On this week's EIC Squared podcast, ZDNet's Larry Dignan and I talk about the tanking economy, the challenges facing an Obama administration CTO, and Microsoft's search quests with Verizon Wireless and Yahoo.
The holiday shopping season is looking grim as Circuit City files for bankruptcy and Best Buy lowers its forecast for its fiscal year. When will it ever end?
President-elect Obama has called for a national CTO. Given the complexity of technology infrastructure, the abundance of projects, the squeeze on budgets, and policy controversies, this will be an extremely challenging position.
We also discuss Microsoft's next moves to increase its share of the search market, with Verizon Wireless or Yahoo, or both.
In this week's EIC Squared podcast, ZDNet's Larry Dignan and I discuss the flailing economy. The CFOs explaining the financial results on tech company earnings calls echoed the sentiments and uncertainty of every other company and industry. As Microsoft CFO Chris Liddell stated:
We're not economic forecasters, and there is a high degree of uncertainty in outlook based on the state of the economy. As a result we've adjusted our guidance approach as follows. At the top end we're assuming a mild recession, and a relatively modest growth rate for all IT-based products. While at the bottom end we're assuming a deeper recession in the economy and end-season lower growth for IT.
Even Apple's Steve Jobs had something to say about the economy: "Your next-door neighbor can likely predict what is going to happen as accurately as we can."
We also preview what's coming next week at the Microsoft Professional Developers Conference in Los Angeles next week.
Guest post: Christopher Lochhead, the retired chief marketing officer at Scient and Mercury, offers some turnaround strategies (learned the hard way) for weathering the economic storm.
Economic downturns require extraordinary leadership. They require brutal honesty. They require action. If your market and company are truly in trouble, here are some turnaround strategies (learned the hard way) to weather the storm so you can live to fight another day.
1. There Is No Such Thing As One Bad Quarter
When your markets get weak and/or you really screw up, fixing it will take a lot longer than you think it will. Pray for spring, but get ready for a long, cold winter.
2. Get The Facts Yourself
People don't like to deliver bad news. As an executive, your job is to get to the heart of the problem fast. You (not someone who works for you) need to figure out how bad your problem is.
How bad is the sales forecast? How late is the next release of the product? What is the cash burn rate? How many critical projects are broken? You must drill into the "whys" to make sure you understand the facts and the causes of the problems. The key is to ask "why?" five times.
Why is the project late (you will get an answer)? Then ask why that is the case (you will get another answer), then ask why that is the case (you will get yet a deeper answer), and so on.
Once you've asked why five times, end every conversation with the most powerful question you can ask, "Is there anything else?" Before my grandmother was heading into surgery to fix a broken hip, I asked her doctor that question. He told me something he had not wanted to tell us--that there was a 25 percent chance she would die during the operation. People don't like to deliver bad news. Real leaders get the real facts so they can take real action.
3. Get 2 Top 10 Lists Fast
Get the smartest, most courageous people in the company together this weekend (no more than 10 as big groups do stupid things) to brainstorm about the top 10 ways to drive revenue and the top 10 ways to cut costs. Here are a few ideas to get you started.
Drive revenue:
- Assign every big deal in the pipeline to an executive and make the execs and the salespeople accountable for closing the deals
- Give customers a new incentive to buy this quarter
- Focus on your core markets and ignore the rest
- Announce a competitive replacement program (provide an incentive for customers of your competition to switch)
Cut cost:
- Do a lay-off
- Pull out of under-performing markets or geographies
- Sell under-performing assets or business units
- Stop all stupid travel, off-sites and trade shows (anyone at AIG from there?)
4. Horde Cash
In March of 2000 as the tech bubble was getting ready to burst, my accountant, the legendary Greg Finely, called me and yelled, "Horde cash!" It's good advice in bad times. Meet with your CFO and finance team to figure out how to optimize the cash, and never forget the sage words of the Coen brothers, "Where's the money, Lebowski?"
