Storm Clouds Ahead

Inflation is showing up everywhere across the US economy and I do not need to be an economist to pick up on it. Subtle and not-so-subtle signals are everywhere. My clients in construction are dealing with soaring material costs, other clients are paying significantly higher salaries to bring in temporary and permanent staff (If they can find candidates). Leading freight companies are reporting decreasing volumes of cargo across their entire systems. Interest rates are on the rise which will make mortgages and every type of lending/borrowing more expensive to consumers and businesses alike. In the past, cutting interest rates to near-zero was the government’s response to spur growth. With rates rising, the government is lacking the levers to fight back to make the coming dip as shallow as possible.

I list the above to add proof points to the growing drumbeat that we are headed for a recession (If we are not in one already). Having been through more than three of them in my lifetime, I have been feeling the waves of business PTSD wash over me. What I am remembering the most is how often my clients and I have ignored these warnings and the painfully high cost of doing so.

History, ONLY if you learn from it, is a powerful teacher.

The main lesson for me is that waiting to take action until you and/or your business feels the impact of a recession is way too late.

When you own a private business, you do not have a falling stock price to put pressure on you to act. Smaller businesses do not feel the impact so quickly and that makes the impact of a downturn that much more insidious.

So you stare at the stock market collapsing as if you are looking out at the horizon at a terrible storm hammering a distant land and feel comfortable knowing it is nowhere near you.

While you are feeling so grateful, businesses hit by falling market values are beginning their belt-tightening process. Layoffs or hiring freezes (Layoffs in disguise) are already happening across tech and the overhyped startup world. This is just the starting point.

Larger businesses everywhere have pulled their lists of expenses and are beginning to look at where to cut costs and when. Your business may not be at the top of that list but you are on it somewhere. At some point, your clients will look to you to lower the cost of the goods or services you provide them. Maybe they will go out to bid (Without you knowing about it) or maybe they will come to you and ask you to lower your price.

Some of your clients will be acquired and the acquirer will have their own favorite vendor. Others will start to pay your bills more slowly or go bankrupt when they owe you more money than you would ever want to write off. You may have your client base activity slow as their businesses slow. Most likely, you will experience a little of all of the above.

I am painting such a dark picture to shake you by the shoulders so you can do what so many do not, take action long before you are forced to do so. If you do, these times will be a chance for your business to go on offense and take advantage of the competitors who are still believing this recession will is someone else’s problem.

Here are just a few strategies that I wish someone had told me to do when previous recessions were on the horizon but had not hit my business yet:

1. Get real with yourself — What happens if your revenue contracts by 20%(30%)? What does that look like in raw and real numbers? I know you would prefer to set projections that show business growing by 20% (It IS a lot more fun) but humor me and grab whatever spreadsheet you use and cut 20% off the top line and then check the bottom line. You need to have a clear picture of what a downturn might look like. Every week and month that your profit falls and your expenses stay the same will cost you money that you did not need to lose.
2. Elect a second CEO — This one stands for Chief Expense Officer. Their job, starting today, is to do what your clients are currently doing. Specifically, looking at EVERY single expense in the business and asking if it could be done for less or if it is needed at all. They need to go have hard conversations with vendors and search for lower-cost options. They will need to take a look at your payroll and make the, excruciatingly, hard choice to reduce staff to a size that can compete when times are tough.
3. Sales cure all — This adage from entrepreneur Mark Cuban is more true in tough times than ever. The best way to not feel the impact of losing clients and revenue is to add clients and revenue at a faster pace. Triple down on your sales efforts. As the CEO (The original one) sales become job 1 (2, 3, and 4) for you in these times. You should be meeting with every customer in the coming weeks and months and going on as many sales calls with your team as you can. Personal visits will make the biggest impact but zoom calls will still allow you to stay better connected than nothing. These calls are about listening for what is going on in THEIR business, how you can help and protect your interests upfront instead of when they call to say they are leaving (i.e. It is much easier to deepen a relationship with your clients than fighting to keep them when they have one foot out the door).
4. Look for big opportunities — If you can quickly get your costs tightened up you will protect your profit margins and your cash. This will allow you to invest in a new product/service or to acquire a business that did not plan as you have. These opportunities may still be 6–12 months away but they will emerge. Be in a position to seize them.
5. Over-communicate — Your staff is reading the news and worry may be brewing. Talk about it. Talk to them about what you are seeing and hearing from your market and clients. Tell them how you are going to get ahead of any issues and the steps you will take. If you have important relationships with banks and/or investors, set up calls and meetings with them and tell them your plans. Set the narrative before they create one for you. Many of their clients are going to become a problem for them. Tell them how you will not be one of them and why.
6. Don’t turtle up — To completely beat up my storm analogy, you do not need to hide out until the storm passes, innovate to create a business that is built to excel in a storm. What will your clients need more of when times are tough? How do you adjust what you offer to work in the times that are coming/are here?

“The best time to plant a tree was 20 years ago. The second best time is now.”
– Chinese Proverb

I wish I was writing this to you 6 months ago. But, just the like tree planting quote above, taking decisive action now will still be 6–12 months earlier than most.

What we know from every past recession is that they do not last forever and that boom times will follow again.

You know so many businesses that have thrived during tough times. They did it because they were always ready for them. They never got “fat,” always kept profits solid and had a mindset that these are the times where they held an advantage.

Choose today for that to be you and your business.

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P.S. If I am wrong about the economy and we rocket up from this downward spiral next month, you will still have a business that is more profitable and focused on growth than if you stayed the current course. Sometimes we need a shock to the system to force us to make the choices we should have been making all along (True in business as it is in life).