The combination of presidential election year politics, the shameful dysfunction of lawmakers in Washington (including the hardly unexpected colossal failure of the Congressional Super Committee), the deepening and spreading fiscal crisis in Europe and a litany of warnings and bad news being cast by the 24-hour worldwide news cycle seems to lay proof that the pullback in earnings and revenue that many companies are experiencing may be an indication of things going in the wrong direction. Yet there is also good news coming from Alan and Brian Beaulieu, the Vistage staff economists from International Trends Research, whom I rely on for their highly precise forecasting. They are actively offering reassurance that this trough is just part of a slow - but ongoing recovery that will see continuing, albeit modest, economic growth for the next two years. They suggest there is clear evidence and good reasons to remain calm and optimistic.

  

  

Optimistic or Delusional?

  

There is a difference between blinding optimism and operating in denial. You can be a visionary and ignore the wisdom of crowds (see the link to the book by James Suroweicki with the same title below) without burying your head in the sand. The key is to "interrogate reality"- yours and others - before you forge strategies, plans and take action.   

  

Going against conventional wisdom may yield brilliant breakthroughs and powerful innovation. Apple is a good example of a company whose success is driven by their own internal compass and by ignoring the direction of others. Yet when you examine their product portfolio, it becomes clear that they worked within boundaries of market realities. They stretched the price point for personal computers, but took care not to price themselves out of the consumer marketplace. They entered markets with existing solid foundations. The Mac computing world was built to serve design, graphics and other creative professionals - while appealing both functionally and aesthetically to the creative side of the average non-professional consumer. They then revolutionized the world of digital music players - once the marketplace had proven that the technology was scalable and already being adopted by a sizable and growing population of consumers worldwide.   

  

Steve Jobs may have learned the difference the hard way. In sharp contrast Jobs had learned the consequences of being delusional in his failed NEXT Computing venture - and then seemed to shift to being passionately about driving within more narrow and established product lanes.

  

Determination is only foolishness when we refuse to acknowledge that which we refuse to accept.   

  

Going against the grain does not mean there is no grain. It is often a stubborn unwillingness to yield to the limitations that others live within. The intention to rebel against the status-quo or to become a disruptive force in your marketplace is the product of having passion for a personal vision - and a strong sense of possibility. When we do we see things that others don't and move towards things that others are afraid or unwilling to act on. This "crazy as a fox" drive is still a far cry from tilting at windmills. The sanity in pursuing a bold vision comes from maintaining perspective.  

 

Despite the celebrated successes of those who have achieved great things because they refused to fail, most of us would be better off to remember as Albert Einstein suggested, that doing the same thing over and over again and expecting a different result was his definition of insanity.   

Thomas Edison is often lauded for his determination and perseverance in inventing the light bulb, and according to the Smithsonian he experimented with over 1,600 materials before discovering a workable filament. It's important to understand that his approach was scientific and constantly built on the perspective gained from observation and exploration of reality - not just a sense of vision and a desire to succeed.

 

It's one thing to believe that can a little rain won't slow you down - but if you need to fire your ammunition, you had better keep your gunpowder dry. Any fool can take shelter from the rain. The difference is anticipating what lies ahead and protecting your cache (or your cash) before the storm appears on the horizon. And as I stated earlier, I am beginning to see more caution from those who are concerned another storm may be brewing.

 

" to boldly go where no man has gone before..." 

 

Great leaders drive organizations to places others have not yet ventured. Some are mavericks who strive to boldly defy convention - but many also quietly go about the business of exploring new ideas. To be any kind of leader at all, you must have the courage to venture ahead of others: towards places and things unknown. In this respect leadership and risk are truly inseparable.  

 

The issue is how you measure the risks you take against your intended or desired returns - and how much risk you can tolerate. Effectively managing risk requires the ability to interrogate your realities. this is best achieved through the feedback of others who can provide perspective from a viewpoint different than yours. Whether you are sizing up your competition, weighing opportunities, or just assessing the odds and the level of risk relative what you can afford to lose, your confidence in your strategies and decisions and your competence around execution are all dramatically increased by the perspective offered by having a group of trusted peers.

 

This has been the basis of Vistage groups for more than 50 years.  

