The global economy seems to be heading for a downturn.
By Guy Whitcroft
How big and for how long is unclear, but it’s wise to plan for tougher times, to reduce business risk while keeping the team motivated. As Zig Ziglar said: “Expect the best. Prepare for the worst. Capitalise on what comes.”
In a blog post a couple of months ago I outlined the 5 Cs approach of Communication, Cost Management, Change, Control and Coach that could lead to a sixth – Competitive Advantage – as few of your competitors will be tackling all these issues.
Communication
This is key; not just for your staff, but all stakeholders. Let everyone understand that you’re expecting things to become more difficult, but that with everyone pulling together you are confident that your business can continue to prosper.
Difficult times often lead to new opportunities which is why the wealthiest people generally do even better in downturns.
The list of significant businesses that were started in a downturn is huge, including such giants as General Motors, FedEx, Hewlett-Packard and Microsoft and, in more recent times, Uber, Airbnb, Strava and Udemy.
And keep this communication going with regular updates.
Coach
Many staff may be worried about how the downturn and higher inflation will affect their income and personal costs. In these cases, consider getting experts to teach them about topics such as personal budgeting, stress management and so on.
Look, too, for other ways to help them by raising their skills level. The company has more time to spend on training, better prices can be negotiated, and it will result in a more productive and motivated team.
Cost management
Look closely at all costs, including cash-flow (especially prompt payment) and where these can be improved. Start the ball rolling by cutting any “executive perks” you can.
This is an area where the whole company can play a role. Cost management is not about cutting salaries and other essentials, but about reducing unnecessary costs. Ask for ideas as to where the staff can reduce costs and reward those that are practical.
Guard against cutting advertising and training expenditure, though.
Training during lean times can pay real dividends in terms of productivity and motivation. Continuing your advertising in these times keeps the business profile high and can even raise it as others cut back their exposure. It allows you to negotiate rates and even get better PR coverage, too. As Henry Ford said: “Stopping advertising to save money is like stopping your watch to save time.”
Negotiate your supplier contracts; don’t wait for them to come to you. Propose extensions based on current terms before they have a chance to raise prices. Take account of office space needs and the over-supply since the pandemic to downsize where appropriate – and negotiate better terms for the space you keep.
Look at other costs. Can you negotiate discounts for early settlement with overseas suppliers? It reduces their risk, and they often reward well for this. And tighten your credit management to bring in those habitual late payers.
Cash flow really is king in tough times: the multiplying effect of even small changes to various cost items can result in significant bottom-line improvement.
Control
Do you utilise a zero-based budgeting approach in your business every year? Often budgets simply increase all items by a given percentage, but this is wrong and tends to lead to cost-creep.
Don’t just push down an expectation “From the office of the CEO,” but have your wider management team look carefully at each item over which they have control, starting from a zero-base to see where they can save or at least keep costs less than the top-line percentage increase.
This really reinforces to the managers where the costs in the business lie, and delegating authority in this way adds to the culture of accountability that is so important in business.
Change
Review all elements of your strategy carefully: market, customers, products, product mix and average transaction values, lifetime value of customers, and so on. Talk to your team, your customers and your suppliers to understand what’s good and where the opportunities lie.
It’s about your competitive advantage – the key area in strategy – so don’t be afraid to make significant changes in these difficult conditions. Following Ralph Waldo Emerson’s advice, “Do not go where the path may lead, go instead where there is no path” will make it more difficult for your competitors to catch up.
And although change can be unsettling, clear and open communication with your staff and other stakeholders will make them more inclined to support it and ensure success. Change in these times, especially, can be great.
There’s no simple formula for success in recessionary times, but following this 5 Cs approach will ensure that your business not only survives, but thrives. The activities must be ongoing and if you adopt these as a part of your culture, even as times improve, your business will continue to grow and be highly successful.