Legendary Chinese military general Sun Tzu once said, “Opportunities multiply as they are seized.â€Â Never has that assertion been more important than in 2009, when the business environment was as unmerciful as anything the author of The Art of War may have seen on a battlefield.
The landscape is littered with the remnants of companies of all sizes and hues that failed to identify and capitalize on opportunities as a shrinking economy–combined with crises in banking, automotive, and housing markets–created a business climate that was more like a relentlessly hostile opponent that showed no signs of yielding. Many entrepreneurs, including some BE 100s CEOs, contended with the economic downturn with old tried-and-true strategies: cost-cutting and identifying new revenue streams. But to succeed today requires much more–it demands redefinition.
Just ask John F. Carter, president and CEO of Atlanta-based Carter Brothers L.L.C. (No. 55 on the BE industrial/service companies list with $71 million in revenues). While hardly immune to the ravages of the economy (revenues were down 11.3%), the environment forced the company to become more strategic. “Where in the past, we were looking at growth opportunities–organic and through acquisitions–this year we shifted focus to improving the delivery of our core capabilities,†he says.
As a result, Carter says he changed the way he looked at the company and business opportunities. “As we continue to plan three, five, seven years ahead, we redirected our focus on ensuring our current business model was running more efficiently in the current economic climate,†he says. “So for me, it really made me drill down in my company and say, ‘OK, How do we guide the corporation differently? How do we maximize our current talent? How do we lead and communicate with employees to assure them that we are moving the business in the right direction to survive and thrive in this economy?’†The bottom line: despite lower revenues, profits were up 22%.
Nobody could have predicted the banking and housing crises, the turmoil of the auto industry, and a myriad of other events that assaulted businesses and consumers alike. However, a number of entrepreneurs realized that what worked in the past is not guaranteed to succeed now. They are the ones who embraced innovation and reconsidered their battle plans, which not only positioned their companies to hold ground but capture new business. Here’s a look at some of the strategies they’re deploying:
INDUSTRIAL/SERVICE: A WAR OF ATTRITION
Many of the nation’s top African American CEOs found themselves in the middle of a bloodbath in 2009. The U.S. economy shrank 2.4%, measured by real gross domestic product versus an increase of 0.4% in 2008. It was the worst single-year performance
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since 1946. The Consumer Price Index rose 2.6%, with the increase in the overall costs for goods and services due primarily to higher gas and food prices. Personal income decreased 1.7% in contrast to an increase of 2.9% in 2008. And America’s jobless rate reached as high as 10.1%.
Some be 100s suffered heavy blows with significant revenue losses but managed to contend for another year. be industrial/service companies that primarily supplied parts and services to the auto industry were hit hardest. Among those that suffered heavy losses was Bing Group, founded and formerly run by Detroit Mayor Dave Bing. The supplier of automotive sheet metal sold its Bing Metals Group subsidiary to L&W Engineering Co. in November for an undisclosed amount and the local press has published several articles claiming suppliers are suing for unpaid bills. The Bing Group was not the only casualty last year, as 11 companies fell off the Industrial/Service roster.
Overall, be industrial/service companies posted a 12.53% drop in revenues to $17.905 billion and 5.47% decline in payroll to 67,937 employees. To stay competitive, chief executives took strategic steps in the face of a tough economy–repositioning their companies for new opportunities, diversifying products or services, bringing on new clients, and expanding market territories. CEOs who finessed pre-existing relationships with federal and state governments to garner lucrative contracts were notable winners, realizing revenue gains. Here are more of their strategies:
1 ADD TO YOUR PRODUCT PORTFOLIO. Gene Hale, president of G&C Equipment Corp. (No. 52 on the BE industrial/service companies list with $75 million in revenues) in Gardenia, California, was among those CEOs who expanded product lines to spur sales growth, with revenues up 36.4%. Since 1981, G&C has supplied everything from trailers, drill rigs, forklifts, cranes, man hoists, lumber, concrete, appliances, and power and hand tools. In 2009, the company’s inventory carried more widely used materials in the construction of large-scale commercial buildings, such as HVAC equipment, pipes, and valves. Says Hale: “We realized there was more money to be made in supplying items used in the building than the equipment used to dig the hole.â€
2 THINK GLOBALLY. Trillion Communications Corp. (No. 29 on the BE industrial/service companies list with $140.6 million in revenues) has a strategic plan to grow the company through global expansion. Sales for 2009 were up 15.2% as the Bessemer,
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Alabama, reseller and telecommunications service provider added Verizon to its roster of clients that also includes AT&T, GE Capital Solutions, and Qwest. “In 2010, we have put a stake in the ground to grow our federal contracts business 10% to 20%, and to
increase our global business side 10% to 15%,†says President and CEO Ralph E. Brown.
