Friday, February 27, 2009

A very challenging "2009" and the issue of "right-sizing" your business

Does anyone out there know anyone who has a crystal ball that works? Well, I surely don't. However, while impossible to accurately predict how companies in the reprographics business will perform in 2009, from what I've read and heard, 2009 may well prove to be "the most challenging" year in the business in modern times.

In the reprographics industry "demand" for our services drives all that we do. That "demand" is driven by real estate development activity. The term "Real estate development activity" includes a lot of things, including, but not necessarily limited to, retail development, residential development (apartments, condo's, single family homes, townhouses, etc.), office buildings, churches, synagogues and mosques, hospitals and other healthcare facilities, sports and other entertainment venues, schools (from elementary schools to Universities), public-sector infrastructure projects (water/sewer treatment facilities, roads, highways, bridges), yada, yada, yada. During different recessions in the past 40 years, some of these sectors have been off while others have remained healthy (at least somewhat healthy.) Now, even with the stimulus bill passed, it still appears that almost every sector will be "off" (and well off) in 2009. When tax revenues decline, cities, counties and states have to limit renovation projects and new construction projects. When there is a severe excess of residential property, lenders won't lend and residential builders won't build. And, when commercial and institutional lenders won't lend, commercial and retail developers won't develop. And, when endowments decline substantially, Universities will "put on hold" most of the projects they were planning to do; this also exacerbated by declining contributions. Because we are a continually aging population, perhaps the healthcare industry will continue to go forth with projects that industry's firms started or had on the boards. Greed, excess, or whatever you want to call it, finally caught up with us, and, yes, the proverbial "shit hit the fan" in 2008 ...... and the outlook for 2009 looks dismal, by any stretch of the imagination.

But, look at the bright side! With every down-cycle comes an up-cycle! That has always been the case with the reprographics industry and, yes, history does have a way of repeating itself, time and time again, economically-speaking.

The key issue, now, is not that there will be an up-cycle (because that, the next up-cycle, will eventually happen) but whether or not your company will survive to make it to the next up-cycle. Key to this will be "right-sizing" your business. You must do everything in your power to "right-size." Having been through at least one recession myself, right-sizing isn't fun. It is a completely agonizing process. Right-sizing may include one or more of the following activities - consolidating locations, laying off people (even good people), salary and wage reductions for those who continue to be employed (including top and middle-management team members), rent reductions (yes, consider asking your landlord to help you though the down-cycle; your landlord will be better off with a tenant who still pays at least some rent than having vacant space and zero rent.) Right-sizing doesn't mean "crawling into a shell." You're not a turtle and you cannot afford to be a turtle. You need to continue investing in "business development and sales" activities, full-tilt.

The world's largest reprographics company - American Reprographics Company (ARC) - has been working hard at right-sizing its business the past year, and this effort will continue, I'm sure, in 2009. We can all learn from ARC. ARC has assembled one of the finest management teams ever to grace our industry. Follow ARC's right-sizing initiatives. Stop complaining and whining about deteriorating business conditions and get deep into the process of right-sizing your business. Your survival may well depend on how well you do that. Throw out your "strategic plan" from one, two or three years ago. It is not valid now. You need a completely different "strategic plan" for 2009 and 2010.

Above all, remember, there will be an up-cycle, come hell or high water. The point now is what you do to get through this down-cycle in order to make it through to the next up-cycle.

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