10 considerations for building a recession proof strategy

The economy is beginning to take a heavy toll on businesses and its people alike. The strain of dealing with Brexit, a pandemic, supply chain issues, the great resignation, inflation, and rising interest rates is leaving companies with limited options to thrive, and for some, to even survive.

As if that wasn’t enough, many economists are predicting a recession. Their predictive models are showing all the signs that this is what will happen next. Businesses have been doing everything they can to minimise the impact of what many would call ‘black swans’ – so called unforeseen events with extreme consequences.

Economists use a range of tools to predict what is happening with the economy. From yield curves, to consumer and business confidence indexes, to labour data and investor volatility measures. Right now, many economists would be warning us that these predictive instruments are pointing to an incoming recession. Economists act like a canary in a mine, but often calling it prematurely can be seen as bad form and creating the very problems they can potentially see. Every business though should ensure it is ready, understand the impacts of this potential situation and ideally should want to be recession proof.

Some businesses genuinely are recession proof already, indeed some companies will benefit from a recession. Just like during the pandemic, there are those that thrive in a stressed economy where exaggerated and extenuating circumstances are the norm. From Amazon to Netflix and Deliveroo, we saw companies making hay while the sun didn’t shine. It will be similar for some companies during a recession.

It is clear that whatever the economic outlook is, there are winners and there are losers, but in a recession like a pandemic, there are more losers than there are winners.

So, the question is not “will there be a recession?” It is “how do we put ourselves in the best position to survive a recession and in an ideal world thrive?” For some companies it is just not possible, no matter what they do they will be impacted negatively by a recession. What they can do though is prepare for the negative impact and look at what they can change to trade through this and be ready to grow again on the other side. Whatever you do, burying your head and hoping you will be ok does not work and reacting too late, hoping the doomsayers are wrong, does not work either.

You do not necessarily have to plan for drastic changes, or make immediate cuts, or stop all discretionary spending like on recruitment – indeed these actions could make it worse. So, take some time to look at our top 10 strategies for looking at how to be recession proof.

 

1.  Worst case scenario planning

Just like a pandemic, a recession is something you can and should plan for. As the old saying goes, “Fail to plan, plan to fail.” It is easier said than done when you have so much going on and no resources to even do the basics well.

While you continue to firefight on what feels like a losing battle, you could be guaranteeing failure and that your focus on keeping the lights on today, means they definitely get turned off tomorrow. Putting time aside now to understand the furthest reaching impacts a recession could have on your business could be the best time you ever spent. It is easy to be flippant and say, “why bother?” It is easy to think that the worst-case scenario is the business closing, and every day I do not focus on its survival is just bringing that reality one day closer.

I have facilitated a number of these sessions in the past, many times with heavy resistance and defeat already written on everyone’s faces.

However, it’s incredible when worst case scenario planning is your only focus, and you have an independent party asking questions you wanted to avoid; how ideas start to formulate, how the reality doesn’t look as dark as you feared and indeed new ideas, new ways of working, even new products, services and strategies are formulated. Suddenly the way the business is run changes and the world feels like a different place. When you get it really right, it energises everyone, it motivates everyone, and it changes the culture, the mood, and the direction of a business over night.

 2. Minimum viable business (MVB)

Some businesses may wonder what all the fuss is about and will be relying on their reserves to see out this economic cycle, but for those who have already burnt through their reserves during the pandemic, or are asking ‘reserves? what reserves?’ it is handy to know what your Minimum Viable Business (MVB) looks like.

Just like developing new products, at times it is useful to know what the minimum viable product looks like, the same can be said for the minimum viable business.

The purpose of a minimum viable business plan is to understand what you could ‘rewind,’ ‘pivot’ or ‘restructure.’ The core of what you can sell to continue trading during a recession. Planning this out helps you more effectively analyse what the gap is between today’s trading reality and tomorrow’s.

It is incredible when you start to look at what your minimum viable business could be, how complex it can be to get to that position.

