It wasn’t so long ago (26 months to be exact) that the world shut down due to a global pandemic. The economy was in turmoil and businesses were in chaos—not to mention the very real and largely unknown health and safety threats caused by COVID-19.
At that time, we helped many of our clients take swift action. Many, but not all, businesses came out better on the other side.
When I consider the potential for recession in the coming months, I frankly don’t care much about making predictions. I’m far less interested in being right than I am in being smart. And that means hedging my bets and preparing for the worst.
The thing about success is that it can make you comfortable. As an entrepreneur, I’ve made too many mistakes resting on my laurels, thinking I was immune to outside forces or global trends.
I wasn’t. And neither are you.
If you haven’t given any thought to how your company will handle a recession, I encourage you to start thinking. Today.
Worst case scenario, you have a plan that you can implement quickly if needed. It will help you make better decisions, faster.
[Note: Even the worst case doesn’t have to be bad! Yes, success looks different during a difficult economy. You may grow more slowly or even stay flat—and that may be good enough. But you may have the type of business that can thrive during a recession or be able to position yourself for greater success once the recession is over. When possible, that’s the goal.]
Even if a recession never materializes, you’ll sleep a little better at night knowing you have a plan. Just in case.
We’ve put together a framework that any business can use to structure their plan for an economic crisis. Use this resource, or another. But get started now.
PLAYBOOK FOR RECESSION PREPARATION
When preparing for an economic crisis, assume your business is going to be affected. Remember that this is only a plan. Not all or even any of it may get implemented, but the planning is still worth doing.
• Develop future possible scenarios: - Things are terrible - Things are OK - Things are great • Tell stories on 1, 2, 3, 6, 9, 12 month timeframes (pick specific times depending on your business) - Model these scenarios for revenue • For each scenario, model how you would cut expenses to meet at least a 10% profit target. - Don’t be attached to what’s happening now. This is just an exercise. Do it purely. - Use your Role Map for each scenario to understand who you need doing what. - Consider expense cutting and restructuring. - Consider pay cuts. - Look job cuts straight in the eye throughout this exercise. If you don’t do what you need to do when you need to do it, you will kill the business for everyone. - You’re not looking to “get by.” You’re looking to reset and be profitable. • Identify any major decisions that you will need to make and what the triggers will be for each of those decisions. • Define the metrics you need to watch to be able to identify the correct triggers. If appropriate, add them to your Scorecard.
• Assess the market needs and your resources. • Generate as many ideas on potential opportunities as possible. - Focus on helping and investing in relationships. Just reach out and connect. • Choose opportunities to pursue and structure into short-term OKRs, Scorecard items, or sprints. - Don’t just talk and do nothing. Someone needs to own everything. • Think short-term (how do we stay afloat) and long-term (how do we set ourselves up to succeed once this is over)
• Understand where you stand now. • Estimate the cash you’ll need. Double it. • Line up all sources of capital, including applying for loans, etc. • If there are expenses you can cut easily now, do it. • Watch metrics closely to make other expense adjustments as necessary.
Things to Remember
• Focus on relationships. • Do what’s necessary for your business to survive and thrive. • Communicate often, even if just to say “I don’t know what’s happening.” • Help first, though don’t kill your business in the process. • Look for the opportunity, both professionally and personally. There’s always an opportunity. • Don’t be afraid of the unknown.