their now-entrenched products ripped out of their companies.

He quickly got buy-in across divisions. This meant that the CEO refused to let the lawsuits destroy his business, found some new sources of financing, and brought on additional advisers. The team was reinvigorated and ready to rock. Talk about course correction!

The vice-president for engineering started the corrective action—the vice-president for sales and the CEO furthered it! And only recently were the lawsuits settled in favor of the founding company, resulting in a hefty payment. The unethical engineers were ordered by the court to cease selling their stolen product.

Leaders trust their instincts. They know they'll make the best decisions they can at a given time, and they'll course-correct if things don't turn out as planned.

Encouraging a culture of course correction leads to the most effective way to deal with disasters and encourage risk taking and ownership. In that culture, staffers know that no one's head is going to roll if a mistake is made or a crisis occurs; instead all expect to simply hunker down and deal with it.

Owning the Outcome Everyone is going to be accountable for his or her actions in a culture that isn't based on blame. Accountability is the first step in ownership. The second is having control and responsibility for projects. If it's yours, and you truly own the outcome, you'll knock yourself out to make it work. This is the only culture where you can truly develop people—as executives and as human beings—and it's the best way to foster entrepreneurship in an organization and keep it growing.

What leadership strategies do you follow? What has the outcome been? I'd love to know. E-mail me or post a comment to this column.

Financing Pitch Critique Want your financing pitch critiqued? If so, the information I need from you is at the end of my Feb. 20 column (see BusinessWeek.com, 2/20/07, "Make Your Financing Pitch Sizzle"). Fill out the form, e-mail it to me, and I may select your pitch to critique in a future column.

Christine Comaford, CEO of business accelerator Mighty Ventures, is the author of the best-selling book Rules for Renegades. You can register for her free, two-day Rules for Renegades Summit on building a business now.

She writes her column on small business growth strategies every other week.