Leverage & strategic creativity in tough times

“Give me a place to stand and I will move the earth”, said Archimedes. He was of course illustrating the principle of leverage, a word that is now an unutterable, thanks to the mega-banks disaster and the resulting credit crunch.

Engraving from Mechanic’s Magazine, cover of bound Volume II, (c) Knight & Lacey, London, 1824Engraving from “Mechanic’s Magazine”, cover of bound Volume II, (c) Knight & Lacey, London, 1824

Yet never does one need leverage more than in tough economic times or under tight operating conditions.

It is not a secret that the credit crunch in the western economies has put paid to a vast amount of investment related activity. Yet small and creative businesses do not simply cease to exist. Indeed the small-to-medium sized biotech and the communications technology firms that I am working with at the moment are forging ahead. Will they outlast the recession?

Obvious as it is, it helps to be in the right business, one that is not seen as a luxury and that can adapt rapidly to serve changed needs. Luxury brands such as Christian Lacroix and Tiffany have borne the brunt of the recession whilst supermarkets such as Sainsbury’s (UK), Tesco (UK) and Ahold (NL, US) are reporting strong profits by being able to serve families’ need to eat-in more. This, I realise, isn’t something that can be changed overnight. My biotech clients can scarcely enter the food business to keep cash flowing in. But being in the right business does increase the chances of one’s survival.

A core strategic advantage lies in owning IP, the asset that can be used as leverage to open doors that may have been blocked by queues in happier times, when money was flowing like water. This, too, cannot be created overnight but if it exists, it can strengthen a company’s prospects.

With these two conditions met, here are some other things my clients are doing to survive and outlast the recession.

Some are seeking investment but when faced with eye-watering demands for equity in return for capital, most are deciding to bootstrap instead. Their main tool? Cutting costs where they can without damaging the revenue, such as founder executive and/ or senior executive salaries. This requires creativity, commitment, and laser-focus on ensuring the business stays afloat and on sales.

There may not be much capital flowing but there are still opportunities to make alliances, partnerships and other deals. Owning protected assets and the ability to deliver added value help. A great deal. Many conversations are going ahead as I write and I am happy to leverage my networks to help my clients.

Owning assets is also useful in exploration of new markets in search of growth and profits. After all Ahold, the Dutch group, is lifted by its performance in the US, whereas Tiffany’s sales did not drop in Asia as precipitously as they did elsewhere. I am working with a few companies – both biotech and software – on helping them enter new markets.

While smaller businesses cannot do some things as well as their larger, wealthier counterparts, their size gives them a great advantage in being able to change priorities more easily, to adapt quicker.

Being in the right business and owning IP gives small businesses that ‘place to stand’ from where they can, if they so wish, ‘move the earth’.

One thought on “Leverage & strategic creativity in tough times

  1. It also does depend on what sector of your own industry you’re focused on (in terms of pricing and value).

    You referred to retailers – well, Tesco and Ahold are doing well, but the ones really raking it are the low-priced chains like Aldi and Lidl. On the other hand, Simply Food, Waitrose, Whole Foods? Not so well.

    Like

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