Just put up on a white board four boxes marked STOP, START, CONTINUE, DO DIFFERENTLY. Fill in each box what you need to do to change the business. Watch how quickly the START and CONTINUE boxes get filled and watch how difficult the conversations are when it comes to what to STOP.

3. What is your closure plan?

In some industries it is now a regulatory requirement for companies to have an exit plan, to know ‘when to stop trading,’ to stress test and have operational resilience plans in place. In my opinion some elements of these are viewed by businesses as box ticking exercises and are done to keep the regulatory badge in place. Internally they can be seen as a job for Compliance or Finance to do, with no or minimal buy-in from the Board.

If the motivation to stress test, understand tolerance levels and operational resilience comes from a place of being compliant, it is never going to be done properly. It is never going to be owned properly and we will still see businesses failing. When reality bites, many will ignore their resilience and recovery plans anyway and plough on regardless – no matter the consequences. People have invested too much into their businesses to give up or not believe that an all or nothing approach might just save them.

The decisions around when to ‘close a business’ are best made when desperation is not the key driver and the best motivation for them is based on how individuals and businesses can start again, rebuild, or move on with their heads held high and their business calmly and effectively closed down.

It is all well and good knowing your minimum viable business model, but it’s pointless if you don’t also know when this isn’t working and knowing the right trigger to start winding up. It is also not a good place to be, when you do not know what the best time to close the business is. A well-run business knows what the trigger is, what the plan is to execute it and what options they may consider in advance of this happening. Burying your head and hoping it never happens is doomed to failure and the very fact that you have a closure plan helps you stay focused on surviving and keeping as far from the trigger as possible.

4. Pivot

The first three options are about negative strategies that ensure we are ready when the worst happens. However, lets focus some of our time on those who thrived during the pandemic. Those that ‘pivoted’ and focused on new outputs and ventures.

If your business had the ability to produce PPE, sanitiser, thermometers, breathing equipment, entertainment for those stuck at home etc, you would focus your efforts and energy there wouldn’t you? This is easy, this is common sense. However, it is not as straight forward as it sounds. Do you know who your competitors will be? Who else is pivoting? Do you know when demand will change? Do you know what will trigger that? Do you know where you can get the required resource? Are you able to ‘ignore’ or reduce your focus on your normal markets and customers and switch these back on when the pandemic is over? Pivoting is a great strategy, as long as you understand the entire picture, know that it is achievable and that you can trade effectively when the pivot gold rush is over.

Just like employees who cannot make enough money from their current jobs, they take on a second job or a side hustle. Businesses can do the same.

By developing a secondary income, you may just earn enough to finance the business through the recession and make money from your primary focus again when the economy begins to grow. Find that element that provides cashflow and an alternative income stream. Easier said than done, but possible, and with deep thinking and creative plans can be delivered quickly and without huge investment. If it is something that thrives during a recession, even better. In so many businesses I see great ideas readily and available in the populous. Your employees will have loads of ideas, even if you have not and you only need one of them to be a winner and it could be the best move you have ever made. I cannot think of a single business I have worked in or with where an employee has not come up with a game changing opportunity for the business to pursue.

5. Develop alternative economic and financial models

A lot of the businesses I have worked with retain the same financial models throughout, never changing their thinking. They are the models they have always used.

Typically, these strategies only change when a Finance Director leaves and a new one comes in, or when a new ownership model insisted on it. For some reason, a lot of businesses have no finance strategy. They have a financial plan to support the business strategy but no finance strategy. Having a financial model that is aligned to the business strategy is not the same as having a finance strategy.

When strategic questions like

“How else could we finance the business?”

“How could we restructure our pricing model to enable recurring revenue?”

“How could we refinance the business without increasing risk or the gearing ratio?”

“How could we restructure the business to increase our revenue, margin and/or reduce our costs base?”

“How can we impact the EBITDA more effectively?”

are met with “that’s not our model,” or “that’s not how this business works,” or “we don’t have the budget for that,” you know what you have is an operational finance team and not a strategic partner.

