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Outperform: Using a Bad Economy as a Killer Competitive Advantage

Today the news came out that the unemployment rate in the United States reached a 26 year high. Given the bad economic news that we hear nearly every day, it's not surprising that people — and companies — are in a bit of a panic. Nearly every company that I know of is considering layoffs, killing major projects, reorganizing (read: eliminating lines of business), or just plain ceasing operations. Why? Because that's what you do in the face of such a terrifyingly bad economic downturn, right?

Wrong. At least, not if you want to exit the downturn performing better than your competition...

If you look back over time at the great companies such as Google, Microsoft, Johnson & Johnson and many others, they all have one striking characteristic in common. They all started during significant economic downturns. Crazy, huh? Who would ever want to start a business during such a risky, scary time? Someone who sees that every great challenge is also a huge opportunity to solve major problems, to serve undeserved markets, and to create enormous advantages over the competition. Those companies used an economic downturn as a competitive advantage to implement new technologies, tools, and idea while the incumbents were focused solely on survival.

Now is the time — while most companies have shifted into "panic mode" — to think about using the current economic situation as an enormous, once-in-a-lifetime chance to create a killer competitive advantage.

Here are three tips to get you started...


KILLER TIP #1: Hire your competition's best people

What? Wait a second, you're thinking of laying people off, not hiring people. Okay, maybe you need to reduce your workforce, but it's a mistake to do it wholesale and without thinking about the future. If you are laying people off, chance are, so is your competition. And the people they AREN'T laying off are still scared that they are next. It's the perfect time to poach the best and the brightest from your competition. Here's what you do: if you need to perform layoffs — fine. Target those individuals who:

  • are not fitting in to your culture
  • are not performing as they need to be

The third bullet is the real kicker. In a reduced workforce situation, you need to have people who will be the leaders that carry the company into the future once the economy picks up. Not the lowest paid people. Not (necessarily) the ones who have been there the longest. But the best, brightest, and most energetic people who see your vision for the future and can start getting you there today. Look around at the companies that are driving you nuts on a regular basis. Find out who is driving the best product strategy, the best marketing plan, the best sales team. Go hire those people away from your competitor. These people will be the "Pathfinders" that will lead you past the competition and prepare you to dominate once a recovery has taken hold. If you have to layoff additional low performers in order to be able to hire these Pathfinders, do it. This may be the only time when you can get such people without breaking the bank.

KILLER TIP #2: Move to the Cloud

By now you've probably heard of "the cloud." If not, "the cloud" or "cloud computing" simply means that instead of buying (and maintaining) expensive servers, rack space, power, etc — you outsource this infrastructure and get on with your core business instead. Why do this? Because too many companies have enormous IT development or operational support groups focused on providing 24x7 care and feeding of mission critical servers, installation of applications, and other infrastructure maintenance. Is that really your core business? Why, in an environment where every single dollar counts, do you have people dedicated to patching desktop software, designing security models for your intranet systems, and maintaining servers? You'd be better off putting your dollars to work hiring those Pathfinders...

For example, several years ago, I worked at a company where we had a great idea for a new software product. This was before (or at the very beginning of) the "cloud-revolution" so we just used traditional methods for our development. We bought servers, we spent months on the security model, how to issue passwords, how to control access to parts of the application, how to deploy the system to end users, and how to do routine things like backing-up our data. Over the course of a year, we spent nearly $1 million and still didn't have a marketable product. Worse still, the system was so expensive to build, maintain, and deploy that we had to charge "per user" fees that were far too high for the market to bear. As you might expect, that business is now sleeping with the fishes.

Flash forward a few years. I still wanted to build the software. I thought it was a great idea with a great deal of merit and would be worth developing — but not the same way as we did before. I had absolutely no desire to build and maintain the underlying infrastructure. Instead, we used one of the cloud-based "Platform as a Service" systems on the market. This meant that we didn't have to buy any servers, we didn't have to develop a log-in mechanism, we didn't have to design back-up plans — that was all included in the service. We could focus all our efforts on the problem at hand —building the features we wanted to offer instead of worrying about infrastructure. Think of this as traveling from New York to D.C. by car. Do you really want to build the roads, gas stations, and restrooms it will take to get you there? Why not use the facilities that already exist for your convenience? This is what we did with our software and it made a huge difference. Instead of a team of 10, we had a team of — well, me. Instead of a year, it took us (me) three months to build (with more features, thank you very much). Instead of $1 million to build it, it cost a few thousand dollars. We can operate the software for no fixed costs and offer it to users at a very attractive price (and still make a profit). The software is now on the market, is very easy for us to deploy and maintain, and gets great reviews from users (self-promotion alert: it's called NextWave360and we think it's pretty great). If we had tried this WITHOUT using the cloud, we'd probably be answering debt collection calls while building a log-in screen right now...

