Monday, August 17, 2009

How to Survive and Thrive in the New Economy

We are living in very interesting economic times. Many people have lost their home, their job, their business, their retirement, and their hope for a secure future. Some are wondering whether they will be able to survive in these tough economic times. Many wonder what the future holds.

Although I cannot gaze into a crystal ball and tell you exactly what the world will look like in the next few years, I believe we can make some logical assumptions about what to expect. We can see trends and predict where those trends may take us. We can surmise, through an under-standing of human behavior, how people may respond to the conditions and situations they currently face. And we can conclude what must be done, as small, medium and large businesses, to both survive and thrive in the new economy.

Storefronts and businesses in malls, shopping centers, and stand alone locations are empty throughout the nation. Businesses are closing daily. Everywhere one looks one sees boarded up windows. Venerable companies are falling by the wayside.

The U.S. Conference of Mayors forecasts wide-spread job losses for 2009 in all but five of the nations 363 metropolitan areas. Throughout the nation, even the most formidable corporations, are experiencing massive layoffs. Record unemployment, a deepening recession, and frozen credit conditions have impacted our country in a major way.

We are living in what is being called “the worst credit crisis since the Great Depression.” Some analysts predict this economic crisis will be deeper and longer than most people expect. The majority of economists say the economy won’t re-turn to a healthy, sustain-able growth rate until 2011 or later. Many believe what we are experiencing is not a normal recession. It is a financial crisis that will have lasting implications for decades to come.

Jeff Immelt, Chief Executive Officer of General Electric, says: “This economic crisis doesn’t represent a cycle. It’s an emotional, social, economic re-set. People who understand that will prosper. Those who don’t will be left behind.”


I believe the ones who will be “left behind” are those business leaders who don’t understand or accept the long-lasting effect of the deepening recession. They may not realize the difference between what I call a “momentary blip” and a “defining moment.”

A momentary blip, by definition, is a situation from which one recovers relatively quickly; whereas, a defining moment is an event that impacts our lives for years to come.

In the days immediately following the terrorists at-tacks of 9/11, many, including myself, thought the World Trade Center tragedy would stay in our hearts and minds forever. We thought the economy would be impacted for a long time. Yet, for those who were not affected directly by the loss of a friend or loved one in the attack; most of us soon moved on with our lives. The impact on us was only briefly felt and our behavior was not significantly altered.

A defining moment, on the other hand, has lasting implications. It causes people to introspectively reflect upon their lives. In most cases a defining moment causes people to alter their attitudes, values, and behaviors based upon what they experienced during the defining moment.

People who lived through the Great Depression were strongly affected by that experience. As a result, most maintained frugal values and behaviors throughout their lives. Those who lived during World War II maintained deep patriotism, even when others were violently pro-testing the Vietnam War. Baby Boomers who grew up during the turmoil and rebellion of the 1960's, today still tend to remain suspicious when dealing with “the establishment.”

I believe we are at the beginning of another emotional period in our country’s history that will become a defining moment – if it hasn’t already.

For many years people have been living large. Money was flowing. Investment capital, lines of credit, and housing and car loans could be had with no money down, bad credit, and no proof of income. People were caught-up in the bigger-and-better mentality. They needed bigger homes, bigger cars, bigger television sets, more toys, better vacations and the most extravagant parties, Bar Mitzvah and Quiceaneras than anyone had ever seen.

It became a one-upmanship that went far beyond “keeping up with the Joneses” because people seemed to be competing with themselves rather than their neighbors. They want-ed an even bigger house than the one they already had, a bigger car than the one they were driving, a better vacation than last year’s, and a wedding for their second child that was much more extravagant than the marriage of their first.

And why did they want it all? Because they felt they deserved it and they could get it now! They had the money – or at least they had access to the money – even if it came with interest payments.

Businesses throughout the nation, and particularly in Las Vegas, responded to the free-spending consumers by creating bigger and better products. We needed more hotel rooms, more restaurants, more amenities, higher levels of service, bigger and fancier stores, and huge varieties of inventory to meet the demands of the consumers.

Some companies, such as Strip casino properties, even started one-uping themselves. They changed their brand, upgraded their property, built fancier restaurants, and put in Italian marble; even if the customers didn’t need it or want it. Lower level properties com-pressed upward, wanting to capitalize on the higher end spending and rapacious appetites of the consumers.

