Did you know your business doesn’t have to cycle up and down with the overall economy?
In an article reviewing what successful companies did differently to thrive during and just after the Great Recession of 2008, Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen explained, “Cost cutting is necessary to survive a recession, and investment is equally essential to spur growth. Companies that focus simultaneously on increasing operational efficiency, developing new markets, and enlarging their asset bases show the strongest performance, on average, in sales and EBITDA growth after a recession.”
We can expect unsettled market conditions to persist for another 12-18 months as businesses continue to sort out workforce issues related to the pandemic, shore up redundancies in their supply chains, and eliminate waste from their processes. Additional elements like international relations, the ongoing development of AI, and global health factors are harder to predict but will continue to play a role in the global economy. What’s your plan? How will your business go forward?
If you are still hoping for a quick economic fix or have made (or are planning) deep personnel cuts to balance out declining income, you’re missing a critical part of the path to success in today’s environment. Let’s take a look at what’s going on with market forces and zero in on some practical strategies that will help your business remain strong now and emerge even stronger when the market stabilizes and returns to growth.
Economic pressures will continue
Though it’s tough to know for sure how market conditions will play out over time, many factors are coming together to set us up for continued slow growth in the US, and most economic forecasters are still predicting a recession. What exactly is a recession? Economists with ITR Economics explain that recessions are typically defined as two consecutive quarters of declining GDP. Despite what you may have heard, the U.S. has continued to squeak by with single digit growth over the last few quarters, so we don’t meet this definition today.
Despite the technicalities, 86% of decision-makers expect a recession and most forecasters expect ongoing pressure from significant inflation to pinch against wages that are not keeping pace. Eventually, consumers will start spending less. In addition, most forecasters expect the Fed to continue increasing interest rates in an effort to combat inflation, which will drive up the cost of capital for companies and individuals alike.
The most important thing to keep in mind, however, is not that tough times are coming, but rather that economies are cyclical in nature. Just as downturns come occasionally, we can and should plan for brighter days and a return to growth on the other side.
Increase your efficiency
During periods of growth, organizations often get a little bloated with extra staff, inefficient processes, and technology chosen for it’s “coolness factor” rather than the practical value it returns to the organization. When economies cycle down and growth slows or reverses, the pressure mounts to cut costs. Since payroll is typically the largest line item expense for companies, reductions in workforce look like a quick fix. Unfortunately, they’re often executed without an underlying strategy, just a mandate to cut a certain percentage of staff. There is a better way to improve internal efficiencies.
Streamline processes and people
Before cutting people, look for inefficient processes that can be clarified and cleaned up. Don’t be afraid to diagram and document in detail the flow of information and effort for critical business functions like your buyer’s journey, product development, and revenue generation. You’ll need these concrete details to spot areas for improvement. Review supporting technologies to ensure you’re getting all of the value out of previously made investments and that you are keeping pace with advances in automation that may further streamline human effort.
If you must reduce your workforce, do so strategically. Look for departments that have grown more quickly than the overall growth of the business and areas where redundancies in skills and tasks are now resulting in significant worker downtime. In some cases, you’ll be able to reassign folks to other positions where their skills are useful, but in others you will need to eliminate jobs. Do so carefully and strategically with a priority on honest communications with your staff. Be clear about the reasons behind the reduction and open about reassuring your remaining workers that the cuts were strategic in nature. Avoid mandating payroll percentage cuts and “rolling” reductions, where the potential for layoffs remains open over a period of time, as these suck the life out of your workforce and you’ll see reduced results across the board — often so big that any financial gains are wiped out.
Don’t neglect sound financial strategies
Edward Jones recently offered these reminders to their individual investors, and the ideas ring true for businesses as well:
- Evaluate your income stability. If you experience predictable income shortfalls, plan now to cover the gaps and consider ways to boost the portion of your revenue that comes from recurring sources (like maintenance contracts and cloud services) to smooth cash flow.
- Plan your emergency fund. Do you have a “rainy day fund” for your business? If not, you should! Cash reserves can be built up by allocating a portion of monthly profits, which can then be used later to keep your business afloat during revenue shortfalls.
- Pay down debt. Though many businesses carry debt—at least in the form of a line of credit—when economic instability emerges, any debt can become harder to pay. If rate hikes accompany instability (and they often do), your debt may also become more expensive to repay than you planned. It’s always wise to pay down debt, but it may become a life-saving business strategy during tough economies.
- Diversify, diversify, diversify. While individual investors are encouraged to balance portfolios across asset classes, businesses diversify by broadening product lines and customer types. Adding new technologies—related to the document management products you’re already selling—increases the number of customer problems you can address. You’ll sell more to existing customers and also find you close more business with net new accounts as well. If your business specializes in one or two types of customer industries, consider broadening your expertise so you’re covered in cases where industries are especially hard hit by economic challenges.
