The following article was written by Tuck Aikin, a former colleague of mine, several decades ago, but it is as true today as it was then. I hope you enjoy it.
Ever notice how some small businesses just seem to prosper month after month, year after year, despite serious economic downturns or strong competition from big, well-financed operators? What separates these unique enterprises from the majority of their small business compatriots who fold during such difficult times? “Well,” you might say, “it’s simply a matter of the old axiom, ‘When the going gets tough, the tough get going.’” Actually, that’s not it. In fact, waiting until the going gets tough to get tough yourself is a seriously flawed strategy and will lead to disaster if the economic or competitive challenge lasts long enough.
So, what do these exceptional firms do that allows them to flourish even during the most difficult times? Virtually none of them offer a product or service that’s so special that customers have to have it regardless of the economy or competition. How do they do it? As it turns out, their strategy is pretty simple: they play good defense as well as good offense all the time and discipline themselves to do so regardless of temptations to stray from that path.
Professors Stanley and Danko describe this in their book The Millionaire Next Door as the typical behavior of Americans who succeed in accumulating wealth during their working lives, but the same conduct is essential for operating a winning business as well. The offense side of this equation is pretty easy to understand: recognize opportunity when it appears, have the wherewithal to act promptly and decisively, and have the confidence and knowledge to execute effectively (called experience!).
Here’s a good example: the Orlando, Florida-based Ripley Entertainment company recently offered to buy the bankrupt Denver Ocean Journey aquarium for $4.5 million – it cost $93 million to build (Ripley’s owns two other aquariums in Gatlinburg, Tennessee, and Myrtle Beach, South Carolina). What a deal!
So, what about the ‘defense’ strategy? In fact, it’s this behavior that accounts for successful operations during tough times, a behavior that must be ongoing all the time, including the good times! Defense means being frugal, always. “Sales are great, and demand is strong; wow, we can really go to town now – let’s expand rapidly, hire people, open new locations, bigger is better!” is the approach of the unwise during boom times. But smart operators know better. They know that business always cycles between two extremes, good and bad, and in order to survive or, better yet, thrive during downturns, they must already be ‘mean and lean’ – there’s no time to get that way when the bottom suddenly drops out. They know that if they indulge in today’s high times, they’ll have to implement drastic measures in poor times to survive, and it’s likely those measures will destroy the very core capabilities that have made them successful (usually embodied in highly experienced, knowledgeable, motivated employees who have to be laid off to reduce expenses).
Frugal? It means knowing the value of things, particularly people. Winning business operators don’t over-hire, but they make sure to compensate, recognize, and reward well the key people they have hired. They set an atmosphere that encourages taking the initiative and is open to taking risks within well-defined and known boundaries. They retain earnings within the company rather than drawing down profits for personal use. In other words, they manage their company to live below its means all the time, so they are prepared to take advantage of rare opportunities as well as weather the periodic business storms they know are coming, sometime. It takes strong self-discipline, which, fortunately for the successful business owner, is an unusual commodity.
So don’t be a yo-yo or operate your business like one.
Tuck Aikin was a former SCORE colleague of mine for many years until his retirement. Tuck is a prolific writer and wrote small business-themed articles for the Colorado Springs Gazette for many years. As a co-mentor, Tuck was my inspiration for me starting this blog. The preceding post is reproduced with permission from the author.
