Manage risk
In much the same way that Meadowbrook spread itself too thin a decade ago, companies that are feeling the sting of the current recession are, in many cases, suffering a backlash from accelerated growth when times were better.
Risk is an inherent part of leading a business, and some situations call for taking a calculated risk, such as branching into a new market. But when you decide to take a risk, make sure that you manage it and always wonder about the consequences if the economy falters and revenue starts to dry up.
“Companies that got into trouble during the current economy were overleveraged,” Cubbin says. “They were taking far more risks than they could afford. And if we didn’t learn from our past here at Meadowbrook, we might have been doomed to make the same mistakes all over again. The lessons we learned from the past helped us stick to the basics, stick to our core values in the company, and we’re not taking undue risk.”
Risk management starts with maintaining discipline during good economic times. It was a challenge for Meadowbrook’s leaders to renew the company’s focus on its core businesses during the turnaround, when the company’s future was at stake. But perhaps an even more critical test is keeping your company focused on risk management when times are good and employees don’t fear for their jobs.
If you prepare for bad times during good times, you can develop risk-management skills in your employees before the economy forces them to do it on short notice.
Preparation comes back to communicating the financial status of your business to employees and seeing to it that you always keep your finger on the pulse of profits and expenses.
“It’s really all about measuring and metrics,” Cubbin says. “If you’re measuring something, it gets looked at. If you look at the metrics of your business, you see variances from what your expectations are. Then, you can take steps to change those things.
“The second tip is to not anticipate growth and new business when putting your expense structure together. If you build your budget around a status quo or even factoring in a little erosion in your business, you’re going to build discipline with regard to looking at expenses. If you are able to achieve new business and grow revenues without adding expenses, that is when your margins are going to expand.
“At the end of the day, you need to always look at your business expenses as if times are always tough. Then, if you have to shrink, you have an expense structure that can support a smaller revenue base.”