There are some great business brains out there, some in Finance and some outside Finance who relish restructuring strategic financial intentions, but there remain a lot that do not!!

Finance teams that are focused on telling you the current story, providing the current numbers and maybe the projected numbers based on current ways of working. Over years of working closely with great Finance teams I know what great looks like and what I should be hearing. I have also worked with plenty of bad ones and too often I have heard things like ‘you tell me, and we’ll make it happen.’ ’It’s not for us to tell you your strategy,’ or ‘That’s the Board role to determine that.’ They are hiding in plain sight.

The best Finance Directors I have ever worked with are thinking way beyond the accounts and looking at the economic uncertainties, how they can add value in to a business and commercialising alternative models for an alternative economic scenario. They do the basics and run the business numbers, but they do so much more. Understanding the business, the marketplace, the economy and then they build commercially strategic plans the Board and the business can get behind. What type of Finance exists in your business? If it is the do the day job and leave the rest to you type, change them and change them now. There are great people out there ready to help you change and ready to build you the finance strategy you deserve.

There are Finance Directors out there who have a seat at the Board because their Board colleagues fear the numbers, and they need someone else to do this. I am used to HR potentially struggling to get a seat at the Board, because everyone thinks they know about people. Why wouldn’t they? They are one! But how many businesses would feel comfortable operating without a Finance Director, would be enabled to by their regulators, their shareholders, their owners, their backers, their bank? When heading towards a potential recession take a long look at the capability of those tasked with developing your finance strategy.

6. Restructure now – Do not wait!

Just like the best Finance Directors, the best HR Directors are those who are already looking at alternative structures, where efficiencies can be gained and where the business can adapt to a new world.

Again though, too many will wait until they have no choice. HR Directors are by their very nature quite often people pleasers. A seat at the Board table can easily mean being the CEO or MD’s right-hand person, delivering whatever you are asked to do. So many MD’s and CEO’s I speak to want more. They want their senior HR leaders to see the whole picture and bring strategies to the table that are ahead of the curve. They do not want HRD’s who wait to be told a restructure is required!

So, for all you HR leaders reading this, who are not already doing this but are going to need to, stop waiting. Support your Board and make sure where it is required that you are telling them to restructure now.

For many of us in HRD roles it can feel counter intuitive to restructure until we absolutely must. Even legislation is written in a way that protects people’s employment and suggests ‘we should avoid redundancies where possible’ …… but by making changes now that could be exactly what you do!

If you do it now, or at least plan it now, there are a range of benefits that all parties can feel rightly able to get behind:

  • It could save more jobs that otherwise may have been impacted by not acting early enough.
  • You can start making savings now that enable you to survive, thrive and rebuild in the future.
  • Employees leaving now, are leaving into a strong job market, rather than trying to find a job when the recession is at its worst. They will thank you for it!!
  • It shows foresight, strategic planning and true leadership.
  • It gives you more time to do it properly, which will ultimately save you money and reduce costly mistakes, ensuring you have time to support your leavers and survivors effectively, with outplacement support

If you are not ready for change yet, at least develop the design of what it could look like, now. Far too often, businesses end up at a point of ‘no choice’ and must race to get changes done. Expecting Trade Unions, disengaged colleagues, and even employment lawyers to ‘get over it’ to ‘find a way’ to make the savings required straight away.

7. Do not be afraid to ask for help – to invest in supporting you in developing a plan b

When you are at the coal face the chances of you seeing the real problems and more importantly the real solutions are limited. Instinctively you think you have all the answers. Why wouldn’t you? it is your industry, it is your business, they are your people.

A partner focused on remaining independent, objective and holding up the mirror can be priceless. A partner that can tell you the ‘how’ as well as guide you through the ‘what’ can be more valuable than other interventions.

The best solutions I see typically come from a combination of in-house business/market expertise and external objectivity and change expertise. The right partner can help you develop a new organisational design, fit for the future, and help you manage the change effectively.

As a former HR Director, I often spoke to managers who were tearing their hair out with an underperforming employee. They had tried everything and now they needed HR support…… only to find out employment law typically expects you to go through a staged/gated process before the individual could be ‘managed out.’ (Assuming they could not be brought back up to the required performance levels).