Casino properties shifted their focus from a gaming-centric model to one of retail and tourism. Super-properties and high-end resort amenities were created to satiate the ever increasing desires of the free-spending consumers. The excess and indulgence of “What Happens in Vegas, Stays in Vegas” became the catch phrase of a new era.

And why did businesses want to be the biggest and the best? Because they could! They wanted it now and they had the money – or at least they had access to the money – even if it came with interest payments.

But then the bubble burst! The myth that “Las Vegas is recession-proof” has gone up in smoke. And, I believe the myth that “Las Vegas will be the first to recover from the recession” will not hold up either – unless we change the way we do business. Because I believe the current economic crisis is not a momentary blip. I believe we are experiencing a defining moment!

I believe those who have already lost their home, their business, their retirement, or their sense of a secure future have already experienced a defining moment. And the longer this crisis goes on, the more defining it will become. I believe this defining moment will cause people to ponder how greed, free-spending consumerism, easy capital, and the desire to have it all; caused so many to lose it all.

I believe this defining moment will permanently alter consumer attitudes, values and behaviors. It will alter the way people do business with your company. It will alter peoples spending habits for many years to come.

If you want your business to survive and thrive in the new economy you will have to alter your products and services to match the new consumer mind set that is emerging from these unsettled times.

To understand how “defining” the current economic crisis has become, just reflect upon your answers to the following questions:

• How financially secure do you feel right now?

• How have your spending behaviors changed in the past year?

• How long will it be before you will feel financially secure again?

• When will you return to the free-spending consumer behaviors you enjoyed in the past?

If the answer to that last question is “a long time” or “never,” then you’ve already experienced a defining moment. And if you have already made decisions to alter your spending behaviors, then I think you can safely assume the customers who patronize your business have altered their behaviors even more so.


All of the evidence points to a dramatic shift in our economic world. We are witnessing a lack of consumer confidence that will dramatically change the way customers spend money at your business. It will change consumer perceptions regarding which of your products and services appeal to them and which do not. This shift will re-quire significant changes in the way you do business. To survive and thrive in the future will require new products and services that match the changing values, beliefs and behaviors of the emerging markets. Those leaders who recognize early that we are going through a defining moment will create new business models and succeed, while those businesses that remain inert, hoping the blip will soon go away, will falter and die.

Sadly, there are some business people, even here in Las Vegas, who still don’t seem to get it. There are executives and managers in this city who have stuck their head in the sand in a false hope that this economic storm will soon blow over.

When I first moved to Las Vegas in 1988 and started working with casino clients, many employees bemoaned the, then new, business model of corporate ownership and governance. Back then casino workers regaled me with stories of how wonderful life was when the mob ruled the casinos. They insisted that customers and employees were treated much better when the mob was in town. The money flowed, and everyone benefited.

Then, according to these employees, big corporations came and ruined all of that.

I used to say back then that “Las Vegas was the only town on the planet where people got down on their knees at night and prayed for the mob to return.” But, by then, the “wonderful” mob days were gone; and they would never return. Las Vegas had to find a new business model; and, fortunately, it did.

Now the bubble has burst on the latest Las Vegas business model. Sadly, like those in the 80’s and 90’s who prayed for the mob to return, some business leaders in Las Vegas today hold on to the false hope that life will soon return to the easy capital, free-spending consumerism of the past. They close their eyes in blind optimism and refuse to see that life as we have known it is gone. They pray that the current crisis will only be a short-lived dilemma, and then life will return to “normal.”

I believe any business-person who thinks he or she can sit back and wait out this crisis without making significant changes to how they do business, is in for a rude awakening if they don’t wise up. Those who hide their head in the sand under a false hope that life will return to normal may soon find themselves buried in bankruptcy, foreclosure, or divestiture.

The current economic crisis is defining the new “normal.” Falling markets are a call to action. We are entering a new normal that requires new business models and innovative thinking. It requires a complete new look at your business in a rational, logical, and objective analysis of what will and will not work in the new economy. It requires tough decisions and a unified focus to transition your company into the new world. If you wish to survive and thrive in the new economy you must align your business strategies with the new attitudes, values and behaviors of today’s consumers, for they are not the same as they were in the past.


