Pitfalls to avoid in a down market

The best strategy in a tough market is to focus on core customers and resist the temptation to bid on everything and rush into new markets.

Bob Lohfeld is chief executive officer at Lohfeld Consulting Group.

With all the talk about budget cuts, we see some companies overreacting and altering their bidding strategies. Budget reduction numbers out of Congress indicate that 2011 spending will decline by $38 billion.

According to Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, the challenge is determining how many of those dollars are attached to contracts. “There’s spending, and there’s contract spending,” Bjorklund said. “A significant amount of the $38 billion is in government compensation loan programs, and subsidies and therefore not contractor-addressable.”

The net authority that agencies have to spend on compensation and contracts — but not loans, grants or subsidies — in fiscal 2011 is $1.8 trillion, and it is this amount that was hit by the $38 billion in cuts. Although $38 billion is a large amount, it represents only 2 percent of the total spending authority.

Meanwhile, reactive, quick-fix strategy changes can often be detrimental to a company for a few reasons.

Bid-everything strategy

The shortsighted approach of increasing the operational tempo of the proposal department without increasing other investments often reduces new business revenues. I heard one sales executive say, “To make our sales number, we have to bid more deals — so we are going to bid everything.”

Although this strategy certainly increases the number and value of deals in the new business pipeline, without actively working to qualify those deals, that is often just a cosmetic fix and does not mean new business revenues will follow.

The bid-everything strategy falls short because to bid more, a company might end up lowering or even abandoning its bid-qualification standards and business-acquisition processes. Bidding more jobs does not mean winning more jobs. Winning is a complex undertaking that requires robust deal qualification standards, investments in executing well-planned capture programs, and talented people to write compliant, responsive, compelling and feature-rich proposals.

Working harder doesn't mean working smarter. Just churning out more proposals will not necessarily increase revenues. In fact, the results are often predictable. Bidding more deals often results in a company bidding on opportunities that it is unqualified for or unprepared to bid. That forces employees to work harder in a desperate attempt to win. Win rates decline, and good employees leave the company in search of a more reasonable work environment.

New market strategy

Shifting business development efforts to new markets and temporarily suspending business development in the company’s core business areas is another overcorrection strategy. Although that can be a preservation move if your core market is disappearing, it is shortsighted if it as an overreaction to market dynamics. Exploring new markets and entering new markets are two different things. It is easy to send everyone to explore new markets, but successfully winning business in new markets takes a well-planned campaign — and it takes time.

Most companies explore new markets, bid a few deals with predictable results, quickly lose interest, and return to their core markets while lamenting the distraction from core business to explore and chase frivolous opportunities.

Focus and invest strategy

Staying focused on your core markets and increasing investment in new business acquisition is a better strategy in a downturn market. This requires investment across the full acquisition life cycle. That means increasing opportunity identification, capture management, preproposal preparation, and proposal development efforts — and investing in people, processes and technology.

Improving your staff’s business acquisition skill sets is the best investment you can make, and company-provided training is an excellent way to develop those skills. Improved processes for business development, capture management and proposal development can increase win rates and decrease costs. Technology investments can increase efficiency and effectiveness. All those activities collaborate to create a focused strategy that will increase new business.

Remember, in a contracting market, competition levels will increase, and the strongest will survive and prosper. If your game plan is sound, stay focused, invest, and do not become distracted.