“The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear. This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel.”
– Warren Buffet, 2008 Letter to Shareholders
Sounds awfully gloomy, doesn’t it? Reminds me of the ballad which begs hard times to “come no more” and 
made fresh by Bob Dylan as he strums and laments: “Tis the song, the sigh of the weary.” (Click here for video of Dylan’s rendition). As I talk with business owners and organization leaders I almost expect them to break out into the chorus: “Hard times, hard times come again no more.” What is one to do?
Last week I took two actions to help me survive these tough economic times. Both felt like positive steps forward. First, I made a conscious decision to limit the amount of news I listen to. Avoiding reality, you say? Shying away from the truth, you wonder? I prefer to think I am preserving the sense of balance that shrill pronouncements of defeat and ruin drown out. Yes, I still listen selectively to NPR, watch the national news and read the New York Times (albeit, I pick up the Style section before tackling the World in Review). But I’ve quit listening to the “talking heads” predicting gloom and doom at every turn. I don’t need that. Thank you.
The second thing I did was read two publications that helped me frame my thoughts about the economy: Warren Buffet’s 2008 Letter to Shareholders (22 single spaced pages) and renown business writer Ram Charan’s Leadership in the Era of Economic Uncertainty (138 pages). I highly recommend both publications, but since I realize that many of my colleagues and clients are too busy to read even these useful publications, this post highlights two quotes from Buffet’s letter and a summary of Charan’s points with some added examples. For leaders in the not-for-profit and public sector, I have also attempted to “translate” Charan’s guidance into your frame of reference.
Charan begins his book by noting, “Whether you lead a small group of people or a whole business unit or company, these next few weeks, months, and years will test you.”
In responding to that test, he advises that you transfer your attention to cash. “Your focus must shift from the income statement to the balance sheet. Protecting cash flow is the more important challenge.” You know the three sources of cash in your organization—earned funds (or donated funds in the not-for-profit world); working capital invested in inventories and accounts receivable, and proceeds from the sale of assets. Make maximizing the cash flow from these three streams your relentless focus.
Another important change is shifting your focus from growth to gaining cash efficient market share. What Charan is referring to is that growth your organization can attain without excessive outlays of your precious store of cash. And, shrinking to providing only those products and services that provide cash will be a mandate. “Eliminate the rest,” he implores – that means shrinking will present opportunities to simplify your processes and reduce the layers of management. In the end you will have fewer customers, fewer products, fewer facilities, fewer people, fewer suppliers –and a stronger [organization].”
In this new environment leaders need to dive into the details of operating their organizations in unprecedented ways. Charan calls this “hands on, heads in”. In adopting this leadership stance, we will all adopt a more intense approach to managing our companies. We will communicate more with sales or development people, field people, our customers, and our employees who will need an ongoing balance of information from you about both the challenges of the current reality, and your optimism that your organization will come out in 2010 or 2011 healthy and strong. The cycle for measurement and rewards will compress. Charan advises, “You have to increase your frequency of control, setting targets on a quarterly, monthly or even weekly basis. Aggressive actions and decisions build optimism and confidence—your own and others’.”
The Six Essential Leadership Traits for Hard Times
Charan argues that the new economic reality changes the attributes leaders must have for success. Think about your work, your decisions and your leadership since September. Which of the following are your strengths? Which do you need to intentionally add to your repertoire?
Honesty and credibility. Do the folks in your organization absolutely trust you to tell them the truth, even when it is a difficult truth?
The ability to inspire. How skilled are you in finding the compelling strands in your organization’s or department’s future and knitting them into a story behind which your folks can align?
Real-time connection with reality. To what extent are you getting real-time information from your customers, clients or donors? Basing decisions from even January’s information could be very misleading
Realism tempered with optimism. How balanced are you in your communication and decision-making? Have you unwittingly become the prophet of an apocalyptic future? Or are you clinging too hard to the belief that this will all go away in 90 days? How skilled are you at finding that balance?
Managing with intensity. What is your personal energy level these days? To what extent are you modeling “Hands on, Heads In?”
Boldness in building for the future. What investments are you making with limited resources to ensure your organization’s or department’s strength when the recovery does kick in? Again from Buffet’s most recent Letter to Shareholders:
“Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 211⁄2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges. Without fail, however, we’ve overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”
The balance of Charan’s Leadership in the Era of Economic Uncertainty is organized around the actions, skills and decisions required for the major functions in most organizations, many of which build on the concepts already outlined.
Despite my swearing off (or maybe weaning off) of gloomy news programs, I did catch a recent NPR report (click here to listen) on the Arizona Diamondbacks which illustrated the success organizations can achieve in implementing Charan’s approaches (although as far as I know, Charan and the Diamondbacks are not in contact!) The Diamondbacks have lowered their cash breakeven by implementing a player acquisition strategy that keeps them significantly under the salary cap. They forgo marquis players with back-loaded ten-year contracts in the hundreds of millions in favor of talented but lesser known players. They are adjusting their products and services to suit the times—you can now bring your own food to the baseball park, or for $25 you can sit on the suite level and enjoy their All You Can Eat Buffet. Their General Manager, Derrick Hall notes their philosophy is “One Fan at a Time”. By maintaining this highly personalized approach to customer satisfaction, their season ticket sales remain strong. Hall noted that they are working with their season ticket holders to define packages for next season that fit their reduced circumstances—such as partial or split season tickets—and keep them coming to the ball park.
I hope this post has inspired at least one or two new approaches or tweaks to your leadership that will make you more effective, and more confident, and your organization more successful during these most difficult days. I’d love to hear from you about what is working for you and what you are doing to survive. Please post your comments as a REPLY in the box below.
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