The first step in creating your new business model is to assess how your customers have changed. Note how your customers’ attitudes, values and behaviors have changed, particularly as they relate to the products and services you provide.

Listed below are some of the general shifts in consumer behaviors throughout the country. Consumers are

• Spending much less
• Thinking through spending decisions and are less impulsive
• Spending on needs and necessities instead of wants and desires
• More frugal, thrifty and prudent
• Living within their means.
• Budgeting and planning purchases
• Shopping around, comparing prices, looking for bargains
• Trading down (value meals, two for one, coupons)
• Taking shorter trips, less trips, staying closer to home
• Using self-service, do-it-yourself, and looking for people to show them how to do it

There is an old adage from my grandparent’s generation that today’s consumers might find apropos: “Use it up. Wear it out. Make it do. Or do without.”

In a down economy your customers will be looking for products and services that help them “use it up” for a longer period of time. They will hold on to things and wear them out rather than throwing them away and buying new ones. They will make do with what they have and will go with-out the things they previously thought they needed.

Consequently, the next step in defining the new business model is to determine the right products and services to meet the needs of today’s consumers. Your best bet is to provide products and services that

• Help customers save money, stretch their dollar
• Are necessities versus luxuries
• Aren’t as conspicuously obvious in consumption
• Represent a good value
• Allow customers to use it up, wear it out and make it do
• Expand shelf life, last longer, are more durable
• Don’t require additional add-on purchases
• Allow for a lesser or trade-down option
• Are self-service or allow for do-it-yourself option
• Allow crowded families to live happily together
• Allow people to escape from the stress of the world

During the wild, free-spending economy almost anyone could succeed in business. It didn’t matter much what products and services you offered because someone somewhere had enough money to spend on whatever you offered. However, to survive to-day you will need to objectively assess which of your products and services are viable in the new economy and which are not. You will need to define your core competencies and skill sets in order to determine what you can deliver well, while eliminating the things you do poorly. And you may have to kill some “pet” or “ego” products and services that no longer provide value to your customers. Most important, you may need to separate yourself from the pack and differentiate your value proposition in order to better attract and retain your customers. In this homogenized world where every casino, cell phone, restaurant and donut shop looks and feels the same, you may have to find a special niche that no one else covers.

This means you will need to keep an eye on your competitors. During stressful times it seems every business is casting a wider net to try to capture whatever customers they can reel in. New competitors may now be infringing on your market. You may be facing dramatically different behaviors from your competitors as they frantically shift their tactics to stay in business. Previous positions of market dominance may now be compromised as competitors com-press down on your targeted customer base. You may even be forced to abandon some customers segments and seek out new customers your competitors are not targeting.

Most important, now is the time to identify competitor weaknesses you can exploit and determine how best to get consumers to choose your value premise over that of your competition.

More than likely you will need to make adjustments to your marketing messages and approach. For example, the old Las Vegas message of excess, indulgence, sex and decadence may need to be re-placed with a message that appeals to the new values and attitudes of the consumers. In some cases you may even have to change your brand identity to be more in harmony with the new world model. You may need to de-emphasize some elements of your sales and marketing efforts and significantly emphasize others.

In this changing world old methods of reaching out to the customers may no longer have value while new touch points may provide a different intimacy with consumers. Social networks and text messaging, for example, may be more meaningful and less expensive than the typical mass media options. Dis-counts and coupons may be more attractive than high-end amenities. Self-service may be more appealing than five-star treatment. Positioning the right products and services to your customers and how you do so will have great bearing on whether or not you will succeed in the future.

The way you measure your economic success in the new world may also have to change. The shift in consumer spending will re-quire you to create new economic models that provide a realistic assessment of the financial results you can expect in the new economy. The high EBITDA numbers that represented success in the past may no longer be attainable. Former pricing strategies may need to be adjusted to match the reality of the new world. Debt structures and relationships with financial partners may need to be redefined. New partnerships may need to be established to maintain your financial viability.

Cost-containment and revenue enhancement initiatives will need to be intensified throughout your organization. Vendor and supplier relationships may need to be assessed to develop strategic partnerships that will better position your company for success.

