We’ll recover soon!

Apr 13, 2009

I first predicted the recession on Aug. 13, 2007, in an article in The Zweig Letter, Issue No. 724, entitled, “Many have been lulled…” (referring to the false sense of security about the economy that many in our business seemed to have). I was either lucky or good with my prediction— I’ll leave it to you to decide— but either way, I was right. Now I am going the other way and predict the end of this recession will be here soon— much sooner than many think. The lack of new housing starts and the absorption of existing inventory will lead to pent-up demand in many areas. Low interest rates will also spur demand for housing. Housing is the biggest driver of our economy. New unemployment rates are already starting to fall off. And increased savings will lead to increased consumption— people are already getting sick of not spending money. Then there’s the whole economic stimulus effort being made by the government. There are many factors pointing to the strong possibility of a real recovery. Assuming I may be right, and the recession may end soon, will you be ready? Many A/E/P and environmental firms are hurting themselves right now because their owners are fearful. This is the worst they’ve seen things in a long time— possibly ever. Fear is a powerful motivator. But fear in a business owner can lead to over-correction when a problem is encountered, i.e., cost cuts that will seriously stunt the growth of the company later. It’s a situation almost like that of an inexperienced new driver who cannot keep their car going down the road on a straight path and is always heading for a ditch on one side of the road or another. If you want to be ready for the uptick coming soon, here’s what you ought to be thinking about: Staff morale. If it is ruined because of pay cuts or benefits reductions that were perceived as too drastic or unfair, your people aren’t going to want to put in the extra effort it takes to do things right once you get busy again. Cut pay and benefits as a last resort. Staff capability. If your layoffs were too deep, or you eliminated some specialty service capabilities due to the inability to keep these people fully utilized, you could have problems when old clients return and find out you no longer have the same capabilities that they used to count on you for. That may drive them to another provider. Staff capacity. If you let go of too many people out of fear and it turns out you need them when the recovery occurs, it might be hard to rehire again. You will have a reputation as an employer that doesn’t take care of its people during a downturn. Lay off carefully— and make sure it is your worst performers first! Marketing. If you cut your marketing budget when times get tough, watch out for the new competitors who did not and now have a better foothold in your markets when things get better. Predictive metrics. Don’t get caught off-guard when things start to get better. Will you know? Are you tracking predictive measures such as incoming leads accurately? You’d better. Capitalization and cash flow. Are you going to be able to handle an increase in demand from the standpoint of what growth does to your cash flow? If you need more capital, you might want to start thinking again about selling more stock to existing shareholders or selling stock to new shareholders. Some of you— those whose businesses are devastated— might be laughing right now and wondering what I’ve been smoking. Only time will tell if I am right about my feelings that the recession will end soon. Originally published 4/13/2009

About Zweig Group

Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.