5. Tear Off The Band-Aid Once
Take all the pain in one big shot. Cut deeper and make bigger changes than you think you need to. The more quarterly forecasts you miss and layoffs you do, the harder it is to recover. Once you know that your company is in trouble, assume it's in worse shape than you realize. Because it is.
If you are going to miss quarterly numbers and forecasts, miss them once. If you have to do a reorg, do it once. And if you are forced to do a layoff, do it once.
6. Fire Executives
It is stunning how many companies do a layoff without firing any executives. You can't layoff 20 percent of the company without letting go of some of the executives (who are at least partially responsible, if not completely responsible for the problem). And don't just demote them, or move them to some other job. Fire them.
7. Chop The Dead Wood
Every company has people on the team who are "C" players. Rather than doing an across-the-board 10 percent cut, make sure that the people you are cutting are the worst performers in your company. Your "A" and "B" players will appreciate the fact that you did the right cutting. This may sound harsh, but no one wants the "C" players around anyway.
8. Tell The Truth
Some executives think that lying, misleading, and otherwise obfuscating will "soften" the blow in bad times. Wrong. Lying never works. It sounds obvious, but companies and executives do it all the time. It can land you in jail or ruin your career (trust me--I've seen this happen to well-meaning but misguided execs). People hate delivering bad news, so they tell a "white lie," which they often rationalize as somehow doing good for others.
Be honest and direct about the facts. Brutally honest. Be honest with your stakeholders. If you are laying off 25 percent of your people, then say that's what you are doing. Don't say, "We are laying off 15 percent and expect some additional headcount reductions through normal attrition."
9. Communicate Clearly and Powerfully
The truth will never be as bad as the rumors will become. "No comment" will increase the untruths and gossip. It will also unleash the venom of the people you used to be forthright with. The press will attack harder, and your employees' distrust will grow deeper. Both will undermine your efforts with customers and drive your stock price even further down. It doesn't matter how much it hurts. You must over-communicate.
When you're in trouble, get clear about what you are going to say before you open your mouth. Rambling or trying to make 16 points will make you look confused, defensive, or stupid. Then get clear on three--and only three-- key messages to deliver: the facts as you know them, the actions you're taking now, and how your actions today position you for future success. Write these messages down, and practice saying them.
10. Sign A Pact In Blood
In November of 2005 Mercury's board of directors fired our CEO, CFO, and general counsel because of a stock-option accounting problem. Our stock tanked, our competitors attacked, and our employees were scared. The key executives in the company agreed to stick together come hell or high water (and boy, did we go through hell and high water, but that's another story).
We didn't wavier. And neither should you. Nine months later, we had settled the accounting problem, turned the company around, produced some of our best quarters ever, did an acquisition, and ultimately Hewlett-Packard bought us for a significant premium. That turned out to be a big win for shareholders, customers, our people and HP.
11. Drive It Like You Stole It
Legendary teams execute their turnaround plans like it is the last thing they will ever do. Take action. Bust your butt. Get on planes and meet with all of you key customers. Rally your teams in town hall meetings in all of your key offices. Refine your strategy. Focus your efforts. Get your people focused on results. Meet with your top investors to tell them how and why your turn around will work. Get help from some wicked advisers. Recruit new talent to the company. Sell, sell, sell, and lead, lead, lead.
Leading a company through a turnaround is arguably the hardest thing to do in business. If you actually do it and pull through, it will become the most rewarding thing you have ever done in business. Good luck and knock 'em alive.
After 20 years in business and being the marketing chief at three public companies, Christopher Lochhead retired at 38. Now, he serves on a few boards and is a part-time strategy adviser. Every year he gives a handful of speeches, and from time to time writes something. Check out www.lochhead.com.
Reading The Wall Street Journal and watching CNBC lately can drive a person (namely me) to drink. Which is fun, but beyond answering the question, "Which scotch will I drink?" the seminal question is "How do we thrive in a downturn?"
Downturns are the best time to take market share. Most companies overreact. They get too conservative. They also forget that they are not the victims of the market.