3 FOLLOW THE MONEY. Germantown, Maryland-based 1 Source Consulting Inc. (No. 20 on the BE industrial/service companies list with $210.7 million in revenues) saw revenues jump 4.3% due to increased government spending. The company provides IT services for the U.S. departments of Energy, Education, Justice, and Transportation, and the Securities and Exchange Commission.
AUTO DEALERS: OVERHAULING THEIR BUSINESSES
To say that the automotive dealers traveled a bumpy road last year is an understatement. Two of the Big Three U.S. automakers filed for bankruptcy and the sales volume dropped by 40.5% from 2000 highs that had held almost a decade (see chart). As a result, be’s auto dealer list dropped from 75 to 60. In prior years, the list ranked the top 100 dealerships. Gregory Jackson, the CEO of St. Clair Shores, Michigan-based Prestige Automotive Group (No. 3 on the be auto dealers list with $371.2 million in revenues), who shuttered three Saturn dealerships after GM decided to discontinue the brand, characterizes the current environment to that of combat: “It’s like being in a war. You hit the beach with your buddies and then the bombs start falling. You look around and your buddies are dead. You’re glad to still be alive but you don’t feel good.â€
While most of the news has been grim, there is a bright side. During the first two months of 2010, auto sales increased 9.9%, points out Charles Cyrill, a spokesman for the National Auto Dealers Association. Some African American dealers invented procedures for surviving the recession, and several are here to share how they succeeded:
1 GET THE BEST TALENT. With unemployment hovering near 10%, there are a lot of quality professionals available. Southfield, Michigan-based Avis Ford Inc. (No. 14 on the be auto dealers list with $86.5 million in revenues) took advantage of this and
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brought on a new sales manager. “He began to make things happen, getting more production out of our sales staff by motivating
2 DEVELOP AN ONLINE PRESENCE. Don’t just talk about it. “There has been an old school/new school resistance over the last eight to 10 years toward the Internet’s effect on automotive sales,†says John Giamalvo, dealer business analyst for the automotive information organization Edmunds.com. “While sales were strong, most dealers were learning about, but not implementing, necessary changes toward emerging trends. Those who have made provisions to change earlier have clearly been those who’ve run ahead of the pack.â€
3 ACCOMMODATE CUSTOMER NEEDS. Extending store hours will make the dealership more user-friendly. Dr. A.V. Fleming, executive director of Ford Motor Minority Dealers, says it’s now widespread among Ford minority dealers’ service departments to be open Saturdays and weeknights. Three years ago, they’d have been closed. Customers also demand quick turnaround on small jobs such as tune-ups, so if dealer service departments want that business, they have to offer in-and-out work at lower prices.
4 CRAFT AN IDENTITY. During the first half of his 20 years in business, Bill Perkins, CEO of Eastpointe, Michigan-based Bill Perkins Automotive Group (No. 11 on the be auto dealers list with $105.5 million in revenues), was reluctant to show who he really was. Now he connects with prospective customers by making a personal appearance in most of his television ads. “That has been working for us. People are able to put a face with the name. In today’s market, it really doesn’t matter if you are a minority or not. What people are looking for is value, honesty, and a good deal. And that’s what we are offering to customers,†says Perkins.
