A long career in business provides many experiences, and those experiences likely include managing through economic downturns. Leading teams through a downturn is never fun, but there is an upside. If the downturn is managed well, an organization will come out of it much stronger.
In the last couple of months, I have attended three meetings with respected economists who said U.S. economic fundamentals are solid, that there is plenty of money in the system and a recession is not inevitable. However, I also know that consumer sentiment fundamentally drives the economy, and if we start thinking we are going to have a recession, we can make it happen.
So what should business leaders do if the economy enters a recession? How can we be sure our companies come out better than ever? Fortunately, there are answers to those questions. Here’s what leaders should do while waiting to see if a recession will materialize.
Develop a prognostic system At Correct Craft, our team has developed a system that considers market changes, market share, dealer orders, retail sold versus stock boat orders, dealer inventories and other indicators to help us predict future production demand. Leaders must go beyond headlines and instinct to predict the future; to do that, they must use data.
Develop a plan Our Correct Craft companies each has a plan to operate profitably even if sales drop by 50 percent. We have worked to identify the levers available to ensure survival in an economic downturn. Advanced planning takes much of the momentary emotion out of a decision, so when a downturn occurs, leaders can work on execution rather than deciding on alternatives for action in a crisis. Very rarely will your plan be precisely what you need in a crisis, but thinking through scenarios and alternatives preemptively is vital. Dwight Eisenhower is credited with saying that plans are worthless, but planning is everything.
Slope, not cliff A good prognostic system can help you think slope, not cliff, as you move into a downturn. This mentality allows leaders to take steps as the downturn approaches and manage through it without huge disruptions to their organization. Production can be slowed, and staff reductions can happen through attrition, which helps protect your employees who want a long-term career with your organization.
See the opportunity Mindset is critical in all leadership areas, including downturn planning. If we view a possible downturn as an opportunity to come through it with a stronger business, our thinking is in the right place to develop and eventually execute the downturn plan.
Once a downturn occurs, there are things business leaders should do to navigate the slump. Here are some suggestions.
See the opportunity This is also part of the predownturn strategy, but it is equally, if not more, important when executing plans. When our facilities across the country were shut down because of the Covid-19 pandemic, our leaders used the opportunity to make changes to improve our businesses. Mindset matters, and because we viewed the shutdown as an opportunity, we reopened stronger than ever.
Save the mother ship Downturns vary in depth and duration, but regardless of the circumstances, your company must remain profitable. I often tell our company leaders that the most valuable benefit we can provide our team is a business model that provides an excellent place to work for the next 25 years, through good and bad. It is stressful to lead during a downturn, but leaders must do whatever is necessary to ensure that their organizations survive.
Move toward problems At Correct Craft, we discuss having a “fighter pilot” mentality during a crisis. A crisis is not the time to commence long studies of what to do; it is the time to act. Move toward your problems and do it fast.
Execute the plan When a downturn begins, immediately implement your plan. It is difficult to predict exactly how the downturn will unfold, so it is unlikely you will execute the plan exactly as it was conceived. However, the exercise of preparing the plan will put you in a much better position when the crisis begins.
Make investments The right investments during a downturn can position a company to do very well after the economy has recovered. Our company still benefits from marketing and product development investments we made during the Great Recession more than a decade ago. Also, while investments may be capital, leaders need to manage capital allocation very closely during a downturn, especially when it’s unclear how long it will be before a rebound. Our team tries to maintain a “creativity over capital” mindset, even in good times.
Improve operational efficiency When things slow down, it affords a great opportunity to review everything you are doing and improve operational efficiency. Don’t miss this opportunity.
Set a expectations high No one wants a downturn, but if one occurs, your organization should come out of it much better, not worse. As leaders, we should be clear with our teams that our expectation is that we will come out of a downturn stronger, not weaker.
Planning for a downturn before it’s too late will significantly improve your odds of surviving, then thriving afterward. Now is the time to be planning; your future depends on it. If you’re not yet downturn planning, today is the day to start.
Bill Yeargin is president and CEO of Correct Craft and the author of five books, including the best seller Education of a CEO.