By Rod Douglas 

Seven steps to surviving and thriving in the economic maelstrom.

There’s doom and gloom everywhere. The Prime Minister wants all and sundry to spend, spend, spend at Christmas to keep everyone in a job. Resource stocks, the powerhouse drivers of the past five years, have tanked. The Ozzie has lost a third of its value against the US$. American manufacturers can’t make payroll, Mooney is building to order and even Cirrus is cutting staff.

The world is in the midst of a correction.

But don’t panic, be happy. Now you might think this is simply a perversion of the wonderful Bobby McFerrin song – ‘Don’t worry, be happy’ – it’s actually much more like the pilots’ creed. In my view, those pilots who apply the same decision making skills that are required to thrive within the unknown of weather flying (see my other article in this issue ‘Storm season flying’) are likely to weather the financial storm in rather better condition than many others who aren’t required to make the sort of simple life and death decisions that are de rigueur in the world of flying.

 Flying, where a simple mistake can come at an enormous personal and financially cost, is all about making timely decisions that consider all the factors and then ‘picks the best path through’, delivers exactly the type of thinking that is needed in these recessionary times.

Warren Buffett, the ‘Oracle of Omaha’ as he is called in investing circles and one of the world’s richest men puts it simply: ‘Be greedy when others are fearful and fearful when others are greedy’. Now is the time to be greedy, but only after you have put your house (read business) in order and you’ve the selected the path that will maximise your opportunities.

So let’s get clear on what we are actually facing in this market. First of all it’s important to understand that it’s simply a ‘change in sentiment’ that has been driven by a collapse in the US debt markets. For decades the US has been gorging itself on debt. This malaise has flowed around the world and we’ve watched it happen in Australia where, in the 23 years since the deregulation of our debt markets, we have watched an incredibly staid and conservative banking system morph itself into a dramatically larger and still incredibly conservative, market-based banking system.

Let me run that by you again. The incredibly conservative banking system got deregulated and has become much larger on the back of dramatically increased lending to the household sector, who  have, for the most part, used their homes as ATM’s and gorged on borrowings. The important factor to realize is that we’ve ended up with one of the strongest banking systems in the world as a result of the significant (and for the most part appropriate) regulation which followed the fallout of the last great correction in the ‘recession we had to have’ in the early ‘90’s.

Fundamentally the world has caught the US cold and now needs a period in bed to get better. That’s called a recession. So will Australia go into recession? How would I know? There are bigger brains than mine out there guessing, and few of them agree. This much I can tell you. After years of growth, everyone is tired. A recession is like an enforced holiday. To start with you don’t want to have it, eventually you relax into it, then the ideas come and you need to get back to work. We might have a year to run, at worst two. It will turn. It’s only a question of when.

So before you start to think that it matters whether Australia will go into a recession or not, let’s explore what a recession is and why it’s healthy to have them reasonably regularly. A recession is technically two quarters of negative growth. That’s right, six months when the country’s economy doesn’t grow.  Bearing in mind that average GDP growth over the last century is about 2% per annum, and that’s been enough to generate the enormous wealth that we now experience, you can see that the change in the reality of spending needed for sentiment to turn from our long term healthy 2% growth to a ‘recession’ where the economy contracts slightly is actually marginal. With the economy worth about AUD $1 trillion dollars per year that change is a reduction in the size of the economy of about $30 billion dollars.

Fundamentally it’s a reduction in confidence that becomes a slippery slope. Contrast that to the size of the pump priming that the government is participating in. The first tranche is $10.4 billion in hand outs at Christmas. That’s equivalent to 1% of GDP. Being a Labor Government the historical solution has always been to spend their way out of recession so they won’t stop until it’s done.

So a 3% turn around generates a recession. You’d have to agree that’s not much. It’s the multiplying effect of consumer and business sentiment that makes it all seem so much worse. With a government committed to spending its way out, it’s actually pretty easy to see that this is likely to be a short sharp correction. And it’s healthy.

In the 1982 recession (‘the banana republic’ recession) the Labor Government used workplace reform combined with the freeing up of the financial markets and the floating of the Australian dollar to drive structural change in the economy. This has built the platform for our economic engine in the follow three decades.

In the 1992 recession corporate debt was the problem and, fundamentally, the corporate world was forced to learn good balance sheet management which means that, with some notable exceptions, our largest organisations and all our banks have become disciplined users of capital. In the 2008 correction it is households that need to learn the same disciplines.

So how is it going to affect you and your business?

That’s going to depend on how well you run it and how responsive you are to your marketplace. Sadly the general aviation sector is still in many ways driven by cottage industry thinking and practices. In that environment there is a very fair chance that we will see significant dislocation as some organisations fail. Those that fail will do so because they are simply poorly managed and don’t subscribe to appropriate and disciplined approaches to doing business.

Many of you will have read my articles before and have heard my lament of the complete lack of customer service and effective systems to meet the needs of poor punter pilot which would attract a willingness to spend within the GA sector. Fortunately aviation is a disease and all good diseases have a certain level of spending attached to them just to keep them in check. On the other hand aviation is also a luxury that can be replaced with lower cost options, so there is a high risk of revenue leakage as people seek cheaper outcomes that might shift the time/convenience driver of aviation to a lower priority.