Customers buy (or they don't) based on the way we do business with them, not the other way around. So now is the time to get aggressive, compel customers to buy and hit competitors when they are weak.
I am reminded of the sage words of Steven Tyler, the lead singer of Aerosmith, who said, "Love in an elevator, livin' it up when I'm going down." Well, it's time to live it up.
Invest in new technology
Time has proven that companies that leapfrog with technology win. It is surprising how slowly Web 2.0 and other important new technologies are being adopted in the enterprise. Much of the innovation seems to be coming in the form of new consumer services and technologies. Now is the time for the enterprise to move from Web 1.0 to 2.0. There is a whole new range of new 2.0 stuff to look at and implement. Here is a list of a few of my favorites:
- Cloud services
- Enterprise social software (Social networks, wikis, blogs, prediction markets)
- New software as a service (SaaS) apps
- The emerging category of PaaS (platform-as-a-service)
- Blade servers and storage
- New virtualization & provisioning technologies
- New mobile apps (Anyone notice the iPhone & BlackBerry growth?)
- Whack 10 percent of all development projects (At least that many are no longer needed.)
- Cut production apps by 10 percent (At least that many are under-used.)
- Increase data center and application consolidation efforts
- Look at more areas to outsource
Launch a bold marketing campaign
In bad times, customers look for solid companies. Brands that are visible win. The worse thing you can do in a downturn is cut the marketing and sales budget by too much. While some belt tightening across the enterprise is prudent, this is one cost center where too much cutting can kill you. One area you can cut in marketing is the reach and frequency advertising. It is more powerful and cost effective to go big, in a very targeted way for shorter lightening strikes, than to spread an advertising budget evenly over 12 months. Don't forget, if you make your brand disappear for a while, it may disappear forever.
The seminal move is to figure out what the key differentiator is for your company. Then launch a campaign to drive home that differentiation while building the category for your offerings. Consider traditional approaches (advertising, PR, direct, events, etc.), but emphasize nontraditional, highly-viral ideas. Here are some great recent examples:
- Trek Bikes challenges people to ride their bikes more with their new Web site.
- Kinesio, the new athletic tape, gave their product away to athletes from 58 countries for use at the Olympic Games. One look at the wild, black spidery-like tattoo-tape on Kerri Walsh's body as she swatted volleyballs down opponents throats and a lot of people started buying the stuff.
- This summer legendary billionaire corporate raider and oil man T. Boone Pickens launched a bold campaign to create a breakthrough in market demand for alternate sources of energy. His ads, Web site and PR (appearances on CNN, Fox News, the New York Times and many, many more) make his case for reducing American use of foreign oil and embracing wind, solar, and natural gas, all while creating demand for his new companies.
Buy companies
Downturns are the best time to buy companies, and here are four reasons:
- Valuations and market caps are way down. Any company you want to buy is a lot cheaper today then it was a year ago.
- Doing acquisitions now allows you to expand your market footprint fast, with new offerings, customers, geographies, or markets.
- The dreaded word "synergy," which is a euphemism for layoffs and cost cutting. It may be harsh to say, but acquisitions are a great excuse to take unneeded people and costs out of both the company you are buying and your own company.
- It sends a strong message to your customers, people, competitors, and shareholders that you are a bad-ass company that is going for it, when most of your competition is hiding under their desks. This will often drive them to buy more of your product and your stock.
Making smart cuts is part of winning in downturns. But no one ever cost-cut their way to greatness. Now is the time to go on the attack. It just takes courage, cash, and conviction.
Click here for ongoing coverage from CNET News, 'Tough times for tech'
After twenty years in business and being the marketing chief at three public companies, Christopher Lochhead retired at 38. Now, he serves on a few boards and is a part-time strategy advisor. Every year he gives a handful of speeches, and from time to time writes something. Check out www.lochhead.com.
