Example: Anchorage Television Market
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n the early 1980’s, KTUU (Channel 2) ranked a distant third in the Anchorage television news market, behind market leader KIMO (Channel 13) and KTVA (Channel 11), the number two competitor. Yet by mid-decade, KTUU had nearly achieved parity with KIMO. That’s because, when oil prices collapsed in 1986, KTUU’s visionary owner Jessica Longston and general manager Al Bramstedt saw an opening. In the midst of a deep recession, they committed to drive hard for the number one position. While their competitors cut back (KIMO, for one, was highly leveraged), KTUU continued to pour money in product, promotion, and outreach. By the end of the decade, KTUU had emerged as the clear leader. The initial payoff came in 1992, when the Anchorage Times went under after a
a better long-term approach is to lower costs by working closely with suppliers to refine requirements, improve forecasts, reduce inventory, and eliminate duplicate work. Such a collaborative approach offers even greater savings potential, avoids steep vendor price hikes when the tables turn, and prevents an erosion of trust, which can lead vendors to withhold their best ideas and technologies.
Strengthen the Balance Sheet
Running low on cash is a critical mistake in a recession. Tighter credit markets and higher perceived lending risk make it hard to raise financing at a time when you need it most. I’ve been brought into manage situations where cash was so lean that projecting weekly cash flows and managing the company’s cash position left little time to focus on improvement opportunities—a no-win predicament. Companies that leapfrogged their competitors during previous recessions started with net debt-to-equity ratios that were half of their less-successful competitors. Consider these ways to improve your cash position, prior to a downturn: Divest noncore businesses and hold onto excess cash. Draw on lines of credit as soon as possible. Accept higher or floating rates if necessary to provide maximum liquidity. Cut dividends and other payouts. www.akbizmag.com
sustained onslaught from the McClatchyowned Anchorage Daily News. The Times’ demise freed up millions of dollars in advertising revenue, a good portion of which flowed to KTUU (in part because the News raised its rates after driving the Times under). Nearly twenty-five years later, KTUU is still the market leader in the Anchorage television news market. Their decisive moves during the last recession launched them on a trajectory towards market reach and brand loyalty metrics that are today among the most enviable in small market television. While strategic opportunities always exist, KTUU’s story illustrates how recessions amplify the financial and strategic impact of making bold moves. R
Reduce working capital drain by aggressively managing inventory, cycle times, and accounts receivable. Consider factoring receivables. Scrutinize trade credit, particularly to higher-risk or non-strategic customers. Explore converting assets to leases and entering into partnerships or JV’s (joint ventures) that allow you to offload costs and free up capital.
Invest to Grow Your Core Business Efficient operations and a strong balance sheet position you to invest, which helps you gain market share once the recession is underway. So where should you invest? Consider customer retention initiatives for your most profitable customers. Identify them, interview them, and make sure you’re providing the service and quality they need. Implement customer satisfaction tracking (if you’ve not already done so). And invest in initiatives to win new customers. Target customer groups of weaker competitors with sales pushes and new products. Upgrade your sales team by recruiting top talent—usually the first to leave your weaker competitors and other companies hard hit by the recession. Now is the time to launch new products and pricing initiatives to recession-weary customers. But shy away from cutting list prices. Instead, consider the following:
Offer temporary price promotions Lower the quantity required for bulk discounts Unbundle services so customers can pay only for what they need Implement subscription or service models rather than outright product purchase Offer long-standing, credit-worthy customers creative financing packages Aside from organic growth, you can achieve big gains through M&A. With a strong balance sheet, you’ll be in a position to buy weaker competitors. You can also approach out-of-state holding companies or native corporations about the possibility of divesting noncore assets that are closely related to your business. Research shows, however, that success in a recession comes from placing big bets on your core business, not from adventuring into unrelated businesses. Make sure you know the difference—but that’s a topic for another article. R Bob Kaufman has thirty years of experience as a management consultant, successful entrepreneur, and venture capital investor. Kaufman began his career in the 1980s as a consultant for Bain & Company, a premier international strategy consulting firm, where he co-founded a specialty practice to bring about rapid and significant cost and quality improvements in underperforming divisions of Fortune 500 companies. He has led more than a dozen successful turnarounds as a consultant and interim manager. Kaufman moved to Alaska in the early 1990s and founded Alaska Channel. Together with his wife, Yael, they have built it into Alaska’s market leader in travel media, out-of-home advertising, and video production. In addition to his hands-on experience, Kaufman has been a principal in two venture capital funds formed by former Bain Capital partners, with more than $100 million under management. He enjoys advisory work and can be contacted at bob@alaska.org. May 2016 | Alaska Business Monthly
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