As these important changes are taking place you will also need to access changes needed in quality and service delivery. As consumer behaviors change, so, too, do their needs and attitudes toward quality and service. What used to matter service-wise to your customer may not matter now. And what didn’t matter in the past may now be important. For example, customers who have less dollars to spend may be less interested in frills and amenities and more interested in just basic services. On the other hand, consumers may be seeking higher quality products that last longer since they now intend to “use it up” until it is “worn out.”

As you look at your products and services there may be areas where quality and service no longer matter. There may be areas where you can actually lower service levels without negatively impacting the customers. You may be able to redeploy your employees from areas where service doesn’t matter to areas where service matters greatly.

Invariably there will still be areas of quality and service where you must remain fanatical in your delivery. The key during troubled times is to pinpoint those things that matter most to your customers and focus your energy and effort in delivering in those area.

Another important area in which to fine-tune your effort is to determine your resources and technology needs. When money is tight you cannot afford to make poor decisions regarding the deployment of your employees, materials, resources, equipment, facilities and technology. Tough times require you to be very specific about what you need and don’t need to survive. Every effort should be used to maximize the value and utilization of the resources and technology you already have.

The down economy also forces you to look at how your resources are deployed. Now may be the time to consolidate divisions, departments or facilities. There may be ways to streamline processes, procedures, practices and systems by optimizing, minimizing, synthesizing or altering current applications. Outsourcing, shared services or new strategic partnerships may be needed to maintain the future viability of your enterprise.

Now is also the time to identify where organizational changes are needed. In the new economy you may have to completely redefine and redesign your organization in order to create value for your target customers. You may need to streamline or flatten your organization to find the right size to better serve the consumers. You may have to reengineer your organization to make it more efficient and effective. You may need to enhance cross-functional cooperation, co-ordination and communication or become much more nimble and fluid in your decision making processes.

Most important, during these tough economic times you need to get close to your employees and engage them as business partners in determining how best to deliver your products and services. You need all of the eyes and ears of your company to be completely in tune to the customer experience. You need open dialogue between management and employees so you know what is going on at every level of your organization.

Finally, and perhaps most important of all, you need to recognize the changes needed in managing your human assets. Your employees, not just your customers, are going through tough economic times. There is great stress and concern among your employees. They are worried about their future.

Now is the time to link your business imperative of financial survival you’re your employees’ imperative of personal survival. You need to help each employee see how his or her actions impact the future security of both the company and them as individuals. This crisis provides you with a great opportunity to formulate a unique partnership with your employees as you unify around the common goal of mutual survival.

This is also a time to identify the new skills, knowledge, attitudes and behaviors that will be required from employees and managers in the new business model. A new organization requires new behaviors from the people within it. The biggest challenges in the new world will be get-ting employees to make the transition from past practices to perform at the level needed today.

The new business model may also require significant changes in your Human Resources practices. Obviously changes in your compensation and benefits packages are already being forced upon you in this adverse economy. Bonus structures, 401K plans and other incentive practices are changing. This may require additional changes in the way you recruit, hire, orient and train new and current employees. Past succession plans and career development options may no longer be viable. Performance management systems may need to be adjusted. Labor and employee relations may take on a whole new tone as the world changes around your employees. New methods to maintain the trust, respect, confidence and support of your employees may need to be developed.


If you wish to survive and thrive in the new economy you must take action now. You must make the right decisions. There is no margin for error. There is no time to sit back and hope life will return to the free-spending days of the past. If this is a defining moment, as I have suggested, you must create a new business model to survive or fail under the old business model. If consumer values, beliefs and behaviors are changing, your business must change to match the new consumer attitudes. You must proactively reposition your company to align itself with the realities of the new world.

During another defining moment in our country’s history Abraham Lincoln said: “When the occasion is piled with difficulty, that’s when we must rise to the occasion.”

This is not a time to hunker down. This is not a time to look backward and hope for a return to the past. This is a time to take the helm in a confident command posture and firm resolve to navigate safely though these troubled waters. Now, more than ever, you must gather your leadership team around you and step forward together in a unified strategic effort to define the right business model for your company. Those companies who discover the new business model first will survive and thrive in the new economy.

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