 

It goes well beyond the wisdom that all of us is smarter than any one of us - to the point where we can actually become smarter ourselves and become better, more effective leaders. It's not about getting answers and direction - it's about gaining the perspective that enables us to find our own answers and direction.

 

Applying all this this to the notion of protecting cash and keeping your powder dry...

  

It is always prudent to hold onto cash in the face of uncertain times - and today, while credit remains tight - it is as important as ever. But there is also a more counterintuitive wisdom that suggests that you should invest through challenging times. In financial investing, you want to participate in the next upside ahead. In terms of marketing and advertising - you can gain a competitive advantage by raising your visibility when others are taking shelter in order to position yourself to gain market share. And from a business operations standpoint, it's a great time to acquire property, people and other key assets at a favorable cost.

 

The danger in spending through difficult times is that cash is King, and moreover that cash flow is the lifeblood of any business. Spending today what you may or will need tomorrow poses a serious threat to survival, and at very least, will limit future growth opportunities. The decision to what to prudently spend now amounts to a balancing of risk versus opportunity. There are generally no absolute right or wrong answers. This is where the value of the experience and insight of an unbiased board of peers who operate outside the norms of your own industry may help provide the perspective you need to arrive at an effectively balanced solution.

 

Managing cash flow is not just about expenses versus revenue.  

 

There are operating controls that can act like levers and either ease or restrict cash flow. These items live on your balance sheet - and have little direct impact on your P&L. The most common place cash tends to bottleneck is either in inventory or work-in-progress - and both can be relieved by watching the cash consumption in each and applying fiscally sensible policies and controls to keep those levels lean and cash flowing.

 

The most avoidable and frequently overlooked trap for cash in most small and mid-size companies is accounts receivables. The tension comes from the fact that you customer and clients maybe as inclined to hold onto cash as you are. This is added to the inherent risk that aging receivables tend to become less and less collectable over time. Most companies look only at the risk of non-collection - and ignore the more pervasive impact on cash flow.  

 

The following is a rather simple solution that was inspired by a fellow Vistage chair back in 2009 to assist members at the onset of the Great Recession:

 

A Simple and Effective Collections Strategy for Improving Cash Flow 

  

Cash flow can often be significantly improved by speeding up slow receivables through some simple process changes that can be added to how Accounts Receivables are managed.

  

Most concern regarding aging receivables is around the risk of collecting increasing over time. In fact, the greater exposure for most companies is the drain on cash flow - and the costs that can be directly related to that.

  

The tradition approach most organizations employ involves following up directly with customers only when invoices are delinquent - and in most cases, when they are severely delinquent. Some passive measures often include sending statements summarizing both current and past-due invoices. Finally, in many cases, follow-up is a matter of a notice mailed indicating an overdue invoice.

  

This, more proactive system, will not only serve to increase receivable time - but also can improve customer relations. These are the steps:

  

1)   Create and send invoices in a timely manner. Be rigorous in your discipline around this. Delaying an invoice is as serious an issue as delaying the delivery of product or services. If you are slow in invoicing clients - it's a message that suggests you are not concerned with how timely you collect your revenue - and may encourage clients and customers to feel there is no real urgency around paying you in a timely fashion.

  

2)   For a typical 30-day terms billing, have your AR person place a call to the client's payables person or department 10 days after sending the invoice. The purpose of this call is to:

• Verify that the invoice has been received
• There are no problems with the order
• And to remind of the invoice due date - and get a confirmation that the invoice will be paid by then - and if not - why and when.

3)   If there is a problem - this is the time to immediately escalate to whomever can resolve the issue.

  

4)   If the invoice has not been paid by the promised date - another phone call should be made within a 2-3 day window - reminding the customer of the previously made commitment on the date of the previous phone call - and to determine the reason for the delay (did the check get lost? Was the check run delayed? Is there some other issue?)

  

Making friendly calls prior to the invoice being due - or overdue - takes the stress out of the call for both parties - and removes the stigma of all calls being "collection calls." You can adjust your timing for your initial to be sooner depending on your own billing terms and cycles. By checking to make sure that the order and invoice is correct - you establish a healthier dialogue that expresses caring for the client or customer - as much as for your own collections needs.

 

 As always, wishing you a great and successful week ahead. 
    

Philip R. Liebman

Managing Director, Strat4

Group Chair, Vistage International