By Dan Lambert, the CEO of PathologyWatch, earned his MBA from Harvard Business School and has led successful ventures and company exits.
The U.S. business community is preparing for a recession. A recent survey of CEOs found that over half (60%) expect a mild recession, while 11% anticipate a challenging one. And 20% of CEOs expect inflation to stay elevated over the next few years.
While terms like “unprecedented struggles” and “uncharted challenges” make their alarming way to business headlines, the truth is, as entrepreneurs, the need to pivot focus, streamline overhead and diversify funding isn’t new territory. And we can rely on those practices to weather any recession.
Have a plan that can pivot quickly.
During the pandemic, there was a lot of uncertainty. But facing even the most challenging circumstances proves that trying bad ideas is better than taking no risks at all. It’s tempting to sit back and use extenuating circumstances as a reason for inaction. But whether a pandemic, a recession or a shift in your industry is to blame, business leaders need to have a plan in mind before it’s needed.
“Of course, even a relatively small change in business strategy can be tough to pull off, especially if it runs counter to the existing expectations of investors and other members of your team,” says Rhett Power, co-founder of Accountability Inc. “However, all of your stakeholders—investors, employees, and customers alike—will be more receptive to a proposed pivot if your new direction remains in line with the overall mission and vision you’ve established for your company. As long as your purpose is clear, you’ll find it much easier to explain adjustments to your approach.”
Overall, saying, “we’re making a best guess, and here is the plan,” is better than saying we have no plan. We’re approaching the recession the same way. “Here’s our best guess; here’s a plan, and we’re going to execute it.”
Harness various types of funding.
Much like the days of launching and sustaining the cash flow of a new business, navigating different types of funding during different periods of an unpredictable economy is important. Although it’s tempting to race to somebody—anybody—to secure cash flow, take the time to ensure your lending relationships and options are ideal for the long term.
Secure access to private equity, venture debt, collateralized credit, SBA loans, EIDL and PPP because these are all strategic options at the right moment. CNBC lists nine types of small business loans that may be the right type depending on the circumstances. At PathologyWatch, we used these instruments during the pandemic, so we have them at the ready for the next downturn.
Be prepared to scale up and down quickly.
It’s satisfying as a CEO of a startup company to build a staff that understands the often fragile elements of a changing marketplace and is willing to run lean for the sake of startup survival.
But a recession can force business leaders to scale down the workforce.
“Pre-identifying essential positions can help management make tough choices faster than they otherwise might when a recession hits and layoffs become necessary,” says Kristina Russo, business author. “Additionally, evaluating the talent and skills within the workforce in advance will accelerate your action if employees need to be redeployed as part of a pivot in company operations.”
Running lean during the pandemic was critical because of variations in demand. While reorganizing your staff, consider setting up a part full-time workforce and part 1099 workforce. In a recession, scaling up and down portions of the workforce is absolutely essential.
Gain commitment, but accept disagreement.
As a leader, getting everyone to “disagree but commit” is vital in any crisis. The disagreement tends to be higher in times of uncertainty, so getting commitment to the plan is even more paramount. Disagreement should continue to be encouraged. As Amy Gallo wrote in Harvard Business Review: “Disagreements—when managed well—have lots of positive outcomes, such as better work products, opportunities to learn and grow, better relationships, and a more inclusive work environment.” But consensus is equally important. Patrick Lencioni writes in his seminal work The Five Dysfunctions of a Team, “‘Disagree and commit’ is a necessary strategy for high-functioning teams.”
A strategic response to marketplace changes requires thoughtful decision-making based on reliable information, transparency and a clear understanding of the company’s current infrastructure and how it hopes to achieve goals despite a shrinking economy. That may require adjusting employee roles or combining responsibilities to maintain customer relationships while reducing overhead. Remember, employees wore a variety of hats during your startup phase. That same flexibility will be strategic and vital during a recession.
Although businesses face uncertain times, we can mitigate some of the uncertainty with proven strategies for success in difficult economic environments. The key is to revert to a startup mindset, then focus on strategies that help pivot organizational structure and goals, align diverse types of funding, restructure with a flexible workforce and reinforce collaborative leadership.