Monday, September 25, 2023

Is your company prepared for a potential recession?

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By Dan Lambert, the CEO of PathologyWatchearned his MBA from Harvard Business School and led successful ventures and business closures.

American business prepares for a recession. A recent questionnaire of CEOs said that more than half (60%) expect a mild recession, while 11% expect a challenging recession. And 20% of CEOs expect inflation to remain high in the coming years.

While terms like “unprecedented struggles” and “unknown challenges” are making their alarming way into the headlines, the truth is that if entrepreneurs need to shift focus, streamline overhead and diversify funding, it’s not new territory. And we can rely on those practices to weather any recession.

Have a plan that can turn quickly.

There was a lot of uncertainty during the pandemic. But facing even the most challenging circumstances proves that it is better to try bad ideas than to take no risks at all. It’s tempting to sit back and use extenuating circumstances as a reason for doing nothing. But whether it’s a pandemic, a recession, or a shift in your industry, business leaders need to have a plan in mind before it’s necessary.

“Of course, even a relatively small change in business strategy can be difficult to implement, especially if it goes against the existing expectations of investors and other members of your team,” said 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 consistent with the overall mission and vision you have established for your company. As long as your purpose is clear, you will much easier to explain adjustments in your approach.”

In general, it’s better to say, “we’re making a best guess, and here’s the plan,” than to say we don’t have a plan. We are approaching the recession in the same way. “Here’s our best guess; here’s a plan and we’re going to execute it.”

Take advantage of different types of financing.

Like the days of launching and maintaining a new business’ cash flow, it’s important to navigate between different types of financing during different periods of an unpredictable economy. While it’s tempting to race to someone — anyone — to secure cash flow, take the time to make sure your loan relationships and options are ideal for the long haul.

Secure access to private equity, venture debt, collateralized credit, SBA loans, EIDL and PPP, as these are all strategic options at the right time. CNBC lists nine species of small business loans that may be the right type depending on the circumstances. At PathologyWatch, we’ve been using these tools during the pandemic, so we have them ready for the next recession.

Be prepared to scale up and down quickly.

It is satisfying as a CEO of a startup company to build a staff that understands the often fragile elements of a changing market and is willing to work lean to survive the startup.

But a recession could force business leaders to cut workforces.

“Identifying key positions in advance can help management make tough choices faster than usual when a recession hits and layoffs become necessary,” says Kristina Russo, business author. “In addition, pre-evaluating the talent and skills within the workforce will accelerate your action if employees need to be redeployed as part of a pivot in the company’s operations.”

Lean walking during the pandemic was critical because of the variations in demand. When reorganizing your workforce, consider setting up a part-time workforce and share 1099 workers. In a recession, scaling up and down parts of the workforce is absolutely essential.

Get commitment, but accept disagreement.

As a leader, it is vital that everyone “disagree, but commit” in any crisis. Disagreements are usually greater in times of uncertainty, so commitment to the plan is even more important. Disagreements should be encouraged. As Amy Gallo wrote in Harvard Business Review: “Disagreements — if managed properly — have many 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 groundbreaking work The five dysfunctions of a team“‘Disagree and commit’ is a necessary strategy for well-functioning teams.”

A strategic response to market 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 its goals in the face of a shrinking economy. That may mean changing employee roles or combining responsibilities to maintain customer relationships while reducing overhead. Remember, employees wore different hats during your startup phase. That same flexibility will be strategic and vital during a recession.

While businesses go through uncertain times, we can mitigate some of the uncertainty with proven strategies for success in challenging economic environments. The key is to return to a startup mindset and then focus on strategies that help tilt organizational structure and goals, align different types of funding, restructure with a flexible workforce, and strengthen collaborative leadership.

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