Punchlist Commentary

Hitting the Panic Button: What Kind of Leader Are You?

Determine if you are a Strangler, Victim, Kamikaze or Balance Leader

By Kent McSparran

As a business owner, you must remain calm in troubled times, but these times are unprecedented. Credit for commercial building has nearly dried up. Homebuilders continued to cut spending at a 23.6% annual rate during the fourth quarter of 2008. The world has slipped into a recession that could easily last two years or more.

Whether the economic downturn lasts six months or 36 months, as a leader in the construction business you need a plan to survive it.

First, avoid panic. It will create fear inside your organization and a productivity crisis will ensue. When people are fearful, they’re not productive. They become risk adverse and indecisive, afraid to make a mistake that will get them fired or laid off.

Second, check your optimism and do not plunge ahead without looking where you’re going. It takes improved market knowledge and creative thinking to strike a careful balance between panic and recklessness.

Figure out who you are as a leader. Our consulting group defines four main types: The Victim, who wastes energy on things that can’t be controlled and focuses on blame rather than action; The Strangler, who survives down markets but chokes off growth by refusing to invest; The Kamikazes, who in their optimism, wait too long to cut costs and bleed their balance sheets, and they are positioned poorly for the recovery; The Balance Leader, who knows when to hunker down and when to expand.

For some, the key to survival in the short run is to hunker down and preserve your balance sheet. In the long run, prosperity depends on being a Balance Leader.

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Understand the Micro-Economy

Forget the headlines and network coverage about the national economy. The key to success is to make bold decisions in response to the reality of your specific micro-economy.

In construction, there is little room to hide. Residential construction has been in the tank for years. Commercial construction had some bright spots until the last half of 2008, when credit shut almost everything down. The banks all say they are lending, but they can’t find a project they are willing to fund.

The good news is that there are a lot of projects on the drawing board. Colorado’s population is still growing, creating pent-up demand. We’re just waiting for credit to loosen. Money is available but few investors feel confident enough about making an investment.

The key to survival now is to focus on the active micro-economies. Right now, people are waiting for “Obama Money,” the economic stimulus package that states hope will flow down to them. Government spending is the one category of business sure to grow, but everyone will be chasing that business. It’s up to you to shift resources to the more promising areas and away from the bloody ones.

Commit to a strategy: are you going to hunker down and survive or change the rules by thinking differently about business as usual? Challenge your assumptions about your market. When the world is changing as fast as it is today, your intuition may be less reliable. Get disciplined about knowing the facts. Study true demand, what’s going on with pricing in the market and projects in the pipeline.

When to Hunker Down, When to Change the Rules

Hunkering down means cutting costs now, not later, when you’ve burned through too much cash. Hunkering down is about preserving your cash. You’re going to need it to make the big move when your market turns around.

Part of the hunker-down strategy is to buy bargains—cheap inventories, competitors and fire-sale equipment. Most of all, earn customer loyalty. Focus on better service and, when necessary, lower your prices. Remember, it’s better to keep a good customer than to attract a new one with lower prices.

Change the rules by breaking into new markets, expanding services or challenging industry norms. If the facts show you a real opportunity, make it happen. Remember you must have enough capital to see you through an opportunistic bet, even if you miss-time the rebound.

Test every assumption about your business and look for opportunities to change the rules of the game. This may require outside help. Every market has unwritten rules that no one would think to break, but a down market is the ideal time to change the rules and consider more radical options.

When entering a new market, make sure it isn’t overrun with competition. Use the “Blue Ocean Strategy,” put forth by authors W. Chan Kim and Renée Mauborgne. You are looking for lightly treaded areas of opportunity, a niche or business that you are uniquely qualified to fill. Diversification efforts have a high failure rate, and you’re usually better off staying as close as possible to what you know—your existing markets and services.

Whether you choose to hunker down or change the rules, remember that, when armed with the right information, you can strike a balance between impulsive optimism and too much caution. Fortunes are made in times such as these.

Kent McSparran is a principal with EKS&H Business Consulting, providing management consulting services in the areas of business strategy and financial performance improvement. He can be reached at 303-740-9400 or at kmcsparran@eksh.