Home > Nanotechnology Columns > Alan Shalleck-NanoClarity > Act Counter-Intuitively in Bad Times
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Alan Shalleck President NanoClarity LLC |
Abstract:
The strategic alternatives for a nanotechnology company in this foreboding economic environment dictate that you have to manage counter-intuitively. After you have followed my advice first to maximize your cash position for survival (October column), you then need to manage your plans and programs so that, when the economy turns, your company is positioned to catch the economic upturn in the best possible way. What I am suggesting you do is counter to everything a concerned management intuitively plans in times of economic stress. My recommendation is: Don't cut back to the bare bones. Rather, aggressively develop, move products to market, and sell your hearts out because you have been presented with a major opportunity.
December 3rd, 2008
Act Counter-Intuitively in Bad Times
Act Counter-Intuitively in Bad Times
Make Sure Your Nanocompany Survives the Recession (Part 2)
By
Alan B. Shalleck
NanoClarity LLC
December 20
The strategic alternatives for a nanotechnology company in this foreboding economic environment dictate that you have to manage counter-intuitively. After you have followed my advice first to maximize your cash position for survival (October column), you then need to manage your plans and programs so that, when the economy turns, your company is positioned to catch the economic upturn in the best possible way. What I am suggesting you do is counter to everything a concerned management intuitively plans in times of economic stress. My recommendation is: Don't cut back to the bare bones. Rather, aggressively develop, move products to market, and sell your hearts out because you have been presented with a major opportunity.
In 2002, Lewis Gerstner, former Chairman of IBM, wrote in downtimes he never cut back IBM's R & D. In a published exchange, I wrote him, "In times of trouble, reducing R&D as a short-term earnings strategy lowers those future (earnings) streams. CEOs who expediently reduce R&D expenditures to meet analysts' or the Street's short-term earnings demands should have their company's p-e lowered for not thinking strategically. Few analysts understand the negative earnings effect of lowered R&D expense. Gerstner proved that "short-term earnings" should not be the sole criterion for company p-e. Companies that maintain or increase R&D during difficult times should be rewarded for their vision." Business Week, December 2, 2002.
In reality, most nanotechnology today is a variant of R & D. A "nanotech" company may be selling a nanotech product but, since most nanotech companies (not semiconductor companies) are still losing money, they remain investment vehicles, not sustainable profit generating vehicles, and can be classified as development companies. And, the proper strategy for a development company during a downturn, especially in a severe one as we are beginning to endure, is to continue to finish developing your products, get them to market ASAP and sell very hard on introduction. If your products are already in the world, accelerate your marketing efforts to produce ever-increasing sales. Those "down environment" sales represent "bonus" cash inputs ... the more the merrier ... and are the best way to hedge a long downturn (most current economic models predict and 18 month or more recession, the worst since the 1930's so we are definitely in a long downturn!).
Why does aggressiveness make economic sense for a nanocompany in a recession? Your VC is going to say, " You are mad. Cut back to the bare bones and just survive until the market turns." Note the perspective.... It is his money he's worried about, not the sustainable growth of your company. He loses everything if you go out of business. He is part of the herd … acting intuitively. The herd says circle the wagons and reduce everything to keep losses to a minimum. Your VC will tell you to follow the herd: lay off, cut off, and back off. Survive, just survive. Is radical contraction the correct strategy to pursue? Remember, where there is a problem, there is also opportunity.
Here is what the herd fails to recognize. If you act counter-intuitively, your company has the opportunity in a recession to be alone in your markets, to have your message heard by your potential customers without noise from your competitors, and to sell in almost monopoly conditions.
What will your competitors be doing? Most either voluntarily, or by order of their investors, will be following the herd strategy. They will have laid off a good portion of their staff and reduced their company development programs to maintenance programs. All the strategic long-range product development projects will most probably have been shelved. Few new products will be introduced against yours. New product introduction financial prospects will be gloomy and none will occur. Rather than expanding marketing and sales programs as I propose for you, others will cut back promotion and sales staff to bare bones … waiting for customer purchasing power potential to rebuild. G and A will have been highly minimized. Just look at the headlines today and see what small technology companies are announcing. It is very depressing.
Cutting back, if you have first built up your cash, therefore is exactly the wrong strategy to pursue in a downturn. Invest, introduce, incent and do not follow the herd. You will thank me in two years.
Alan B. Shalleck
NanoClarity LLC
www.nanoclarity.com
© NanoClarity LLC 2008
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