Ways to manage the business cycle

Managing the business cycle is one of the biggest challenges that entrepreneurs can face. And there is no escaping it.

Given the globalized nature of business, events in far shores can make a big impact on your business, let alone the more predictable seasonal variations. The recent sub prime crisis in the United States is an example.

Not being prepared to withstand such vagaries could well mean the end of the business. Therefore, for a business owner, it is very important to learn this lesson early on, lest he or she is forced to do it the hard way.

Here are some ideas on how a business can be better prepared to handle the ups and downs of its business cycle.

One must learn to anticipate, although that is easier said than done. Many businesses have been caught unawares by an “unexpected” recession. Since businesses are highly interwoven, even developments in far flung corners have a way of creeping up on you.

It is very important to stay abreast of major economic trends, track regulatory changes and stay clued into the goings-on within your industry. If you can afford it, and your business justifies it, hire someone who can forecast.

Rethink capital expenditure – that does not necessarily mean cut back. In the face of a downturn, the conservative may defer capital investment; the proactive may go ahead in order to gain a first mover advantage when the economy recovers. Naturally, the decision depends on your actual circumstances.

You will also have to devote careful thought to how you will manage inventory closer to a recessionary period. Being saddled with piling inventory is no joy, but neither do you want to be caught with no product to sell when demand picks up. The inventory decision will also be influenced by the nature of the product (perishable/ seasonal) and production compulsions (minimum run). If you can store your product, it may be worth negotiating better terms with vendors in return for maintaining off-take in tough times.

Continue to advertise. This is the first casualty when business is slow. Sadly, most decision makers forget that advertising is an investment that can help maintain your business in the customers’ field of vision. During recessionary times, advertising rates go down too, so you can secure better visibility for your money.

Reassess your staffing needs – again, we don’t necessarily mean downsize. Obviously, employee headcount will vary with the business cycle. However, do remember, that during off season, the labor pool overflows. If you have been struggling to find the right people, you might get lucky during the slow season.

Inheriting a successful business successfully

In an earlier post we discussed the challenges faced by someone entering a family business. We explore this further by talking about how to inherit a business successfully.

Family businesses are not new to India. Indeed, our earliest business conglomerates were built and continue to be managed by family members. When a new generation steps into the older one’s shoes, it is very likely to create ripples within the organisation.

For the business to run successfully, it is important that that none of the good stuff is disturbed when new management comes in. Unfortunately, when a young family member is brought in to head the business, some turbulence is likely – in the form of older, key executives moving out or widespread changes being made just to stamp the authority of the new boss. Some of these changes could be counter-productive.

If you are about to take over the reins of your family, how do you make the transition as smooth as possible?

Spend considerable time absorbing the company’s culture and values. If you’ve worked your way up the ladder, then you are already part of it. You may want to change a few things here and there; that is only expected. However, it is more important to know beforehand what you must not change.

Include people in your plans. Your biggest challenge will be to integrate your staff into new ways. The old guard will be more difficult to contend with, and you can expect to be under some severe scrutiny. Since our Indian culture is non-confrontational and teaches us to show respect to elders, you will have to handle any difference of opinion with great tact.

Also, remember that humility is a great virtue. Don’t be embarrassed to seek advice from your more experience colleagues. Keep them in the loop when you have big ideas.

Once you’ve established your credentials, gradually begin the process of change. Having gained the confidence of your employees, you can expect it to go down more smoothly.

Finally, be prepared that some people will never accept you as the boss. Don’t waste too much time and energy on trying to change that perception. On the flip side, steer equally clear of the sycophants and yes men.

Working in a family business

From big companies to start-ups, a number of businesses in India are still family owned. Having family members work with you can be a huge advantage; on the flip side, you have to handle the dual nature of the relationship with greater care. The key to success in running a family business smoothly is to maintain objectivity, professionalism and adhere to the system as far as possible.

If you are about to become part of a family business – whether existing or new, pay careful attention to the following:

It is likely that division of responsibility is not always according to experience or capability in a business that is strongly family-owned. Patriarchs and senior family members will hold key portfolios or wield power informally, especially in the area of finance.

Given the Indian way of life, in which deference to age plays an integral part, you might find it difficult to express disagreement with those older than you. Confrontation will certainly not work, try consensus and consultation instead.

Expecting higher performance levels from family members can be tricky too. You might not be able to influence the older generation, but at least with the youngsters, implement a formal performance measurement system, the same as for other employees.

Choose partners carefully. If you are the one starting a new business, select your partners carefully. Are they professionally qualified, in tune with the company’s philosophy and as committed as you need them to be? Also, be sure to assign responsibility purely on the basis of ability.

Be objective in your decision making. In a bid to maintain relations, you might be tempted to go with the flow, maintain status quo or defer to elders’ wishes. It may be okay to do this for routine matters, but when it comes to taking a decision of importance, be objective, pragmatic and unafraid.

Don’t show any favours. The business will have other important employees, many of whom will have been around for years. It is important not to openly favour a family member, even if he or she is the brightest spark around, at the cost of hurting the sensibilities of other employees.

Separate the turf – that’s easier said than done. Be prepared for the relationship to come under strain at times. The trick is to ensure that it impacts the personal relationship as less as possible – assigning your spouse a set of responsibilities that don’t overlap with yours, is one way. If things look like they are going out of control, it is best for one person to opt out sooner rather than later.