Over a decade of cheap money has yielded exciting and often dubious opportunities, from shoddy yet celebrated startups like Theranos, the crypto-coinage mambo jumbo and its derivatives, the infamous ICOs + join us at the ground floor NFTs, meme stocks and the booming retail investor(/gambler) scene, the backdoor of nonprofitable companies to unsuspecting public money (aka SPAC) and more…
It was a rave with no bouncers at the gate, and everyone’s invited; the funkier or dodgier you are, the better, smarmy often interchanged with genius, and the last one standing will pay the bill.
It was easy to make money online and offline, and almost anyone with some initiative was part of the party. It was high time to throw hard work, 9 to 5, paced growth out of the window in favor of quick fix, get rich quick, too good to be true? “Shut up and take my money!” culture.
Like watching a car crash in slow motion
And then inflation reared its ugly head
Not looking the other way can save sleepless nights at the cost of imagining the worse and drafting a plan, to hopefully never be executed.
How to prepare for a possible business downturn?
Disclaimer: There are many ways to glide into an economic downturn, these are some of my insights.
3 Levels of Tightening the Belt:
- Discretionary (start tightening)
- Marketing budgets – Anticipate less return on investment, worth winding down and investing in retaining current clientele.
- Upgrades – To software, to infrastructure, to the org structure – I know you planned to!
- Travel – Self-explanatory.
- Expansion – Acquisitions, new products or lines of business should be considered thrice.
- Freeze hire – It’s better to stop or slow the press, ask for overtime and see how things evolve vs hire and then people go.
- Cautionary (when cashflow is reversing on you)
- Incentives – Conserve cash, you can agree to defer until the sea is calmer, hindsight is always 20/20.
- Bonuses – What’s a must and what can wait?
- Raises – Freeze, set a deadline to revisit, if profits return, possible to pay retroactively.
- Capex – New laptops, furniture, servers, cars, private jets, space ships – not right now – use to old ‘till it’s dust.
- Radical (when sh*t hits the fan)
- Deep discounts – Cash flow is king.
- Eliminating inventories – this sale is on fire.
- Pay cuts – The inverse of “A rising tide lifts all boats.”
- Unpaid leaves – Taking one for the team.
- Layoffs – Cut an arm to save the body.
These are potential breaks you need to pull before flying off a cliff. The pain of pulling the break is temporary and often does not equate to the regret of not acting in time, remember, we’re talking about investors’ money, the team members’ jobs you could have saved, the clients you could have served if you survived, I know it might sound exagaraated but if there’s something that the 2020 pandemic should have taught us, is that, everything’s possible.
The cost of not making a decision in critial times is often higher than making the wrong decision, many decisions are reversible, the ability to conclude and move forward quick is key.
Dissect your OPEX
Pull at the last trailing twelve months, this will give you some volume of expenses to look at, from top expense to bottom, which ones can be reduced, optimized, or outsourced?
Analyze Revenue and Anticipate the Drop
- Schedule periodical calls with top clients, users, and buyers – keep your finger on the pulse and ask candidly to be informed ahead of time of any planned drops in their spending with you.
- Set thresholds for when are you starting to cut on expenses from the lightest to the most severe (see tightening the best section)
- Have a concession plan to mitigate potential cancellations, discounts, deferred payments, and strategic partnerships.
Set thresholds for action
In every adverse situation, there’s a chance to learn about how sturdy you and your business are, but more importantly, there are opportunities to emerge in a new better form.