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Saturday, December 27, 2008

Managing through this Economic Downturn

Ask just about any entrepreneurial leader, at any time, how things are going (at a new year's party, a lunch meeting, an industry conference), and you get the typical optimistic answer: "things are good, we're growing, great new stuff coming, exciting time for our company".

We are naturally trying to exude confidence in our business, trying to convey the necessary optimism that others find appealing and results in productive partnerships and helpful relationships. At normal times, some are being completely truthful and some are exaggerating at least a bit.

These are not, however, normal times. I have spoken to dozens of entrepreneurs and investors over the past year. Some saw it coming in early 2008 or earlier, some got nervous when the mortgage bubble started bursting, and some didn't see it coming until Lehman and Merrill collapsed in September. A month after the credit markets froze and equity markets dove, the prevailing view was that we were hitting bottom soon, and that we were in a typical cyclical downturn, like the brief recessions that came and went every decade or so. Those were painful recessions that wreaked havoc on many lives and businesses, but in my humble opinion, we are in the middle of something much more serious.

I could spend much time explaining why I believe this is a much graver downturn, citing labor, retail, monetary, consumer spending, and other evidence, but I'm not writing with the goal of convincing anyone that my crystal ball is more accurate. What I am writing about is what to do with that belief if you hold it (assuming your company doesn't provide foreclosure services, or some other industry that benefits from a major economic downturn)...

Anyone still saying “things are good, we're growing, great new stuff coming, exciting time for our company" and the story stays completely rosy as you dig deeper, is either still in denial or is not interested in a productive truthful conversation. As down as I am on just about every sector of the economy and how long it will take to recover, even with an aggressive stimulus spending package, I am optimistic about Tutor.com's future.

There are clear reasons for optimism, including our recent sales results, customer feedback, and new products launching. Realism, caution, and a healthy respect for the unknown after a year of many "this has never happened before" moments, however, trumps the optimism about my business. This means that doing my job well in these uncertain times has to include budgeting conservatively, cutting back on spending, focusing more on what works, listening to our customers even more carefully than before, and figuring out ways to offer our customers more even when we're cutting back.

In our business, our employees and our tutors are among our biggest assets, but since we have no factories producing materials or brick and mortar operations with big rent payments, our people also represent our biggest expenses. Cutting back on costs and budgeting conservatively for us primarily means employing fewer people and paying them (us) less, while asking everyone to work harder and smarter. These are tough decisions we began making months ago, and without revealing too much, I will say that my entire management team and I took significant voluntary compensation and benefits cuts to set the tone for our overall planning and budget decisions.

Leading is easy when times are good and dollars are flowing freely. In hard times, keeping your best people focused, motivated, and passionate, while asking them to sacrifice, is just plain hard but absolutely necessary.

Every leader's style is different. Mine is to be as open with key information as possible with our employees, to nurture an environment where tough questions are asked and doubts are expressed, and to avoid top-down decision making except when necessary. And if I have sufficiently earned the trust of our people and the belief in our overall company vision, we get a company where the key strategies are understood and bought-into by everyone who has the power to make us succeed.

So, at Tutor.com, things are good, we're growing, great new stuff coming, exciting time for our company. ;-). But the world around us is shaky and stormy, and I am going to make sure we keep our great people on the bus together, in the right seats, moving around as needed, driving smartly and creatively in the right direction, serving our customers as best as we can, and using every dollar wisely so that all of our stakeholders (students, families, customers, employees, tutors, partners, shareholders) benefit from a healthy and strong Tutor.com during this economic downturn and beyond.

George Cigale, gcigale@tutor.com