How to grow by shrinking

Last week, as Bob Kruhm and I attended meetings and conducted interviews in the Washington, D.C. suburbs to re-establish Washington Construction News, I felt both a sense of deja-vu and routine. "I've been here before, many times," I thought, as we drove around Northern Virginia and southern Maryland, including the routinely clogged Beltway.

Three years ago, even as the rest of the construction economy enjoyed the tail end of a boom that seemed to have no end, I doubted we would ever return -- seeing the business crumble, first in the financial numbers, then in the personal relationships and attitudes of staff, then, simply in its scale and operations, as I shut down one market after another. Our U.S. expansion in tatters, we held on by the slimmest of threads in the final U.S. market we entered, in North Carolina, thanks to Bob Kruhm's willingness to continue through thick and thin.

I, too, retained a fatalistically optimistic attitude. Our business finances were gloomy, but I also knew the crucial "point of no return" number -- the level at which unsustainable business debt could crush and destroy my remaining personal resources and assets. So, even though I deferred painful decisions as long as possible, as we bumped up at that horrendous debt level, I cut again and again, seeing both revenues and break-even points decline to levels I hadn't known since the earliest days of the business, when there was almost nothing but the inspiration and drive to be a great publisher.

Eventually, we got to the point where we had one part time sales rep, one part time administrator, and some talented pay-per-service independent contractors. I worked for a salary that could be replicated at a fast food restaurant -- writing the publications, answering the phone, and of course leading the selling effort. Then the part-time administrator obtained a better job, and our only remaining salesperson offered to resign. I accepted the resignation. Now we were down to one employee, working six hours a week, to call and collect old accounts receivable.

However, even as the business appeared to be collapsing, in fact, I had solved the problem, combining business practice and structure insights from consultant Bill Caswell, and (after years of distance), getting closer to our clients and marketplace than ever before. I knew we would survive, and in fact be well positioned to grow even as the recession started burning into the marketplace.

Now that we have emerged from a self-induced recessionary wilderness, you may be wondering how you can enjoy the same survival and resurgence. Here are some lessons learned, which hopefully will help you through the seemingly dark days ahead.

• Successful business people always know their point of no return; the level of indebtedness and stress where, if you continue, you know that you would jeopardize personal assets and your life outside your own business. You must be prepared to do whatever you can to avoid crossing that line -- if you act quickly enough (and some sudden external event doesn't destroy things) you can often resolve things without seeking creditor protection or bankruptcy, but if you see yourself and your business heading in these directions, you need to seek competent legal and accounting advice right away -- as you cannot implement the necessary restructuring measures at the last minute without serious negative consequences.

• Remember the qualities, skills and passions that allowed you to start your own business, and rekindle these by doing work you are great at and enjoy -- you may need to get back to your trade and forget the advice that you should work on, not in, your business (at least in doing the daily work). As you get down to earth, you will also become much closer to your clients. Listen to them, see what they require, and adapt your business and products to their requirements.

• However, even as you are shrinking, develop larger-business discipline and processes; set business practices and systems with the structure and co-ordination of the biggest corporations, but without the bureaucracy. We maintained regular weekly meetings and twice-yearly planning/review sessions even as the business declined; and these processes helped us to catch the bottom and return to vibrancy. (The picture above right is from our October planning meeting -- an expense I would have found hard to justify before, but now know to be essential for the business.)
  

You of course cannot change your external environment; if no one is buying what you've been selling, and the fundamental market has changed for good, you need to adapt and revise your model -- but you can find hope and strength in realizing and remembering these basic principals.