So if you’re running an aviation business what should you be doing right now to help weather the downturn which is sure to come? (And if you’re not running an aviation business substitute your industry for aviation and do the same).

1. Don’t panic. It’s the first rule and it’s the best rule. If you panic when you’re flying the outcome won’t be pretty. If you panic in business the same happens. You won’t hold it together and even if you survive you will have damaged your reputation and your brand.


2. Face the brutal truth. No one knows just how bad this is going to get. It’s all tied to market confidence and that is a worldwide phenomenon. No one can control it so don’t bother trying. If you’re caught in severe turbulence we all know to do as little as possible while  attempting to keep the wings level and to just go with it. Fight it and you might well bend the airframe. It matters little what the world is doing. What really matters is what are your clients doing? Get close to them. Find out what they need from you. Become their trusted advisors. Understand what’s going to make them really happy and find a way of delivering. When the world is falling apart people need something to keep them smiling. Aviation is good at that but it might mean that you need to find a different way to deliver. See this as an opportunity to get creative. Extraordinarily these are the times when you can often increase your prices or improve your margins as you better match your offer to your customers needs and reduce the cost of servicing them.


3. Cut out the dead wood. It’s time to sharpen and aggressively use the pruning saw. Who isn’t performing? We’ve had a seller’s market in the employment stakes for so long that many people are used to putting up with poor performance. That just changed. I’ve just advertised to find myself a new executive assistant. We’ve had 130 replies. Top quality people. The market has turned. Use this opportunity to add competition. Keep your best people but put new people that will challenge them beside them. Hire aggressive, yet intelligently. If your team hasn’t been restructured when the market turns then you will be carrying your team through the whole of the next cycle because when we come out, we will come out fast, and good people will once again become a scarce commodity.


4. Say goodbye to failed experiments. In good times every business decides that it should grow and starts to drift, or experiment, in areas that are away from the core. In tough times you need to make a decision. Does every area of your business have life in it? If you’ve got any area that’s on life support, pull the plug out of the wall. If it strategically makes sense then mothball it. Do only enough to allow you to reactivate it when the profits come back and you’ve recovered enough to reinvest. Surviving is about retaining cash for your core operation and to build the capacity to expand off the weakness of others.


5. Spend intelligently. Cut out all discretionary spending. Take back the order books, cancel the credit cards, narrow down the number of people authorised to spend money on your behalf. Turning off the tap will always stop the leaks and, while people might feel somewhat disempowered, reward them for creative and innovative ways to do more with less with liberal praise and lots of pats on the back. Remember when the going gets tough, the tough get going. There is one area, and one area alone, where you should be looking to spend. Spend on good quality business planning and advice. Recessionary times are where powerhouse businesses emerge from, both new businesses and revitalized businesses. They spend the time planning for and taking the opportunities that only intelligent bottom feeders can benefit from. To do that they create or refresh their plans and make their advisers their best friends.


6. Build systems for the future. When the world is running, efficiency is lost. When things slow up, if you’ve secured the ship, you will find that your team has time available. The spare time will be wasted if you don’t focus on specific projects that will generate significant efficiencies. Oftentimes this process costs nothing but time to find and drive out the inefficiencies in the business and to build systems that are replicable and scaleable. A culture of constant improvement rarely takes genuine hold in good times because it easy. It is in hard times that cultures change positively and the seeds of success are sown.


7. Buy all the real estate you can afford. And no I’m not talking about land, unless that happens to be your business. The real estate I’m talking about is the market that you operate within. Good businesses know that when the hard times come it’s that bad businesses that will be going out of business. Those bad businesses often have good clients, good assets and good positions, whether that is by way of the products they represent or the market niche’s that have allowed them to grow. Frequently you won’t even have to pay for the opportunity. With literally thousands of baby boomers wanting to retire there are hundreds of businesses whose doors will simply shut because a buyer can’t be found.  Once you’ve set your strategic plan, become an acquirer. Be conservative, pay as little as possible, and stake your claim as wide as possible. If you haven’t got a strategic plan, then buy nothing, because no matter what the price, it will bleed you dry.

For those who understand what’s happening in the world, life just got interesting. I’ve always made more money in recessionary times than in the boom times. Why? In recessionary times there is less competition, people value smart solutions and opportunities abound. In boom times everyone thinks they can do it because it’s easy, the level of competition skyrockets, idiots start setting prices and the world becomes inefficient. Fat, happy and lazy only ever gives way to lean, focused and intelligent in times of correction.

So, as you contemplate 2009 as Australia wakes up with a full tummy and a few extra pounds after the big Christmas dinner and the gallons of alcohol drunk to celebrate the coming of the new year, it’s time to make a decision. Do I lament the world coming back into balance, or do I start planning to ensure that, at the end of the next cycle, I’m the smarty with lots of cash waiting for the bargains to emerge?

The best investment you can make is the time and support to plan for the next five years. If that plan is right, next year will take care of itself.

Good flying, good planning and remember, don’t panic, be happy.