If you’ve ever read “Good to Great” by Jim Collins, you’re familiar with the Stockdale Paradox. Admiral James Stockdale, one of the most highly decorated officers in the history of the U.S. Navy, told Collins how he survived his time at the “Hanoi Hilton” prisoner-of-war camp during the Vietnam War. He never doubted that he would get out or that he would prevail in the end, but at the same time, he remained realistic about the brutal facts of his situation.
When Collins asked Admiral James Stockdale which prisoners of war didn’t survive the “Hanoi Hilton,” Stockdale replied, “That’s easy. The optimists.” What Collins learned from his exchange with Stockdale was that in the direst situations sheer optimism isn’t enough. What separates those who succeed from those who fail is how they deal with challenges in their environment. The key, he determined, was to understand the Stockdale Paradox:
“Retain faith that you will prevail in the end, regardless of the difficulties. And at the same time, confront the most brutal facts of your current reality whatever they might be.”
That’s good advice for companies in today’s economy. This recession is likely to be more severe than any other in recent history. When things do begin to turn around, the improvement curve will likely be flatter and longer. It’s important that organizations do what they can to survive the downturn and position themselves for the inevitable turnaround. However, the keys to surviving and thriving during the upturn depend upon the strength of your balance sheet.
Keys to Survival for Companies With Weak Balance Sheets
For companies with weaker balance sheets, liquidity is the key to survival. These companies need laser-like focus on becoming cash flow positive and managing receivables and inventory to create cash. They also need to retain staff with the skills necessary to fuel growth when the economy improves.
In today’s tight credit environment, your current bank is probably your best bank. Organizations are advised to do whatever it takes to maintain their existing banking relationship. Forecast weekly cash positions for at least the next three months, and continually project and update the cash forecast. Don’t get caught by surprise, and don’t surprise your banker. Companies that can maintain liquidity will survive and have the ability to fund growth in their businesses when things pick up.
Keys to Survival for Companies With Strong Balance Sheets
Enterprises with strong balance sheets and positive relationships with financial institutions have the same areas of emphasis; however, they also have special opportunities that their weaker competitors don’t. These companies can look for strategic acquisitions during times of financial weakness and grow market share through aggressive pricing, a new marketing campaign, and/or increased advertising. They can also focus on recruiting historically hard-to-recruit talent at attractive compensation levels, selectively look at equipment purchases, and consider an investment to enter a new geography. For strong companies, recessions are a great time to add new customers, products, and geographic reach.
Live To Fight Another Day
In today’s economy and tight credit environment, all companies that hope to survive and thrive after this recession must secure a cash flow neutral or positive position, maintain faith in the future, yet be cognizant of their reality, and act on immediate and long-term challenges. As Stockdale pointed out, optimism is important, but awareness of your current situation and the courage and decisiveness to act accordingly are required for organizations
that plan to succeed.