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Draconian times result in ‘Draconian Threats’

January 23, 2009

In normal times, we all perform the standard 4 box SWOT analysis (Strengths, Weaknesses, Opportunities and Threats), but I’ll bet you the ‘T’s are really only mildly disturbing issues in retrospect. The usual list of Threats I see in SWOTs are just not sufficiently draconian and therefore the mitigation planning is not designed to handle today’s bizarre economy. We’ve come to a fork in the discussion here. For those companies deeply recession affected and nearly out of Cash, it’s too late to redo the T’s – core survival is at stake and you have to deal in the now (see our other postings for insights to consider). This posting is for those companies who are not yet affected and wish not to be.

Today and in the near future, we need to reverse order the boxes and our focus to identify and plan for ‘Draconian Threats’. If they are taken care of, the Strengths and Opportunities will happen.

What are some ‘Draconian Threats’ to be planned for now that we’re in the midst of a quasi-Depression? Here’s what I’m seeing:

Some companies have had their best customers stop making bulk buys and go instead into month by month mode. This is much different than a downturn – it’s a complete change in how you forecast, stock and operate. Will it become the new norm? If it does, will your demand generation and business models have to adapt long term?

Other companies have seen their market basically dry up. At least one Ocean Freight shipping line has taken delivery of multiple new container ships, just to sail them into drydock, even though the loans are still in effect. Again, this is more than a downturn – it’s acknowledgement that they cannot get a correct fix on future container shipping needs.

Crazily, some healthy companies could be in jeopardy because one of more of their commercials landlords are in bad financial shape and the bank can foreclose on their buildings.

The underlying strength which permitted many companies to issue their own Performance Guarantees and Letters of Credit in lieu of escrowed cash have evaporated and now various regulators and key customers are demanding thick cash escrows or large and tight Performance Guarantees backed by a 3rd party. Who has this spare liquidity these days? So, your business is fine, but you’re running out of cash.

CPG companies have marquee brands and value brands in each category. In bad times, many brand-loyal shoppers move to value brands for the savings. Do you make value brands less effective and risk harming your company’s reputation? If the value brand has sufficient quality not to ding your company’s image, you run the risk of customers not moving back to your more profitable marquee brand, negating some of the millions of dollars spent each year in marquee brand equity and of course, reducing margins.

If you relied on financing customer’s purchases either through your existing lines or through friendly Banks…enough said.

Without belaboring the point by showing too many ‘Draconian-Threats’, the key identifier of a Draconian Threat is, unfortunately, usually an after the fact utterance of “wow, we never thought that could actually happen”. Those companies who will survive this terrible economic time will be those companies who revisit their SWOT analysis now and quickly come up with the extreme worst scenarios and plan accordingly.

In this economy, that 1% probable ‘Draconian Threat’ may very well have a 100% chance of occurring. Plan accordingly.

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