How to Avoid Giving Up

In another venue, someone asked for advice to several construction company clients that were considering giving up and closing shop in the face of a sustained downturn.  After some thought, I posted this response:

The downturn has been different in different parts of the country. Many areas perceive that the downturn is over and business is picking up, but that may not be the case in your region.
What makes a survivor? There are as many answers as there are listeners. My thoughts:

• Survivors sensed the downturn early and acted on it promptly. 

• Survivors trimmed staff quickly. Keeping on people for whom you have no work jeopardized the lives and livelihoods of those that you do keep on. Too many times, the people that you kept on during bad times were the first to go out on their own or jump to a competitor as soon as things get going again. 

• Survivors were acutely self-aware – they knew what they were good at; knew whether or not what they were good at would continue to be in demand during the downturn (buggy whip manufacturer scenario); and they had a good sense of their regional marketplace. 

• Survivors were acutely aware of their cost structure – they understood their direct and overhead costs and how those would be affected by volume. They knew how much they had to markup direct costs to cover their overhead and never, ever, dropped below that markup rate. They might take a job to cover overhead and forego profit, but they never, ever, knowingly take jobs at a loss. Just make sure that sufficient owners’ compensation is included in the overhead number! 

• The ability to accurately estimate costs and mark them up sufficiently, coupled with the ability to produce the work without cost slippage is the single greatest predictor of success. Don’t ever forget that! 

• Always take what used to be called a Zero-Based Budgeting approach. Always ask whether an overhead cost is necessary or can be done without. Always assess the returning value of expenditures – will they result in benefit to the company. Marketing is not an unnecessary expense! If you spend your marketing dollars effectively (there’s the rub), it will be a significant benefit to the company in the long run.

Some may suggest that I failed to really answer the question.  What would your suggestion have been?