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12 considerations for businesses faced with economic headwinds

Updated: May 14






1.   TAKE STOCK OF THE RISK

a.     Look at your cash-flow projections (if you don’t have some building them is a MUST) and judge your risks. Could you see your cash inflows affected by this situation? If the demand for your product, your clients’ capacity to pay or your ability to service them are affected then yes, this is a risk. Depending on your cost structure and your cash buffer this can be a small or a big risk; in any case it’s probably best to take some safety measures as detailed later.


b.    Formulate your sector outlook


Successful strategic planning means looking beyond the current crisis. In other words, the decisions you are taking today should reflect your long-term outlook, not merely a defensive response to the current situation. Seek to understand if your sector will change in the aftermath of this shock and plan accordingly. This might mean cutting your losses short, re-positioning your company, adding or removing product features or services, finding a niche, pivoting to related market or even investing to prepare for increased demand. Look ahead and adapt as further detailed below. 


 2.   LEAD THROUGH THE CRISIS


 Priorities can change during this period and yet the health and safety of your employees have to be among them. Failing to do so can hurt their loyalty, engagement and, in the end, the results so chasing short term gains is likely to backfire.


Inspire your team to see beyond challenges regardless of their intensity by keeping an outcome-oriented and vision-driven management style. Communication has to be transparent, informative and at the time empowering. When these conditions are met, leaders are able to continue to build on the team’s knowledge and skill diversity to find creative solutions. In other word, empower teams to contribute to crisis management and avoid centralised decision making.


Useful reads from Forbes and Deloitte


 3.    ASSESS HOW THE CLIENTS’ NEEDS HAVE CHANGED



Image credit: hubspot.com


Look at your (prospective) customers and the problem you are solving with your product/ service and seek to understand if the current conditions are affecting the way they are looking at the problem, whether it's becoming more or less relevant, whether it relates to anything else etc. Be especially diligent if the need is high-end as these are more likely to be “neglected” (remember Maslow's hierarchy of needs) so it's worthwhile to SPEAK to your (prospective) customers to refresh your expectations. Such discussions should also serve to find out how the clients are reacting to the recent shock-wave and any noteworthy behavior changes that could ultimately impact your business.


To be able to assess the demand dynamics you have to speak with them, analyse the various clusters in your customer base and make sure you are speaking with individuals from each cluster. Look at different personas and analyse the profiles in terms of age, family, location, income, industry etc One can even use this exercise to identify a new niche.


After taking stock of the situation, brainstorm with your team and see what can or should be changed about your product in terms of:

-        functionalities,

-       delivery channels,

-        pricing plans,

-       strategic partners,

-       market niches. 


 4.   COLLABORATE WITH YOUR CLIENTS





You, your clients or both of you might be experiencing increasing pressure on your cash-flows. Look at your full commercial cycle when taking any decisions. If for example you are in a situation where you have to build higher than normal inventories because of uncertainties around supply availability you have to judge if you can afford to offer your clients better terms of payment (even keeping them unchanged might be challenging).

If you are a B2B, you also need to understand your clients' market and specific risks: are they export-oriented? Are they imports-dependent? Do they have a diversified enough clients portfolio? Are they prone to cash-flow problems? What flexibility do they have in their supply and distribution chains? What economic sectors are they mostly exposed to? Etc Monitor your sales outstanding more often than you would usually do and reach out to those who exhibit changes in their payment behavior.


Engage in discussions to find where the common ground might be. Besides the payment terms there are other ways of altering the effect of the transactions on cash-flows. For instance, shifting form yearly subscriptions to monthly might help your clients’ cash-flows during this period. If instead you need to boost your cash inflows you could incentivise the clients to do the opposite, in return offering better discounts, additional services or longer money-back guarantees. Other ideas can be changes in product/service packages, introducing/removing pre-payments, shifting to leasing agreements instead of standard buy-sell agreements etc. 


 If you are in the fortunate situation where the demand for your product is expected to be steady (or even increase) don’t squeeze the lemon. Taking advantage of this situation is not a good idea as it will dent the relationship with the clients. You want loyal, long term clients and that presupposes win-win arrangements and long term thinking.


 5.  MANAGE OUTSTANDING RECEIVABLES PROACTIVELY


Relationship is key and knowing your clients helps in identifying those who might be at risk and reducing the risk of clients taking advantage of the situation to delay payments. For added effectiveness develop a relationship with the person directly responsible for “cutting your check”; managers might be the ones placing the orders with you but getting to speak with the Finance/payable accounts staff is well worth it to ensure flawless revenue collection.


Make paying your bills as easy as possible for your clients by submitting invoices in a timely manner, in a easy to read format and with clear and flexible payment options and immediately noticeable deadlines. It might also be worth looking into new apps or similar tools that have come on the market (especially if these are already being used by your clients).


 6.   BE CREATIVE ABOUT COST CUTTING


Fixed costs should not be taken as impossible to change and more than anything, consider the cash flow impact rather than the cost alone. For instance, one can look at renegotiating rent, asking for a temporary reduction or even relocation. Introducing shifts, allowing staff to work from home for a couple of days per week or remote work are other options for reducing rental.


