December 3, 2008 - BUSINESS SURVIVAL GUIDE: How to Handle Economic Downdrafts

Is it possible for a company to shrink gracefully? Imagine reading a press release that
reads: "Acme reports 20 per cent lower revenues this quarter. Customers, employees,
investors are ecstatic." It just sounds wrong, doesn't it? We're so hard-wired for growth,
the thought of the opposite is horrible.

I remember telling a board member that if we can make a good return on sales, have
happy customers and employees, it's OK if we don't grow for a given period. His
instinctual reaction was shock. After some consideration he agreed to accept this for a
time, on the condition that we must still grow over the long term to give our employees
growth opportunities.

Recently, the world has become a much nastier place. Growth versus no-growth has
changed to coping with contraction and ensuring survival, and I have some survival
suggestions.

Macroeconomic currents
Have you ever noticed that Canada's bank stocks move as a pack? They mostly rise or
fall together. You would think they should be decoupled because in theory they are
competitors. But it doesn't work this way; our banks are all so big that they are more
affected by macroeconomic pressures than individual performance.

If, like me, you started a tech company, you're probably not yet on the verge of
overtaking one of Canada's banks on revenue. In fact, you're just a microscopic little
speck on the world's economic map. Small companies don't all rise and fall together and
we can defy economic downdrafts - if you're in the middle of major projects that are
going to keep you busy for the next year, for instance, you may not even notice a national
or global downturn.

The trick is to focus on revenue. And that may mean doing some counterintuitive things.

Hire another salesperson
When everyone is telling you to crawl under a rock and hide, do the opposite. Yes, hiring increases costs but if it lands extra business, you could hold your own - or even grow -
and the cost will end up being insignificant. Plus, if the economy is in the pits, there may be some really good salespeople on the market. This may be a rare chance to snap one of them up.

Send your employees packing
Several years ago we were going through a dry spell. One of our engineers walked into
my office and said, "Mike, I've packed my stuff, going to spend a few weeks in Toronto
knocking on doors, and telling people about all the great products we've designed." I was
caught off-guard. This was a quintessential engineer telling me this.

His road trip ended up doing two things. It connected us with his network of friends in
Toronto, which strengthened our business, and also encouraged me that every one of our
staff could help with sales.

So, if things are slow, move every available person into sales - but hold the martinis! Email
all your staff reminding them to contact their networks. And don't hold them back if
they want to hit the road.

What if things get really bad?
If revenues shrink despite your best efforts, it doesn't need to be a disaster. If you want to
defy a widespread downturn, do the opposite of what most other companies are doing.
Here's what many companies do: when business shrinks, they lay off staff to match the
size of the shortfall. Think of it: they pay big dollars to get rid of good employees. And
guess what happens? The remaining employees are so demoralized that their productivity
drops to zero.

This makes things deteriorate further, and before you know it, another round of layoffs,
and productivity stays at zero (not to mention morale). It's a recipe to drive your company
into the dirt. Try doing the opposite. Tell your employees that you care about them. Tell them
that you want to avoid losing any one of them (presumably you've dealt with specific performance
issues at an earlier time). So, during the downturn, stick with the whole team - everyone.
But make it clear that in order to keep everyone together, it will mean lowering salaries
or other methods during the downturn. And start with yourself.

Starting Fidus during a downturn meant I went without a salary for a whole year. I parked
my nice car at a friend's field in North Gower for several months and cycled to work each
day. My family went on a strict cash-only spending program, with hard weekly limits.
Eventually the business recovered and we restored salaries. A few people left during the
downturn, and I miss them, but we avoided the conventional vicious cycle of layoffs.
In our society, salaries have become a one-way function: you can raise them, but when
things are bad, don't dare lower them. Look at public service workers - they cannot accept
a wage freeze, let alone a reduction, when times are tough.

You may find that some employees will demand a severance package rather than a
temporary wage reduction. Try and resolve these cases quickly. Concentrate on keeping
your team, and your company, together. And let them know how much you value them.
Michael Wakim is the founder and CEO of Fidus Systems, an electronic product
development company with design groups in Ottawa; Toronto; Santa Clara, Calif.; and
Beirut, Lebanon.