Stephen H Baum Leadership

In the summer of 2007, two of my friends who are business owners saw early signs of economic trouble in their revenues and began contingency planning.

In September of 2007, they began to put these plans into action and completing all phases by year end. These included but were not limited to layoffs at all levels below the senior team, expense reductions, scrutiny of all cash applications and delaying deferrable expenditures,re-negotiation with suppliers, price increases, eliminating costly services not valued highly by customers, hiring (yes, hiring) additional client/customer retention people, hiring (yes, hiring) additional sales people and outplacing poor performers.  I sold off half my own personal equity holdings and bought puts against the entire domestic equity portfolio.

By the end of 2007 they were creating “Plan B” which went into effect in recent months with deeper cuts and more aggressive risk management. In early 2008, I extended the puts on my personal portfolio out to the end of 2009.

Now what?

A recent discussion surfaced what has been learned in recent weeks from walks through factories, meetings with advertisers and other in-the-trenches activities: the economy is grinding downward in industrial production, retailing, consumer goods, advertising and more. Yes, part has been the credit crunch. Yes, oil and many other commodities have dropped in price so production inputs cost less for many companies. But earnings are still plummeting beyond financial services and we will not see the data until end of year figures are released in 2009.

So, my friends are once again drawing up contingency plans and beginning to put them into play even as we speak. These include laying off under-performing members of the senior team, re-thinking the need for internal recruiters and the use of outside staffing firms, buying insurance on accounts receivable, re-visiting expenses one more time, communicating with employees to get all on the same page, spending face time with customers, sharing the pain with customers (including extending agreements by one-time price reductions and non-price concessions now in return for increases and better terms in 2009 and 2010) and making sure that A-players know they are cherished .  And I am buying more puts, anticipating the release of earnings figures in 2009. And I am revisiting all cash holdings and expenditures.

What’s next for you? Share with us.