ADVERTISING AGENCIES: AN UPHILL BATTLE
As African American-owned advertising agencies continue to claw for a thin slice of the advertising dollars pie amid one of the worst economic storms in history, it’s become very clear that shops will either have to make adjustments, such as cost-cutting or improvements, such as incorporating digital media, to survive. Overall, advertising spending declined nearly 9% in 2009 to $116 billion, which left many black advertising agencies fighting for their survival.
While a few firms on the be advertising agencies list experienced growth last year, others have either seen flat progress or continued decline. In 2008, St. Louis-based FUSE (No. 9 on the BE advertising agencies list with $65.1 million in billings) took a slight
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hit last year. “No one could be totally prepared for the economic downturn, but I believe we were better positioned than most because we never got beyond our means,†says FUSE Chief Executive Clifford Franklin, adding that his company gained business from Jamba Juice, the National Education Association, and project work from State Farm.
Last year was a good year for Southfield, Michigan-based GlobalHue (No. 1 on the BE advertising agencies list with $483.5 million in billings) which not only signed the Chrysler Group as a client, now handling its Jeep Global Brand account, but was named Multicultural Agency of the Decade by Adweek magazine (see Advertising Agency of the Year). Says CEO Donald A. Coleman, who has developed a series of partnerships and entities as a means of serving different market segments, “I think we were more prepared for the downturn than most. We’re staying ahead of the curve. We made money and we didn’t spend it all. I invested in our business so we were ultimately getting better.†Here are a few more of their survival tactics:
1REINVEST. In order to stop financial hemorrhaging, ad agencies must take calculated steps, says Greg Head, president of HEADFIRST Market Research Inc., such as reinvesting in their company via employee training and development; only acquiring businesses that are profitable; driving more value and profit via existing business; telling a better story about the importance of the African American consumer; cutting unnecessary spending; and overall, just managing their business better.
2 COMMUNICATE AND DELIVER VALUE. “As we’re coming out of this recovery phase, consumers will never be the same. They will probably keep their belts tightened for a while. You must keep that in mind when communicating with the consumer,†says McGhee Williams Osse, co-CEO of Chicago-based Burrell Communications Group L.L.C. (No. 4 on the be advertising agencies list with $180 million in billings).
3 EMBRACE SOCIAL MEDIA. Fully integrating digital media in client pitches and throughout the company is another viable technique that ad agencies must implement. As social media sites such as Twitter and Facebook continue to grow in popularity
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and consumers turn to their computers more for online purchases, news updates, and catching up on their favorite television shows, advertisers are determining the most effective ways to get clients’ messages across. “There is no getting around it, digital media is going to be a part of everything we do and it’s going to be a part of everything consumers are going to face,†Coleman says.
4 UNDERSTAND THAT NOT ALL BUSINESS IS GOOD. “We typically shy away from clients that we have to convince to market to African Americans,†says FUSE’s Franklin. “We refuse to go into African American buying power statistics or that media habits are different. Any client that doesn’t know this information should not be managing a marketing budget.â€
5 CONSIDER CONSOLIDATION. “Two things the Hispanic agencies have done well is coming together in association and building a strong presence in the media. Black ad agencies and black media haven’t really done that. I am big advocate of solidarity if it’s coming together and pooling resources,†Williams Osse says. Burrell Co-chief Executive Fay Ferguson says consolidation would be a viable option if you could find agencies that don’t have conflicting clients. For example, Burrell represents McDonald’s while New York-based UniWorld Group (No. 3 on the be advertising agencies list with $202.1 million in billings) retains it No. 1 competitor, Burger King, as a client.
FINANCIAL SERVICES: A REBOUND YEAR FOR SOME
The generals at some of the nation’s top black-owned financial services companies see as many opportunities as the countless challenges they’ve had to deal with in recent years. An economy in recovery, potential help from the federal government, and a chance to boost market share from fallen rivals has prompted these leaders to reposition their businesses for future growth and profitability.
