Lead riders in the Tour de France make their moves during the race's hardest stages, the uphill legs.

When the road levels off, and this recession ends, your position in the competitive pack will depend on how skillfully you manage now.

Here are some suggestions to face the reality of a long uphill ride and help you move ahead of your competitors.

1. Be Lean and Mean: When times get tough you want to keep investing in your core business — what you are known for.

• Address the profitability of peripheral varietals. Prune them when they don’t meet your target return rate or yield a satisfactory return. Or, relegate them to your more profitable consumer direct channel until they are mature enough to survive in the trade.

2. Go beyond Best Practices: Being just as good as your competitors won't cut it during a recession.

• Your customers face new problems, so give them new solutions.
• Create new practices that leapfrog industry best practices in customer care, product value and quality.
• Make a short list of businesses you admire the most right now: “A players”. Ask yourself — why? Adopt some of their ideas.
• Invest in and reinforce what you are best at that also gives you a meaningful competitive advantage.
• Outsource any internal services that do not give you meaningful competitive advantage: compliance, winemaking for non core products, technology management, bookkeeping.

3. Reset Priorities: Keep volume and profit forecasts and scenarios up to date.

• In a fast changing economy you have to be nimble and make decisions faster. Stay on top of trends and market performance since it is better to be informed than to be surprised.
• Run worst case scenarios to determine if you are going to have any inventory or debt covenant issues. Extend those scenarios into next year to see what happens to your grape and inventory requirements, if you are behind on planned volume and profits this year or unsure where you may end up. This may give you an early warning of changes you need to make now to prepare for next year.

4. Keep it Real: Manage cash flow monthly for the next 24 months.

• Create a realistic cash flow budget that charts both the short term (30-60 days) and longer term (1-2 years). Schedule out timing of payables and receivables and assume you will not be paid as quickly you may have been. Determine where serious cash shortfalls will be long before you are in a “fire drill” mode.
• Monitor, prioritize and manage all cash disbursements closely. Make sure everyone is staying on budget or, if not, there is an agreed upon reason why not. Use all supplies up totally before repurchase. Be aggressive in moving dollars to where they are needed.
• Bill accurately and collect promptly. To build a better cash position, consider meeting clients half way on billing disputes—even if your company is not at fault. Become more disciplined in assessing and monitoring customers’ credit.
• Contact creditors (vendors, lenders, and landlords) and attempt to negotiate mutually satisfactory arrangements to weather any cash shortages. In some cases, you may be able to arrange better payment terms.

5. Raise some Cash: Monetize non-performing assets and hold off spending, smartly.

• Build safety margins in case of unanticipated expenses. I will not presume anyone wants to sell land, however, consider leasing land you are not using — such as bottom land a strawberry farmer might find attractive. Capitalize on excess capacity to custom crush a complementary varietal.
• Cash today may be more important than volume next year. Sell bulk wine you don’t absolutely need.
• Suspend all capital plans that are not an emergency or won't measurably improve quality for competitive reasons. If you're building a winery, build it so it can be added to as your volume justifies it. Add tanks only as the business justifies it. Rent a bottling line until the business is large enough to afford to buy one.
• Do not depend on your banking partners to bail you out of a cash short situation anytime soon.

6. Go to Market: Communicate like crazy, balancing realism and optimism.

• The impact of face-to-face contact in this environment cannot be understated.
• Make sure your distributors and brokers have volume targets and manage their performance continually. Accountability is critical to success.

7. Cash in not always King: Make judicious investments in technology, infrastructure, and team development.

• While having a strong cash position is critical to surviving a deep recession, making your team stronger through technology or development will pay off.
• Re-evaluate people - and steal some good ones. The right team will improve productivity and accelerate time to results.

Although it's hard to be upbeat in a recession, it can truly be a time of opportunity. Don’t wait to act. Much depends on how quickly you move. Scion can help you be a lead rider. Call me to explore how.

Hank Salvo, Partner
Scion Advisors®
Hank@ScionAdvisors.com
925.915.1289