Leading Through An Economic Downturn
If you are the owner or an executive leader of a company, you have already felt the need to be more strategic through this current economic downturn.
And since none of us have a crystal ball, companies usually do one of two things: cut budgets or double down. I know we all wish there was a ‘one size fits all’ business strategy for each company in each industry – but there isn’t. As with any important business decision, it is important to revisit your decision filter which is your company’s identity:
- Vision, mission & values
- Commitment to your customers
- Annual plan
If your identity is strong, unique, and clear – decisions, even in the harshest times, become easier to make.
So, what’s the difference between budget cutters and double downers?
Budget cutters think through a management lens. Think short-term. React to market conditions. Cut expenses. Reduce budgets. The goal for budget cutters is to increase profitability in the short term.
Meanwhile, the double downers think through a leadership lens. Think long-term. Pare down your priorities. Intensify the company’s focus. Increase the most important activities. The goal for double down companies is long-term retention and profitability.
Let’s look at the double down approach from 3 perspectives:
- Sales Perspective
- Finance perspective
- Management perspective
Companies that fare better during hard times understand that less is more as a rule of thumb. Those double down companies intensify their focus on purpose-specific initiatives, pare down their priorities and create room in the schedule for more of the right activities.
- Prepare to increase prospecting activities by double to get to closing
- Decrease your closing ratio in preparation for budget cuts from your prospective clients
- Create more room in your calendar and increase the amount of face time on sales calls rather than relying on referral email introductions
- Create lower price point products or services that align with your company’s niche and competitive advantage
We’ve all heard ‘Cash is king.’ And that is true. What is more accurate is ‘Operating Liquidity is king.’ It just doesn’t roll off the tongue as easily.
- Focus on contingency planning should your company lose money in the next 60 days to 90 days
- Look for ways to increase your operating liquidity, calculated as [(Cash+.8*AR)/(COGS+OpExp)] through lines of credit (LOC), debt consolidation, more disciplined approach to A/R collection, and sound A/P practices.
- Make the target 90 Days of cash on hand (Calculated: (Cash/(OpExp/30))
- Do we need to consider a merger? Mergers have helped companies during extremely difficult recessions. Starting with a strategic partnership can lead to a successful merger if a stair-step approach is in order.
For many companies, their first thought during an economic downturn is layoffs. Layoffs for non-revenue producing employees. The problem with running to this solution is that more times than not, when layoffs occur, the remaining staff must wear multiple hats which cause delivery quality and timelines to suffer. No one wants to lose customers and recurring revenue because they cut their delivery arm in half.
- Slow roll hiring but only freeze the hiring for non-essentials
- Higher touch with employees – set a consistent rhythm of 15 minutes per week to provide feedback and celebration to reduce the fear of layoff and reaffirm the company’s values
- Emphasize the company’s mission as ‘the why’ for strategic decisions not budget cutbacks
Navigating an economic downturn is difficult- both financially and emotionally. Though there’s isn’t a one-size-fits-all approach, you should consider where and how you’re spending your time to ensure your activities align with where you want to take your company in the future. Remember to give yourself -and your team- grace because the only way you’re going to make it through this difficult time is together. Though it can be tempting to cut costs, it’s wise to remember your most vital assets are the people you employ and you’re going to need them when the economy inevitably improves.
-Jonathan Gulley, Partner