The equity markets rebounded strongly last year: the Dow Jones industrial average gained 18.8%, the S&P 500 rose nearly 23.5%, and the Nasdaq composite index climbed 43.9%, according to SNL Financial in Charlottesville, Virginia. Against this backdrop, a number of CEOs of the nation’s largest black-owned banks, asset managers, investment banks, and private equity firms have been mapping out new strategies for growth. Here’s a look at their lessons:
1 PREPARE FOR CHANGE. “With Katrina and the recession over the past four years, you have to be prepared for change,†says Alden McDonald Jr., president and CEO of New Orleans-based Liberty Bank and Trust Co. (No. 6 on the be banks list with $425.1 million in assets). “If you’re not, you’ll fail.â€
2 BE TRANSPARENT. “You have to be able to quickly and effectively communicate to your clients and employees what the market confusion and chaos means for them and your investment strategies,†says Thurman V. White Jr., CEO of Progress
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Investment Management Co. L.L.C. (No. 4 on the be asset managers list with $6.9 billion in assets under management). His San Francisco-based firm reaped the benefits of recovering financial markets. “Under stress, you have to always act with integrity.â€
For black-owned banks, risk has become a four-letter word and given the harsh regulatory environment, banks have become wary of making riskier loans which prompt greater regulatory scrutiny and many have opted to hold on to cash rather than lend it.
Viveca Ware, senior vice president of regulatory policy at the Independent Community Bankers of America in Washington, D.C., says a major challenge for minority banks–most of which are located in underserved communities hit hard by the recession–is generating new consumer and business loans and getting repayment on existing loans. However, she says, there are opportunities for minority banks to expand consumer, mortgage, and small-business lending. She said many consumers are ready to return to those banks for products and service, particularly after some were burned by subprime lenders in recent years. “There’s an opportunity for banks to provide relationship-based banking once again and re-attract those consumers and small businesses,†Ware says.
Many asset managers had a solid year, adding new clients while the equity markets rebounded. “We’re very encouraged about where we are now in the marketplace and our future growth,†says Gerald B. Smith, CEO of Houston-based Smith Graham & Co. Investment Advisors L.P. (No. 6 on the be asset managers list with $4.9 billion in assets under management).
Tyler Hall, a research analyst at SNL Financial, says opportunities for investment banks to earn fees for underwriting and advisory services will be created as credit markets loosen up. “I see a lot of these companies being able to take advantage of a recovering market,†Hall says.
One firm that has benefited from such market conditions has been Atlanta-based Jackson Securities L.L.C. (No. 5 in tax-exempt securities with $23.8 million in lead issues on the be investment banks list). Reuben R. McDaniel III, president and CEO, says the firm profited from less competition in both its municipal finance and equity businesses and refocused 20% of its staff to boost the size of those operations. This year, Jackson Securities plan to focus on federal recovery programs that offer new underwriting opportunities for investment banks, particularly minority-owned firms. “We’re excited about that opportunity because it could increase our business by 20%,†he says.
In the private equity world, Farmington, Connecticut-based Fairview Capital Partners (No. 1 on the be private equity firms list with $3.1 billion in capital under management) boosted its capital under management from $2.6 billion, mainly thanks to the New York Common Retirement System choosing Fairview to manage a $500 million pool of capital. Co-managing Partner JoAnn H. Price says Fairview this year plans to launch a $300 million emerging market fund that would target growth equity funds in Latin America, India, and Asia. Fairview is also looking to expand its co-investment program that would allow investors to access direct deals. All told, Price would like to see capital under management rise by another $400 million to $500 million by year’s end.
In response to the new business battlefield, be 100s commanders will be forced to develop new campaigns to increase sales and capture market share. The long-term winners are those that stay combat-ready with flexible battle plans, the most talented troops, and fiercest arsenal.
–Additional reporting by Carolyn M. Brown, Cliff Hocker, Aisha I. Jefferson & Jeffrey McKinney