Invest wisely
Since emotions often run high during prolonged periods of economic uncertainty, maintaining focus on what you can prove works for your business is critically important. One of my professional mentors uses the expression “manage by facts” to describe this strategy. It requires leaders to measure the performance of critical processes and people. Measurement helps to remove personal bias and offsets our tendency toward self-protection. We more clearly see areas that need improvement and are more likely to act on them. Best of all, we can tell whether our efforts are having the desired impact. The following three areas represent opportunities for wise investment that will position your business for success now and as the economy recovers.
Compensate key personnel fairly
Gartner calls it playing offense into a recession. If you want to secure your top talent, you must compensate them fairly and competitively in your market. Want real numbers to guide you? After surveying thousands of organizations, leadership group Vistage stated that during 2022, average U.S. wage inflation for a job keeper over the year was 8%, but a job changer could expect double that increase at 16%. I’m not suggesting you blindly bump wages across the board — few businesses could afford to! Rather, identify key personnel on critical teams, do your research to determine fair market value for those positions in your area, and make sure those individuals are earning what they deserve. Vistage expects that “… wage percent inflation is likely to persist for some time,” so you’re doing your business a favor by figuring this out now.
Two special notes:
- For many companies, critical personnel are also some of your longest tenured folks. While you may have “mental markers” for how much you’ve been paying these people, you need to set those aside to do a fair evaluation of market value for these jobs. Given the often higher wage increases for job changers than job keepers, long tenure often equates with significantly out-of-balance wages.
- If you can’t match average inflation rates for your top performers, consider what non-salary compensation you may be able to offer them. Additional paid time off, flexible work hours, work from anywhere, and other non-wage benefits can be particularly useful ways to ensure your most important talent stays with you to weather economically challenging times.
These are your critical folks! Find a way to make it right.
Reset your product strategy to match emerging customer needs
Your business will not be the only one reevaluating technology choices over the next 18 months or so, due to a need to cut back expenses and increase return. Is your product lineup positioned to help them? According to James McQuivey of Forrester, as companies seek to “Make smart cuts and smart investments,” their eyes are likely to be on cutting unnecessary staff, operations costs, and product development expenses, while simultaneously investing in areas where competitors are pulling back and failing. Rather than simply cutting everything, though, “a smarter approach will usually increase investment in some areas because the market opportunities will be ripe as competitors get out of the way.”
Identify which products in your lineup can help with both of these goals, and then tailor marketing messages to highlight the critical role they play right now in securing business success. Be sure your sales staff can explain exactly how your products help reduce operational expenses and support product development and customer service. Now is not the time to focus on features — keep sales conversations lasered in on customer goals instead.
Become customer obsessed
Between the social niceties endangered by COVID-related isolation and supply chain issues damaging customer trust and expectations, today’s customers are feeling a bit black-and-blue. This is a huge opportunity to set your business apart on the basis of outstanding customer service, and service often crowns marketplace winners during tough economic times. Here are three ideas to consider as you reframe your service teams.
- Good service requires you to know who your customers really are. If an account costs more to support than the revenue it offers, they’re not a customer. If deep discounting has turned the financials on a service contract upside-down, they’re not a customer. On your journey to customer obsession, you’ll identify “customers” who don’t add value to your business. To maximize available resources to offer outstanding service to critical accounts, consider severing these relationships. “To do this right, it’s just as important to decide which customers not to serve as it is to obsess over who to serve now and in the future,” says Forrester’s McQuivey.
- Rely on data to drive customer service decisions. How do you know what good service really looks like? How long should it take to respond to a customer concern? What hours should your service be available? Support teams collect an astonishing amount of data on all aspects of customer care. Now is the time to dig into the analytics to spot areas for improvement.
- In down economies, it is more important than ever to retain customers, because it gets increasingly expensive to identify and acquire new business. If your sales team doesn’t have as much new business to pursue, put them to work contacting existing customers to discuss the benefits they’re seeing by working with you and to listen to suggestions for improvement and concerns they may express about the relationship. Empower your organization to act on the information they collect.
Conclusion
Regardless of what the economy does, you can find extraordinary success in 2023. Minimize your exposure to naysayers and pessimists and spend your energies working with people who see possibilities and opportunities. Review your own business circumstances to find appropriate ways to reduce costs and don’t shy away from opportunities to strategically invest in people, products, and customer relationships.
Christina Robbins is Vice President of Communication Strategy and Marketing at Digitech Systems LLC, one of the most trusted choices for intelligent information management and business process automation worldwide. Celebrated by industry analysts and insiders as the best enterprise content management and workflow solutions on the market, Digitech Systems has an unsurpassed legacy of accelerating business performance by streamlining digital processes for organizations of any size. For more information visit www.digitechsystems.com.
