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Stay in touch
The best planning process in the world won't work if you base it on bad or stale information. Here's where it pays to stay involved. Although your customers and selling efforts probably provide the best information on current market conditions, industry associations can also be valuable sources of news and trends. Don't neglect hometown business connections, either, especially if most of your business is local. At Yantis Corp., involvement in local business is one reason the 21-year-old, $20-million San Antonio highway-construction company survived Texas's real estate woes of the late 1980s. President Tom Yantis recalls that his father, chairman John Yantis, served on the board of a local savings and loan. In the mid-1980s John began to worry about the viability of numerous real estate projects. He convinced his son that a slowdown was coming.
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Plan for the best -- and the worst
Preparing for hard times helped Tom Yantis develop a multipronged strategy that Yantis Corp. still relies on. Instead of specializing in highly profitable -- but cyclical -- private-development work, the company diversified into city, state, and even federal work. Now Yantis tracks the volume of private real estate projects that get approved by local planning and zoning boards -- a good indicator of construction activity six months or more out. With that information, he can vary his business mix and, with several options to choose from, adjust his company's plans as economic conditions change.
Find your own leading indicator
Tracking zoning decisions in San Antonio won't help your North Carolina software company or Idaho clothing store. But, like Yantis, smart CEOs everywhere look for a variable that gives them an advance indicator of coming business conditions. Sometimes those indicators are the ones everyone watches; a survey of 1995 Inc. 500 CEOs found that several track interest rates as a key variable affecting their businesses. However, indicators can be more indirect and still be telling. At Malley's Chocolates, for example, Adele Ryan Malley has found that stock-market prices are a good barometer of the confidence of the company's customers. Why? Malley's typical customers have medium to high household incomes, according to Ryan Malley. "The ones that have the bigger pocketbooks are usually watching the stock market," she says, "and when that goes up or down, they feel very differently" about spending.
If you can't find your own leading indicator, here's one you can borrow: Elkhart, Ind. David Pairitz, chief financial officer of Fastec Industrial, which distributes approximately $25 million in industrial fasteners and related products each year, says that Elkhart -- home of Fastec's corporate headquarters -- often leads the U.S. economy into and out of recession. One likely reason: Elkhart is a center of recreational-vehicle manufacturing, and RV sales reflect the rising or falling economic confidence of middle-class Americans. Even though Fastec's sales are national, Pairitz still keeps an eye on business conditions in his neighborhood. "Knowing what Elkhart can mean to the rest of the economy does help put things into a larger perspective for our company," he says.
Stay tuned
Sometimes even a leading indicator isn't enough. Some industries change so quickly that CEOs need a constant stream of up-to-the-minute information to adjust their plans. Peter Tracy, the president of seven-year-old MicroPatent, an East Haven, Conn., company that distributes patent information on CD-ROM and over the Internet, finds the pace of change in his industry a constant challenge. "I've never seen anything like it. In this business, from one issue of Wired magazine to the next, the whole industry changes," Tracy says. "You just think, 'Am I stupid -- or how in heaven's name could anybody keep up with all this?"
In that frenetic environment, Tracy's $5-million company makes and monitors financial plans and goals, but its strategy has to be constantly adjusted to accommodate changing technology. One tool Tracy has found that helps him and his employees keep pace with change is a subscription to a customized electronic-news service offered by a company called Individual Inc. For $29.95 a month per user, Individual's "Heads Up" service each day transmits to every subscribing MicroPatent employee the first few lines of articles that are relevant to that employee's particular areas of interest. It will also transmit whole articles for an additional charge. Tracy himself uses Individual to track big strategic areas like intellectual property, but his marketers have more mundane applications. They've found, for instance, that by tracking mergers-and-acquisitions activity through the service, they can locate likely customers; acquiring companies are often looking for patent information about the new industries they're entering.
Know your costs
If your business forces you to make quick decisions, it's critical to have a sound basis for making them. That was Karen Goode's key lesson from her strategic-planning course. The class forced her to break down her business into revenue streams, called strategic business units, and then to analyze the profitability of each. The results surprised her. Goode does transcription business for local hospitals and medical clinics and occasionally for publishing companies. She had always assumed that the clinic business was a minor adjunct to her core (hospital) business. When Goode broke out the numbers by strategic business unit, she realized that the clinic business could be very profitable -- if she managed it properly. Because the clinic accounts require less-specialized medical knowledge than the hospital accounts, she could assign lower-paid people to them. However, without careful planning, she might end up putting her highest-skilled, most expensive people on those easier accounts, thus missing out on her potentially high margins.
Goode used to approach every sale the way most entrepreneurs do: more is better. Today she goes after only the work she knows she can profitably perform. "We can all fool ourselves into thinking we're making money," she says. "It opened my eyes to be able to say, 'This account makes x dollars for me." That information has altered Goode's entire strategy. As she sells she's also thinking about how to manage the new account. Goode now has something every business owner could use: a plan that continually adjusts to changing conditions, one that she has internalized and can use to make day-to-day decisions. But Goode puts it more simply than that. "I just approach clients and customers and business differently than I did a year ago," she says. "Now I think ahead."
