Inc. Magazine had a great interview with Jack Stack, CEO of SRC Holdings and author of the book The Great Game of Business. SRC Holdings is managing well even in this environment—chalk it up to Stack’s constant paranoia and always having a Plan B.
Here’s how to develop a Plan B:
- Be paranoid. Stack is constantly worrying about having too many eggs in one basket. Whether that is too many sales coming from one customer or planning for another 9/11 he and his team are constantly playing out worse case scenarios and developing contingency plans to deal with it.
- Keep reinvesting in the future: 15% of SRC’s sales are dedicated to research and development. This allows them to rush new products to market and beat the competition because the product development was already well under way.
- It’s all about creating jobs. Despite this downturn, SRC has only had to reduce a workweek for some of its employees but managed to place many of them in other divisions that needed the help. They take layoffs extremely seriously. According to Stack, “A layoff is a failure of management. But the people who usually pay for that failure are not the ones responsible for it.”
- Focus on the 4 Ps: people, profits, positive cash flow, and positioning. If you are not using your people to help you reposition your company in this downturn, when everyone is just “standing around,” you are crazy.
- Prepare for your contingent liabilities: Ensure that you have enough assets to sell or cash available for the future. In SRC’s case it was having the money to pay its employees when they wanted to cash out their stock, in private companies it could be buying out a partner, or settling a pending lawsuit. Beyond a rainy-day fund or emergency fund, having access to the cash is an important part of your plan B.
SRC’s success is a result of balancing his risk by diversifying his company into markets that are inversely related, and constantly educating and communicating the business’ numbers to his employees. When asked if his paranoia could be limiting growth because they could get “whacked” at any moment, Stack succinctly states: “I’d say you’re a fool if you know you’re going to get whacked and don’t do something about it.”
What is your Plan B in this economy?