What Did You Learn During the Recession? Are you doomed or destined?

By Holly G. Green

Those who forget the past are doomed to repeat it. This famous aphorism has been around a long time. But never has it been more applicable than to today’s business environment. As we begin to ease our way of the recent economic malaise, I propose taking a moment to reflect on what we have learned over the past year and how we can apply that hard-earned experience going forward.

It does seem that those who forget the past tend to make the same mistakes over and over. It’s also true that those who learn from the past can put those lessons to good use. That’s exactly what Joseph Petrucelli did as CEO of East Bridgewater Savings Bank, a small community bank near Boston with $135 million in assets. During the wild ride to the top of the economic cycle, when other banks were lending money hand over foot, the FDIC criticized East Bridgewater for not loaning enough money.  Yet, it was the bank’s long-held strict lending policies that allowed it to weather the financial industry meltdown and come out the other side relatively unscathed.

When competitors were freely approving loans at a rate of $9 for every $10 in deposits, East Bridgewater loaned less than $3 out of $10 in deposits. Petrucelli, who describes himself as “paranoid” when it comes to the credit worthiness of borrowers, refused to buckle under to the FDIC, and the strategy paid off. To this day, East Bridgewater has had no foreclosures and no delinquent loans. And it continues to lend money while competitors struggle to stay afloat.

What drove Petrucelli’s stubborn insistence on making only trustworthy loans? The lessons learned during the 1980’s downturn when he was asked to rescue Boston's Eliot Savings. Eliot Bank had transformed itself from a sleepy community bank into a high-growth commercial lending institution by making piles of loans. Unfortunately, most of those loans were unsound. By the time Petrucelli arrived on the scene, the bank’s risky lending policies had so decimated their assets that he had no option but to permanently close the doors.

Obviously, the lessons of past recessions served Petrucelli well. So what can we learn from the most recent one? The most fundamental lesson, I believe, is the emergence of a new “normal” for today’s businesses. Granted, some things (such as sound lending policies) remain unchanged. But for most companies, the basic rules of the road have shifted in very fundamental ways. In previous generations, economic downturns were usually followed by mass sighs of relief and a quick return to business as usual. This time the overriding issue is, “Where do we go from here?”

The second big lesson is that companies need to learn how to anticipate the unanticipated. And they need to learn it quickly. Otherwise they will get run over by faster and more agile competitors that build their core competencies around the ability to take advantage of the unexpected. When it comes to figuring out new directions to go in:

• Identify key lessons from the past year or two. What major considerations need to inform your strategic planning? What did you try that worked well? What did you try that didn’t work? What old habits and processes should you abandon even if you have invested in them for a long time? Additionally, take into account actions, activities, products and services that your competitors are not focusing on. Are they not hiring? Are they not seizing an emerging market? What gaps can you fill that they are not pursuing?

• Distill your learning into focused action plans. Some actions might focus on short-term opportunities to meet cash flow needs. Others might build long-term sustainability by seizing an opportunity your competition is missing. Regardless, any actions going forward must support your core business mission and strategic objectives. Also, get very clear on when you will take the action and what resources will be required to do it well.

• Plan for the unexpected. Make scenario planning part of your daily routine rather than an after-the-disaster activity. Take the time (in advance) to pause, think and plan. This may feel like slowing down, but it will actually help you get where you want to go much faster. Make asking “what if?” part of standard operating procedure. Force yourself to challenge your own assumptions and engage others who have diverse views.

• Prepare yourself emotionally. Accept the fact that change will happen faster and more dramatically than you would like and that it will often feel uncomfortable. Coach employees at all levels to understand that constant change is the “new normal.”  This will lower stress levels and reduce anxiety so that you can effectively execute your plan.

• Understand the complexities of business. During chaotic times, the natural human tendency is to simplify everything. While casting off inefficient processes or under-performing products usually makes sense, never do so without validating assumptions. Use scenario planning to challenge your assumptions and dig into the details before making any major decisions. Weighing different alternatives can often uncover competitive differentiators you would never find by simply cutting your product line by 20 percent.

• Trust your intuition. Great leaders rarely make decisions without supporting data. But in the absence of information they aren’t afraid to occasionally “go with their gut.”  If something doesn’t feel right, don’t hesitate to shift. Often, this intuition comes from front-line employees who can spot warning signs long before top brass. Make every effort to solicit feedback from those who are in close contact with your customers.

A recovering economy offers a real opportunity to separate your company from weaker competitors, a fact supported by a recent Bain and Company study that found more businesses fail after a downturn than during a recession. Why? Because many companies are simply too weak from cutbacks to easily switch back into a growth mode. Employees are demoralized, customers have lost faith in the company, and vendors are slow to restore damaged credit lines. As a result, opportunities abound for companies that are prepared to seize the moment.

Now is the time for bold action!  Don’t forget the past, but don’t allow yourself to get stuck in it either. Chart a course to take advantage of the opportunities in front of you, and prepare yourself for a bumpy ride. Some companies are doomed to repeat history while others are destined to write it. Which one will you be?

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