Recession are we, or aren’t we? While the economists and pundits are arguing about whether or not the US is in a recession, my opinion is that we are. The classic definition of a recession is a decline in GDP for two consecutive quarters. However, it is important to keep in mind that economic data and statistics are reported on a historical basis, and by the time the economic data is released to confirm that the economy has fallen into a recession, the recession has already taken hold. In today’s post I’ll share my thoughts on how to successfully lead your business through an economic downturn.
As I mentioned in the opening paragraph, lagging economic data is not the information you should use to make strategic business decisions. Don’t wait until there is a formal acknowledgement of a recession to start planning how you’ll navigate tough times. Rather, use the many present warning signs of the slowing economy (slowing job growth, declining Dollar, constricting availability of capital and credit, slowing retail sales, lack of consumer confidence, stepped-up Fed intervention, correcting stock market, growing inflationary trends, etc.) to adjust your strategy and tactics while maneuvering is still a bit easier.
The lack of astute, decisive, and proactive thinking by your executive team in a slowing economy can make it much more difficult to survive the large challenges that likely lay ahead. I can’t even begin to tell you how often I’ve heard statements like: “I’m concerned about the stability of the market, and want to wait and see how everything shakes out over the next few months before I make any decisions”, or “I’m cutting back on marketing expenditures until I see how bad the economy is really going to get”. This type of thinking is akin to driving your car toward a brick wall and watching the brick wall get closer and closer, yet doing nothing to alter your course. My advice is simply not to hesitate change course now while there is still time to avert disaster.
Let me state that I realize that many CEOs and entrepreneurs have only seen growing, robust, and even frothy markets and that for many chief executives this is the first time they’ve had to face the test of a strong economic correction. That being said, there is good news The simple truth of the matter is that more tangible, enduring wealth and market dominant positions are created in declining markets than in advancing markets. Significant rewards exist for those smart enough to move forward and strategically leverage their business model to exploit opportunities while their competition pulls back and braces for tough times. The following business principles will help your business thrive regardless of the state of the economy:
- Don’t Stop Growing: Get very aggressive while your competition pulls back, starts slashing costs, and is asleep at the helm. While it is certainly necessary to reduce extraneous expenses, resist the temptation to slash expenses across the board, and especially resist the temptation to cut budgets in the areas of sales, marketing, and business development. Let it be noted that I am a strong advocate of sound financial governance and the prudent implementation of cost containment measures. However not when applied in a vacuum irrespective of the ripple effect across the enterprise. An enterprise can have all the cost containment in the world, but without revenue what does it matter? Remember that cost containment is not a business strategy. The strength of your sales funnel, and your ability to create revenue will never be as important to your business as when you face the reality of a slowing economy. Use the caution of your competitors to your advantage so that by the time the economy starts its recovery you will have created a huge gap in market share and brand equity.
- Improve Communications: The frequency and the quality of your communications, (both internally and externally) needs to be at an all time high. The genesis of most business mistakes can be traced to poor communication, or worse yet, no communication at all. While strong markets and bullish economies are forgiving of management errors, down economies are not. Make sure that all employees have a clear understanding of the mission and vision, that all stakeholders are inside the communication loop, and that you err on the side of over-communication.
- Leverage Technology: Use technology and business automation to provide increased leverage and a platform that embraces cost-effective scalability. Strategic investments into process improvement and business accelerators will allow you to shorten cycle times, bleed out system inefficiencies, and create needed economies of scale. If your enterprise replaces innovation with caution and extreme cost-cutting, you will not only find survival more difficult, but if you’re still around when the economy starts to recover, you’ll find yourself at an operating deficit compared to more savvy competitors who did not make the same mistakes.
- Outsource, Outsource, Outsource: Be very strategic about headcount acquisitions, only making key hires that produce an immediate and significant impact. It has been proven time and again that the most chaotic and cost prohibitive implementations are conducted with organic efforts. The failure rate of internally implemented initiatives as measured against initial expectations show failure rates in excess of 75%. There is significant leverage in outsourcing implementations to competent subject matter experts (SME’s). Outsourcing frees your internal resources to focus on the highest and best use activities that allow for continuity of mission critical agendas. Outsourcing to SME’s will offer the following benefits:
- Shorter time frame to implementation.
- More cost effective implementation.
- Access to existing toolsets and solution sets that have a proven track record of success.
- Access to a more diverse base of skill sets and core competencies.
- Access to best in class human capital within the area of domain expertise required.
- Reduction of investment into infrastructure expenditures.
Velocity to market is critical in the success of any business. In a down economy the stakes are higher, the money and resources are tighter, and the decision-making ability of your management team will be the difference between success and failure. If your management team can streamline operations, facilitate solid strategic planning, conduct flawless tactical execution of business initiatives, and recruit, motivate and retain best in class human capital, your business will gain ground while your competition is “down-sizing” or “right-sizing”.
