The lesson, Smoak hopes, was not lost on him. "I try to run a business where the workers count, because they actually run the business. They do the work." Smoak feels that credo is reflected in two ways: First, he shares the information. Second, he shares the wealth. "Forget the stockholders. The employees are the real stockholders," he says.
Accordingly, Smoak takes whatever he can from the gross margins of Sterling Courier -- which ended its fiscal year in March with sales of about $6 million -- and gives bonuses to his 29 employees, instead of turning it into equity. In good times the bonuses expand; in hard times they contract. But beneath them lie base salaries that are generous for the industry. Those salaries are meant to be bedrock. They symbolize that the employee, barring a depression, can always count on a decent paycheck and the likelihood that Sterling will not have to lay anyone off.
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CEOs who can establish sufficient credibility in good times can, in fact, turn hard times to their advantage. They can reposition their companies. They can take preventive steps to head off a downturn. Leslie B. Otten, president of the Sunday River Ski Resort, in Maine, says, "I began to anticipate that things weren't going well last summer." He announced a 6% cap on raises. "We told the whole company this was coming, and if we're wrong, we will not suffer. We tightened our belts. We went into this with our eyes wide open."
Otten then communicated the idea that the sky does not necessarily fall during a recession. Economic expansion may cease, but economic activity does not. He thus told his company that growth would have to come by taking market share from the competition. That led to a number of companywide and departmental meetings designed to ferret out logical growth areas within the operation. It was agreed, based on market research, that Sunday River should revamp its ski school and step up its skier-development programs. The company also built a restaurant at the top of the mountain, which has a more varied menu than that offered at the bottom. "Overnight it became the most popular food outlet on the mountain." It was also decided that Sunday River would make a lot of snow as soon as the first cold hit, in November, so the trails would have a large enough base to withstand subsequent thaws. That move paid off during a mild week in December and again during a warm period in February, when many resorts were awash in snowmelt. Sunday River had nearly 100% of its trails open for skiing.
"We've had an 8.6% growth in units [skier visits], and revenues are up 13.3% over last year," says Otten. The ski industry on average in the Northeast is down 20%. Otten believes Sunday River's gains couldn't have happened without an awareness, on the part of the workers, of what the company was doing and why. "Employees are generally smarter than you think," he says. "And if they're good employees, they're smarter than you are."
Harry Seifert, owner of Winter Gardens Salad Co., in New Oxford, Pa., takes a similar tack of doing what he can to prepare for hard times early on. "I've been in business for 25 years," he says. "We've gone through many recessions, and I've survived them all. My advice is, Do not participate in a recession. It will kill you."
Seifert knows when to start talking to his 150 employees: before hard times really hit. "When things are good, a lot of things are wrong and you don't know it. That's when we tell ourselves, We're going to change our strategy. We're going to concentrate on efficiency and profit. You have to get the attention of everybody. Most of the time companies take the poor hourly guy who has no input and cut him off." That belated and blunt approach, Seifert claims, places blame precisely where it doesn't belong.
In January a stringent review began at Winter Gardens, which makes salads for the food-service industry. Sales last year were $14 million. Seifert told his employees that if things continued as they were, either staff or pay would have to be cut by 20%. "Workers always think the owner or the CEO is going to fix things. They have to understand that they have to fix it. That gets their attention."
In the next step, Seifert recalls, "we looked at every product we make. We asked: 'Is every product profitable? Is every account profitable? Is every system efficient?' "
In each department profit-and-loss statements were redesigned from the bottom line up, producing certain sales and operating assumptions derived from a desired profit level. The statements were updated every week instead of every quarter. Financial information was shared in each department to show whether it was, in fact, profitable or not.
Pruning then ensued. Marginally profitable products were cut. Inefficient procedures were revamped. Instead of emphasizing increasing current sales, the company made maintaining market share a priority. Salespeople were assigned to marketing tasks, prospecting for future niches they could sell to once the economy improved.
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Jim Ebright of Software Results believes that few businesses survive what his did -- a nearly 90% drop in sales over a four-year span. The company, he thinks, scraped bottom in 1990 and now will start to turn up again. He notes, "We will introduce more new products this year than in the last four combined."
No different, perhaps, from fire or flood, hard times prepare the ground for economic renewal. In that sense, Ebright has discovered a curious thing. Some of his early hires, people who helped him build the company and then left because it started to feel too big, have returned to work for him. These are people who can handle bad news -- people who, in fact, may be energized by it. Says Ebright with more than a touch of awe in his voice, "We've ended up with the same kind of people we started the business with: people who want to have some kind of effect."
He figures that is his payback for telling it straight all along.