For each cost item, identify the function, the problem it is solving and look for alternatives. Much like in product development it doesn't help if you start off with a solution in mind (in this case the status quo). By analysing costs with this mindset you might find that there are more cost efficient ways of meeting your need eg. automation, outsourcing, subscriptions, in-house development etc




The cost decisions should also reflect how the clients’ needs have changed and how the hierarchy of the needs has shifted as this can make some functionalities/services redundant or, on the contrary, more important. For instance, interviews can reveal that clients are now less concerned with the speed of delivery/service which can allow the producer to cut down some costs.


 When deciding cost cutting measures however, do keep in mind that saving money in the short term is only useful if the measures taken are not at odds with your long-term market outlook. If you are cash strapped, faced with limited options for saving cash and still confident in your business proposition it’s worth looking for partners and leveraging your investors’ support. If you have a vision you belief in and this shock-wave has left you undeterred in your belief that the company can contribute to it then “sell” your story to gather the financial support needed.


 Partnerships can also be a viable solution as it allows you to build on synergies or common interests.


7.   WATCH WHAT METRICS ARE YOU WATCHING


You need to monitor the health of your business perhaps more carefully than you usually do. Choose a metrics that provide insights on possible weaknesses and allow you to act on them as well as leading indicators. Ratios are usually more useful than totals or absolute numbers which are more often prone to being vanity metrics or inconclusive. For instance, total number of clients or visitors provides little insight and context when compared with conversion rate. One can see that even though the number of clients increased, the result is unimpressive when compared to the number of clients visiting the shop or the number of clients approached by the salesperson. In other words, conversion rate is an actionable metric whereas total number of clients is what has become known as a vanity metric.


Cohort analysis can also become increasingly relevant as it allows one to see how the behavior of clients acquired at different dates differs. Are changes in sales being driven by a particular cohort or are there common trends across cohorts? If a spike is driven for example by new-joiners whilst older clients are diminishing their purchases, then the company should seek to understand what is different about those new clients; one can find a new niche or simply come to the conclusion that there are temporary factors explaining their demand (which underlines the risk of turnover being just a vanity metric).


Leading indicators have the added advantage of being the ones explaining other metrics (even actionable metrics); for instance, the time taken to call a lead can contribute to explaining the conversion rate. Similarly, customer satisfaction, the error rate or the number of complaints are leading indicators of churn rate; number of days taken to "chase" overdue receivables can be a leading indicator of % of receivable overdue for more than 30 days.


Also consider broadening the ratios you are monitoring to include different dimensions of the commercial cycle and emerging risks; perhaps you are usually more focused on growth or profitability but now it is becoming increasing important to monitor your cost efficiency, inventory turnover or days of sales outstanding.




8. CASH-FLOW FALLBACK PLAN


 Have some additional safety options ready to deploy if you experience cash burn above expectations. Look at your inventory or other assets and monetise sooner rather than later those that are obsolete or with low turnover. In addition, having a credit line/overdraft available even if you wouldn’t normally need it can be prudent. 


 9.  LOOK AT YOUR OBJECTIVES


Make sure your team is not guided by obsolete objectives and advise them on the added constraints to pre-empt them from having unwanted results. To take an extreme (albeit plausible example) if the sells team is only guided by sales targets, the terms agreed by them with clients might hinder your cash flow; another risk is failing to communicate to clients possible risks such as delivery delays. Your team has to be up to speed with changes in customer needs and preferences and you have to ensure decisions don’t remain in the board room; eg targets set for each product/service have to be quickly reviewed to reflect the change in clients needs.


 10.   LOOK AT YOUR COMPETITION WITH DIFFERENT EYES


 The steps take by competitors are as important as those taken by clients so be proactive and monitor or engage in discussions with them (as needed). Keep in mind however that competition should be seen in the broader sense and do not reduce your focus on companies with similar services or products. Instead, competition refers to any other options available for solving a problem. Significant shifts in economy or clients’ circumstances can lead them to reconsider other problem-solving alternatives. For instance, for a fitness franchise the competition is not limited to other gym facilities but also includes the online alternatives or home fitness gear; are these just a short term substitute due to forced lock-downs or a longer term threat? 


 11.   PROTECT YOUR REPUTATION


If there is a risk that the quality of your service will suffer or that you might fail to meet your commitments than do not take unnecessary risks. Reach out to your clients and explain the risks and only take their orders if they are willing to proceed on that basis. Even if the risk of delays are outside your control (eg suppliers closures, delivery delays etc) be proactive and honest with your clients. Do not bank on the fact that you have exceptional circumstances clauses in your agreements as clients are unlikely to be comforted by those. Put your long term interest ahead of short term interest.


12. LOVE THE PROBLEM NOT THE SOLUTION


 If you are in a situation where the demand for your product is threatened, look at your mission and see what changes can you make to achieve that in a different way. If that doesn't work go back to your vision. What are you aiming to contribute towards? How else could you achieve that? 




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