Recessions are important, according to economists. Without correction in the marketplace, inflation would run rampant. While this may be cold comfort now, there are steps you can take to ensure you hit the ground running when markets swing back in our favour.

Dr. Charlie Hall, holder of the Ellison Chair in International Floriculture at Texas A&M University, says the companies who practice high performance management will ride out the current recession. And they will emerge stronger than before, and positioned at the top end of their market.

By making better and more informed managerial decisions, Hall explains that landscapers, growers and retailers can “survive and position themselves for the upturn that will be coming.”

Taking a look at overall economic indicators, Dr. Hall notes some glimmers among the doom and gloom. Interest rates are low and energy prices are lower than they were last season. Unemployment rates are predicted to rise, but Hall notes that the media can distort these figures. Normal unemployment in the U.S. is 3-5.5 per cent, so if it rises to 8 or 9 per cent, it means that 91-92 per cent of workers are still working. The Philadelphia Fed Forecast Survey (www.philadelphiafed.org), by a group of highly respected economists, predicts the turnaround will begin in the third quarter of this year, and by 2010 we should be on the road to recovery. Hall believes weather affects the green industry more than the economy. A nursery owner he knows says that the impact of a bad economy is like getting the flu, but a wet weekend in spring is like getting pneumonia.

HYPERCOMPETITION
Changes are happening more quickly in the marketplace. Hall calls this a hypercompetitive market, and says industry members must do three things to remain competitive.
1) Look at reducing costs in the supply chain
2) Develop new value propositions
3) Assemble enough financial capital to outlast the recession
Hall has come up with a specific list of action points to position your company to take advantage of the upturn when it comes.

KNOW WHERE YOU STAND
The old adage, you can’t manage what you don’t measure, is true. Hall says the most important financial analysis tool, by far, is the strategic profit model. By plugging in data from income statements and balance sheets, you can come up with your Return on Equity, showing the profit you generate relative to the money you are putting into the business.

Strategic profit model
A viable business model (see page 14) that provides compensation to its owners for the risk involved and provides enough capital for growth, should have a 30-40 per cent ROE. Keeping score helps owners benchmark their firm’s performance against similar businesses, and their own performance in a previous time period. Hall quotes a Price Waterhouse Cooper Trendsetter Barometer Survey, which showed that companies who benchmark achieve 69 per cent faster growth and 45 per cent greater productivity than those who don’t benchmark.

CONSERVE YOUR CASH
Another old chestnut rings true: When times are tight, cash is king. Hall recommends companies position themselves to hold on to as much cash as possible:
• Delay non-strategic investments
• Refinance at lower interest rates, if possible
• Review insurance premiums
• Exercise the full length of credit terms
• Sell unused assets (if possible)

CONTROL YOUR COSTS AGGRESSIVELY
Hall highly recommends all companies go through a lean flow process to eliminate waste from your day-to day activities. For information on specific lean management systems for the green industry, visit www.jphorizons.com.

For over 20 years, Hall has been preaching that green industry companies must know their costs, and that everyone’s costs are different. The industry is currently experiencing a cost/price squeeze, with significant downward pressure on prices. At the same time, there are many things happening to increase costs. This isn’t the first time it has happened, and it won’t be the last. However, companies who ignore their costs do so at their peril.

Growers should pay attention to labour costs and look to automate repetitive time-consuming jobs. Service providers need to make sure they are pricing their labour appropriately and recovering their overhead costs, which is something many firms overlook.

DO NOT CUT MARKETING EXPENDITURES
Hall observes that marketing budgets are usually one of the first cut in a slow economy. History has proven that spending on marketing should actually be increased during tough times. In a normal or strong economy, marketing expenses should be 3-5 per cent of gross sales. Now, companies need to ramp their expenditures up to 5-8 per cent of gross. As Hall says, “If everyone in the room is whispering, a shout can be heard.”

This is a great time to cultivate the top 10 per cent of your customers, and maybe even cull the bottom-feeders.

STIMULATE DEMAND
Anecdotal evidence from the southern U.S. show that sales are already up this year. Our products provide the antidote to gloom. People are looking to cheer themselves up, but they are time-constrained and will be project-oriented this year. Now is the time to enhance the perceived benefits and value of our products and services — through marketing.

Hall recommends that companies create a specific value proposition to help tell customers what’s in it for them. A value proposition is a clear statement of the tangible results a customer gets from using your products or services. Hall believes we have commoditized too many of our products and services, and a strong value proposition will help your company differentiate itself from the competition.

PRICE APPROPRIATELY
Do not discount product. Green industry economists all agree, this is dangerous and not sustainable. The key to profitability is getting more dollars for the plants we sell, not selling more plants.     

     
TEST YOUR ELASTICITY
In economics, elasticity is a concept that measures the percentage change in quantity that is demanded against a percentage change in price that is demanded. This will be particularly useful when the upturn starts. If you have lowered your prices, you will lose money faster than before.

Charlie Hall’s expertise in the production and marketing of green industry crops is nationally recognized. His major research, teaching and extension areas of specialization include strategic management, market situation/outlook, cost accounting, and financial analysis for green industry firms. Hall’s blog Making cents of green industry economics, can be found at http://ellisonchair.blogspot.com.