Crisis Management: Offense vs. Defense

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There are two approaches to responding to an uncertain economy.

The first is “defense,” which involves protecting your downside risk.

The second is “offense,” which is about maximizing your upside opportunity (albeit sometimes from a lower starting position).

The optimal approach is to do both. First, you play “defense” and protect your downside risk, then you quickly move to “offense” and go for gain.

When the external environment changes abruptly, the risk/reward profile on all of your previous decisions suddenly changes.

If you knew in advance that large group gatherings would be banned, you wouldn’t rent out a convention center to hold a trade show.

The calculus on all decisions changes when there’s significant new information about the external environment.

When such changes happen, you play “defense” by revising all of your relevant previous decisions to determine if they still make sense, given what you now know.

A great question to ask yourself is, “If I knew back then what I know now, would I make the same decision again?”

If the answer is “yes,” leave that decision alone.

If the answer is “no” or involves an uncomfortable pause, you know this new information about the outside world alters the decision you made previously.

If you just hired five new field sales executives only to find out they’re no longer allowed to visit customers in person, knowing what you know now, would you have hired them?

If not, what would you have done differently?

These are the difficult questions you must be asking yourself in light of new information.

The key is to dispassionately and logically reconsider your prior decisions without being emotionally wedded to a previous choice.

Economists call this tendency “the fallacy of sunk costs.”

A sunk cost is money spent that can’t be recovered.

It’s a psychological tendency to persist in a bad situation solely because you devoted a lot of time, money, or resources to the decision.

It’s going to a movie theater to watch a movie and, 30 minutes in, realizing the movie is lousy. Do you walk out of the theater and “lose” your $20, or do you stay and watch anyway?

The sunk cost fallacy says that this line of reasoning is totally flawed because, no matter what you decide, you’ve already lost or “sunk” your $20.

When costs are already “sunk,” they are no longer relevant.

The better question to ask yourself is:

“Do I want to keep watching a bad movie or leave to do something else instead?”

Once you’ve revised a prior decision to adjust it for the current environment, you then want to shift to “offense.” This refers to aggressively seeking opportunities.

Steve Jobs was the founder of Apple. He was CEO for some time until he was fired. After several years away from the business, he was brought back in as CEO in 1997.

When Jobs rejoined Apple, the company was a mess. It was losing $1 billion a year and would be bankrupt in 90 days.

Jobs first played defense by cutting 70% of the company’s product line and laying off 3,000 employees. The company became slightly profitable, ensuring that it would continue to exist.

This gave Apple the room to switch to playing offense. Jobs realized that the company didn’t have any blockbuster products to drive future revenue growth.

What would happen over the next 23 years would make business history.

Jobs decided to reinvent the Mac computer with a beautiful, colorful aesthetic and renamed it iMac — the same lineage of the iMac that exists today.

Despite trying to beat Microsoft Windows to be the dominant operating system of desktop computers in the 1980s and 90s, Jobs conceded that Apple had lost that war. He could never out-Microsoft Microsoft.

That was a tough pill to swallow.

He decided he needed to take Apple in a direction away from desktop computers. He decided on consumer devices that were portable and mobile.

First was the blockbuster music-player called the iPod. It was paired with the ability to buy individual songs via digital download, obviating the need to have a CD player. It was a mega-hit.

Next came the iPhone — the world’s first smartphone. It was a smashing success.

Then came the iPad.

Jobs took a company that was days from bankruptcy and turned it into one that continues to succeed beyond his own lifetime. Today, it’s a company with a market value over $1 trillion.

That’s “offense.”

The key to playing offense in a recession is to exploit shifts in market demand. When the world changes suddenly, customer needs shift with them.

Who would have ever thought that toilet paper would be in such high demand?

One day, nobody thinks twice about it. A few weeks later, people get into fights over the last roll of toilet paper at Walmart.

The restaurant business has largely been shut down, but people still need to eat. So, the core need for food has not changed, but how that need is met has changed a lot.

The demand for groceries and food delivery has never been higher.

In the boom years, people buy new suits to show they’ve arrived. In a recession, they buy new suits to convey confidence and competence in getting a new job. The product is identical in both scenarios, but its purpose (and therefore how you sell it) can change significantly.

In a recession, the market message often needs to change significantly — even if the product itself does not.

The only way you figure this out is to understand your customers as they are today, not as you remember them from yesterday. You cannot assume that any of your prior knowledge remains true.

It’s safest to assume that you don’t know what you don’t know, and go learn about your marketplace.

What are your prospects’ greatest headaches?

What are their biggest fears?

What are their biggest dreams?

Some prospects are motivated by the thought of achieving a positive outcome.

Others are motivated more by avoiding a negative outcome.

Which way do your prospects think? Are they looking to be wildly successful? Or, would they be thrilled to avoid catastrophe?

Your prospect’s psyche matters a lot.

To get a new market message to resonate, you have to start by meeting prospects in the conversation they’re having inside their head.

If they’re worried, you signal that you understand their worry.

If they’re ambitious as hell, you signal that you recognize their ambition and have something to help them achieve their goals faster.

If they are frozen in fear, you have to relate to them by showing you recognize how natural it is to freeze.

Once you meet them where they are at, you need to lead them to where you want them to go.

So if their mind is focused on worry, you channel that worry into productive action. The easiest way to stop worrying about your business is to grow your company’s sales. Let me explain how you can do that even in this environment.

If they are ambitious, after you indicate an understanding of that desire, you show them how to translate ambitious feelings into aggressive action through what your company provides.

If they are scared and paralyzed, you show them that you can relate to those feelings and you say, “The easiest way to overcome fear is to take massive action. If you’re stuck in the middle of the train tracks with a 100-ton train barreling down on you, moving quickly in any direction is far more helpful than standing still.”

This is called matching your market and then leading it. You match where they are right now and you lead them to where you want them to go.

To be transparent, this is what I am doing with you right now.

I am mentioning all the things I suspect you might be thinking, and I’m attempting to lead you in a more productive direction.

Candidly, bankrupt companies make lousy clients for me. Successful companies that want to be even more successful are my ideal clients. It is in my selfish interest to help your business prosper.

Maybe we do business together one day. Maybe that happens this year or in ten years. Either way, the more successful you are, the better it is for you… and potentially for me someday.

You can do the same thing in your business. Meet your customers where they are today, and lead them toward a vision of a better future.

It starts with playing defense (if needed), then it quickly translates to playing offense.

In a recession, the rule of thumb is simple.

Adapt or Die

Which one are you doing today?

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