The Great Recession has changed market attractiveness — perhaps for the long-term — for many, many organizations. The ability to adapt will determine the survivors and thrivers. Therefore, let’s take a closer look at four key points.

First, the ability to adapt and the ability to react are not the same.
We react to a contract being cancelled; we adapt to changing market conditions. neandertal-twilight_smReacting is a response to an event; adapting is a form of evolution. Organizations, like species in the natural world, adapt to improve their fitness to succeed in their environment. (According to Scientific American, the extinction of Neanderthals may well have been caused by their inability to adapt quickly enough to rapid climate swings and not by competition or inter-breeding with modern humans. See terrific 6-minute video.)

Second, the ability to adapt has three parts:

  • Finding opportunities to add value within an enterprise’s doable sphere
  • Enrolling the necessary resources (employees, partners, capital, technologies)
  • Executing well

The ability to continually find and deliver new value to customers trumps all other business competencies. Organizations that do it well see themselves as “can-do” market leaders; others label it “change” and wring their hands.

Third, each act of adaptation is a strategic initiative: an assignment of resources to a potential opportunity. The great entrepreneurs — like Carnegie, Disney, Walton, and Gates — forged their success not from a grand vision or technological genius, but from a cascade of adaptations aimed at creating new value. These strategic initiatives are eventually aggregated and relabeled, erroneously, by history as a Grand Strategy. The truth is far more instructive!

creating-new-value-faster

Fourth, creating new value faster is a competitive advantage. In 1997, I first read Wheelwright and Clark’s book Revolutionizing Product Development and have been referring to it as a book of strategy ever since. In this simple but powerful diagram, they capture a truth about business in a rapidly-changing environment: if you are a fast-cycle enterprise that can adapt (create new value) quickly, you can overcome slower competitors despite their lead and improve your fitness despite turbulence.

Dave on May 28th, 2009

Grasshopper.com promotes their product (phone system)grasshopper_idea

with a nifty video titled “Entrepreneurs can change the world.” Kind of clever — I watched it several times!

Main message: Entrepreneurs are changing the world, one small business at a time. Are we prepping young people to meet that opportunity?

Dave on March 3rd, 2009

household_debtThis graph summarizes the consumer pressures that are likely to dampen the U.S. economy long after the credit crisis and Wall Street gridlock is behind us. As the graph shows, median household income has been flat for years despite rising household spending and skyrocketing household debt.

In five earlier posts, I reviewed the evidence of economic climate change:

This recession is structurally and dramatically different than the other five recessions of the past 35 years.

Even before this recession began, job creation and real median household income

had already flat-lined.

To compensate, Americans worked longer hours and took on massive amounts of debt, fueled by low interest rates, soaring housing prices, and easy (often negligent) credit.

The implosion of this housing bubble, combined with the global credit crisis, suggests “the most likely outcome is not a V-shaped recovery (which is the current official consensus) or a U-shaped recovery (which is closer to the private sector consensus), but rather an L, in which there is a steep fall and then a struggle to recover. (Baseline Scenario)

In the final post of the series, I discuss adaptation and opportunity

by connecting the large-scale economic impacts we’re going through to the five basic recession strategies available to your enterprise.

drought-pix_200In this final post of the series, I want to build the connection between the large-scale economic impacts we’re going through and the five basic recession strategies available to your enterprise. It is easiest for me to think of the implications of this crisis in ecological terms. A mild recession is like a short drought: it temporarily stresses plants and animals but most bounce back when rain returns. On the other hand, a sustained drought throws the ecosystem into disequilibrium, lowers the carrying capacity for supporting life, and disrupts the interdependency of species with dramatic adapt-or-perish consequences.

Sadly, it seems clear that our economy is rapidly downshifting to a smaller, slower-growing state that may last for many years. Just as global warming is disrupting natural habitats, the economic downturn is altering the economic habitats of businesses and non-profits far and wide. As consumer spending and business investment shrink, many enterprises are no longer in equilibrium with their environment. They are in a race against insolvency.

Faced with shrinking revenues, there is a natural survival response to cut costs and redouble past efforts to drive sales. In highly contested markets with excess capacity everywhere, this strategy yields diminishing returns. It is certainly no guarantee of remaining cash positive.

Instead of doing more of the same for less and less return, the path back to fitness requires doing less of the same – and doing more to create new demand and reduce competition. Design your short-term strategies to become both cash positive AND uncommon.

The next post will explore the five basic recession strategies.

five_recession_strategies_20090820With the gift of hindsight, I can report that it is possible to adapt and transform in severe economic conditions. It’s painful, but possible to come out stronger. Twenty years ago, the Boston area experienced a deep recession that decimated the design and construction industry. A highly-contested marketplace became downright dangerous as companies slashed costs and took huge risks to win work. It did not take long for me and my Beacon Construction colleagues to recognize that hyper-competing in this environment would eventually end in failure. Through trial and error, we discovered strategies for finding and winning work outside the hotly contested mainstream. In the process, we evolved into a far leaner and smarter organization that became an attractive acquisition for Skanska USA.

Since leaving Beacon in 1994, I’ve spent many years as part of a national research-based initiative to identify and disseminate patterns of entrepreneurial success. This knowledge, and in particular the systematic way that top entrepreneurs harness adaptation to changing circumstances, are the foundations for this blog.