The proverbial wheels are coming off. The financial crisis is spreading across the globe. The political mudslinging is getting into full gear as the U.S. presidential election nears its conclusion and inflation continues to rise. Basically, everything costs more, with the exception of gasoline spurred by slowing demand as consumers look for ways to stay afloat financially.
The well-heeled country of Iceland, with 320,000 residents (about half the population of Alaska in an island the size of Kentucky) is nearly underwater financially. Europe, not just the U.S., is in the midst of a once-in-a-lifetime economic crisis.
Governments, via taxpayer funds, are stepping into the breach with the equivalent of Band-Aids and bailing wire to stop the potential slide into financial oblivion. But there is no escape from this perfect storm. The financial institutions played fast and loose and now they can't cover their bets. (See the 60 Minutes segment in which the credit crunch is explained in plain English.)
For the tech industry it means hunkering down. A few days ago, the legendary Bill Gates said that companies will continue to invest while the economy sputters somewhat, but "nothing like a big recession or a depression."
His remarks seem overly optimistic, given the crisis of confidence in financial markets spreading like a virus throughout the world. A hacker or terrorist hoping to destabilize economies couldn't have done a better job than the financial industry itself.
Already a steady stream of companies are lowering their forecasts, taking out any surprises as the typically more lucrative fourth quarter gets under way. The stock prices of the top tech companies are in the tank, which is indicative of a very spooked investor community. The investment community looks at those prices and sees a buy order--the stocks are really cheap--but after the last few days it's difficult to have any confidence that a seemingly good bet would pay off.
In the midst and aftermath of this perfect storm, brewed out of years of habit and taken down by mortgages for the masses, both consumers and businesses will be far more conservative in their spending habits in the coming months. As in other epochs, such as the tech meltdown at the end of the 20th century, only the strong will survive. Consolidation or extinction will be the exit strategy, reaching way beyond the broken banking industry, which has been whittled down to a handful of players.
Out of this perfect storm new financial infrastructure and regulations will emerge that bring back confidence into the markets and reignite innovation, that is until the next destructive cycle driven by irrational exuberance comes around.
Click here for ongoing coverage from CNET News, 'Tough times for tech'
In this week's EIC Squared podcast, ZDNet's Larry Dignan and I talk about how the economic crisis will impact the tech sector. Both the House and Senate have passed the bailout package, but the legislation doesn't mean that tech or any other industry sector will reverse the downward spiral. Tech companies and financial analysts are rapidly cutting estimates to prepare for a potential nuclear winter in the global economy.
We also discuss Microsoft's forthcoming moves into cloud computing and the state of citizen journalism following the fake Steve Jobs heart attack story that showed up on CNN.
Microsoft is applying its tried and true formula of creating software platforms that can attract millions of users and developers to the hosted applications world. It will be the next major frontier for Microsoft to conquer, competing with companies such as Amazon.com, EMC, Google, IBM, and others. And it's safe to bet that Microsoft becomes one of the major players in the cloud. More to come at Microsoft's PDC event later this month.
Guest post: Christopher Lochhead, the former chief marketing officer at Scient and Mercury, offers his advice on how companies can do more than pray for survival in a prolonged economic downturn.
It's easy to be great when things are going great. The real test of leadership is who are you when things are tough. Leaders take market share in bad times, and losers lose share, money, and market cap.
We seem to be heading into a multi-quarter (or maybe longer) downturn. Planning for a long downturn is the right approach, even if you think this is just a blip.
Strategy 1: Don't cut the budget
The first thing scared executives do in bad times is cut spending. It's easy. But often completely wrong. J. Paul Getty said, "Buy when everyone is selling. And hold until everyone is buying."
Downturns are time to invest in:
Strategy 2: If you have to cut, DO IT FAST. DO IT ONCE.
Strategy 3: Put your best people on your biggest project.
Legendary people produce legendary results. During a downturn take your best executive, regardless of their background, and put them in charge of the big:
Downturns are great opportunities for change and growth. Good luck and knock 'em alive.
Christopher Lochhead
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