The managers believed they needed to do everything themselves first, before they partnered with HR. They must go back through the same solutions and conversations they have already had.

When I was a business partner and when I had teams of business partners, I always encouraged them to find under performance early and align with the managers to get the process started as soon as possible. This not only helped save more people by getting them back on track quickly, but it also saved the painful process of looking at every solution twice. Once informally and once formally.

Some still slipped through, as managers with good intentions tried to manage things themselves. Only to end up having to go through the same loops all over again, just with a member of the HR team in the room. This is frustrating for all concerned and leads to fudged processes or settlement agreements, or worse tribunals when managed badly. And when frustration levels are so high because all the things they have already done have to be done again, so that they at least get documented this time!

It is no different with business wide change, too often potential change partners are brought in to tidy up a mess or to deliver an urgent restructure because the business have run out of time when they were doing it alone.

8. Do not be afraid to do things that are counter-intuitive

One business I used to work in, would make its biggest positive changes during times of economic uncertainty. As the rest of the world tightened its belt, they loosened theirs. There were more pay rises, more investment, more ambition. This company had deep pockets and so could afford to take some risks, but it was never lost on me of how the impact of a counter intuitive approach was hugely positive and made them far more attractive than the companies around them in a doom spiral.

Employees felt that they had reason to be positive, wanted to stay with the company, talked with confidence and pride with their customers and told others positive news about the business.

Being counter intuitive can be a lucrative move. Think about what counterintuitive moves you could make and what the positive and negative implications could be. Think about which ones send the right message and which ones send the wrong message. For instance, what does refinancing say about the business? what does continuing to recruit say? what does investing in training say? what does upping the rewards for great work do? What marketing does a positive outlook enable?

No-one wants to be reckless and counterintuitive for the wrong reasons, but dismissing these ideas out of hand is almost guaranteeing you to miss the real opportunities that remain.

9. Review your assets and change your narrative

With remote and hybrid working, some businesses have the chance to review their assets and estates, and think about what costs they really want to retain. If you have insisted on people returning to the office, when they could just as easily work at home, STOP and consider how changing this could save your business. A relentless approach of insisting people return to a business that may close is definitely the wrong way forward, when compared to an alternative model that enables assets to be freed up that keep the business solvent and employees happy and retained is a far better solution. Put your fears about productivity and trust to one aside. They are wrong anyway! Measure those elements in a different way. Not through ruling by fear and dictating ‘where’ the work is done, when there is no need. Then, take advantage of the situation and sell some real estate now available or rent it out to those that actually need it.

It may enable you to attract the right people, retain the right people and it may free up capital that enables a healthier cash flow. These things are far more important!

10. Look at all the places you can add value that do not cost you money but differentiate you

There will be lots of places that you can up your efforts that normally trickle along in the background while you work out where to invest your money. When you are heading to a recession it is time to double down on these. Anything that costs nothing but is effective, needs your attention. Anything that is a minimum investment, maximum return is a no brainer.

This can be things like building or extending your social media presence and influence, getting organised and finding where the real efficiencies are in your business, developing 30-day review models and keeping people focused on short term results, for now, while keeping one eye on what you ultimately want to achieve. Reduce or change your meetings, improving customer service, so on and so forth.

For every pound you save, reinvest some of it back into the business. Step up your communication with your investors, your bank, and your customers. Add value at every point. Go the extra mile. Build case studies with the customers that are benefitting from this. Use your network like you’ve never used it before. Use all and any of these and work out where greater activity at zero or minimal additional cost will make the biggest difference in your business.

 

At Connor we are about to celebrate our 30th anniversary. 30 years of experience in helping businesses take positive steps through change. Supporting businesses upscaling, downscaling, changing, redesigning their organisation, merging with, or acquiring other businesses. If you want to talk to us about how you can successfully manage change, then simply call us on 01491 414010. Alternatively, complete the form below to request a call back.

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