There are two main ways you can use the cloud to your advantage to save costs: use it internally and use it externally.

Cloud Tip 1: Use the cloud for your internal applications

Between Google, Zoho,, and the myriad of other cloud-based applications (see EIR #13 here), it's hard to justify putting a standalone copy of a software package on each person's desktop. It's expensive, it gets obsolete quickly, and it's hard to maintain (ever had to reload MS Office?). We switched to GMail for our mail system — free and we still use our same domain namebut we get far more space than we did before.  There's really nothing to "maintain" and we save $50/user.  We use EchoSign for document/contract management, Freshbooks for cloud-based bookkeeping, and our own cloud-based project tool for project management.  We don't even own a web server.

Cloud Tip 2: Use the cloud to develop external applications

As in our software development example above, consider using one of the cloud-based "platform as a service" (referred to as "PaaS") systems to develop any applications that you offer to your customers, either internal or external.  I know, I know...  Your IT guy told you how it wasn't safe, it wouldn't be cost-effective it the long-run, it caused hurricanes, and you couldn't make the interface the proper shade of green (pantone 361).  Sorry, I'm officially calling him out on that.  As long as you pick a PaaS provider that is trustworthy, uses a good data center, does back-ups, and either is stable or escrows the code, you are no more at risk than you are developing on your own servers.  In fact, I would argue that the speed to market, the ease of deployment, the ease of maintenance, and the ability to change the code on a dime if necessary far outweighs the arguments made by the IT traditionalists.  This is the way software will be developed in the future — get out ahead of the curve and save some time and money while you are doing it.  I recommend taking a look at TeamDesk, Cordys Process Factory, and

KILLER TIP #3: Blow Up Your Processes

Admit it.  You have been performing your business processes much the same way for a long time now.  Maybe you did some "process improvement" and changed the way you executed a couple of steps last year.  How'd that work out?  I'm guessing it didn't make much of a difference.  Now, in the middle of the economic chaos, is the time to change all that.  

You need to seriously think about "blowing up" your processes.  Before you start surfing the web for demolition supply stores, allow me to explain.  When you are trying to gain efficiencies, reduce costs, and improve service, it can very difficult to make progress through evolutionary or incremental techniques such as traditional process improvement.  Often, all the process "plaque" that has built up over the years gets in the way of making rapid significant improvement — "that's not the way we've always done it" becomes the rallying cry.  If you want to exit the economic downturn better positioned than your competition to take advantage of new opportunities, you cannot afford to either ignore your processes or simple incrementally tweak performance. You need to challenge the way you do everything.

There is a story about a technology CEO who was faced with a stagnating company where costs were too high and effectiveness of their network was too low.  Little progress had been made and something had to be done — the system couldn't continue to operate the way it had in the past and survive.  The CEO met with the team one day and said "I have news to report. The network is gone."  The team looked confused and he further explained, "Go look and see — it's gone. Now figure out what we do.  Rebuild it."

A bit abrupt, but effective.  He essentially had removed the option of minor improvements instead challenging the team to design a solution from the ground up.  Think about what this would mean if you did the same thing with your billing process, your A/P process, your service delivery process.  Think about what it would look like if you were a new start-up business designing the process from the ground up.  Of course, you are likely thinking "we can't do that — it's too expensive.  Now is the time to stick with what we have, not go changing things."  If you want to exit the recession with the same old processes with which you entered, full of plaque, partially effective, then that's the right attitude.  But what if, while your competitors are using the strategy of retrenchment (and as a process consultant, I can tell you — they are...), YOU choose to get really efficient and effective with your processes.  While the economic rising tide may lift all ships, you've lightened and streamlined your ship during the low tide.  It may be counterintuitive, but it is an effective strategy for using slow times to not only reduce inefficient practices now, but also to prepare for the future before your competition.  Fix it now, reap the benefits down the road.

There you have it: three Killer Tips to help you view the economic downturn as a tool, not just as a calamity.  As Warren Buffet is famous for saying, when everyone else is scared, that's when you need to be aggressively investing.  The same holds true for performance improvement.  Everyone out there is scared, struggling, fighting to survive.  By snatching up the best people, using the new technologies available, and by revolutionizing your processes today during this climate, you will be well prepared to outperform your competition in the future.