Leadership

Maximize Your Business Performance in any Economic Conditions

Maximize Your Business Performance in any Economic Conditions

Business and economic uncertainty are inevitable. It is a part of life. We ride them out and are, hopefully, better on the other side. We do not have much or any control over business uncertainties, market conditions or recession risk, a significant change in monetary policy, or world events that significantly impact the global economy. We can’t control consumer spending or the labor market.

But closer to home, perhaps we can have better productivity and avoid negative financial troughs or business cycle issues that we should have more control over. This may be easier than you think. It may primarily be a ‘way of thinking’. This discussion will help you gain confidence that you can better control the financial safety of your business by having the proper forward perspective and outlook. So, let’s get started.

You pack an umbrella when you get a weather report of heavy rains. When you’re driving and learn of an accident ahead, you find a way around it. These are simple examples, but there are two key components here. First, you got a warning. And second, because you got that warning, you were able to take action to prepare for or minimize the potential negative impact of what you learned. 

I fondly recall when my eldest son was learning to drive. As we were going around the church parking lot late on a Sunday afternoon, he struggled with the lamp posts, curbs, and corners coming up very quickly, causing him to brake hard. We noticed that his eyes had been fixed only on the front of the car’s hood. And once he began to keep his eyes focused 200 feet ahead, he got the hang of driving very quickly. I’m sure you get my point here. 

What business concept is most impactful to consistent business performance?

Much of what I will discuss involves the importance of looking ahead and how to do it. 

So, to get this discussion going, my question to you is this. Are you so busy that you’re not taking the time to look ahead just a few hundred feet? Does your business have ‘early warning’ systems that make navigating potential problem cycles easier before they arise? Is your cash flow fluctuation unpredictable? It is easy to have tunnel vision and do things as we’ve always done without anticipating what might be ahead of us. Business owners struggle with this, particularly if they have enjoyed steady growth and suddenly aren’t. 

I like to ask business owners these questions. Are you driving the business to the financial targets you are setting, or is the business driving itself? Dissecting the meaning of this question is an excellent beginning to understanding how great companies operate. Next, are you ignoring economic indicators, world events, technology, product demand evolution, and competitors nipping at your heels? Are you leading the way in competitive pricing, or are you reacting to competitors in your market? Are you managing to produce a competitive advantage? And just as important, do you properly control and understand your revenue drivers and associated expenses?

When looking ahead, what do I look for?

You care about your employees and customers and your business’s longevity. And that is why you cannot afford to look just at the front of your hood. This could be a matter of survival. 

When conversing with an executive about this topic, it is not unusual for me to get the question. “So, if I’m going to look ahead, what do I look for?” Here are a few ideas and critical disciplines that, if scheduled frequently, will help keep you focused appropriately ahead as you drive your company forward. 

The first is an over-the-horizon forecast discipline. You probably forecast for the short term naturally but are you looking out at least six months to a year or more? Concerning forecasting, if you aren’t, you should be. 

How do I forecast over the horizon?

  • My teams used the three scenario forecasts framework. We would build three modeled financial scenarios; a best-case scenario, a worst-case scenario, and the most likely case scenario for how the business could perform financially over the next several months. 

When we built our worst-case scenarios, we would intentionally make several of them. I like this approach because it forced us to look for circumstances or situations that would contribute to our worst-case scenarios. Then we would model the financials to reflect those potential circumstances. The benefits of this practice are numerous. Let’s explore just a few.

Here is an example. For a company that depends on allocating available personnel to achieve financial targets, you must have the correct number of people available at the right time. If you don’t look ahead at your resource needs before you need them, it is very likely you won’t be able to realize the revenue potential that you could have. And once that time has passed, and additional revenue is earned later, you won’t be able to make up that incrementally positive revenue in the same calendar year. Everything pushes out. So, efficiency is the key here. Look ahead. See your needs before you need them, then hire and train appropriately. Because you saw the revenue opportunity and positioned your business to get it, you can enjoy the reward of increased financial performance in the current calendar year.

This practice also applies to companies manufacturing products or providing services. Seeing ‘demand’ before it is upon you allows you to find a way to meet the demand efficiently and earn more top line. 

Can this forecasting principle grow my business faster?

  • This is an important principle, so I want you to think about it in just a bit different way. You cannot adequately scale your business if you are not looking ahead at crucial business components and revenue opportunities. Safe growth requires a vision forward.
  • I mentioned earlier in this section that we ‘modeled’ our financial scenarios. Our modeling method allowed us to create many scenarios using the same framework. We were often plugging in new possibilities and managing our business risk accordingly. But here is one of the more powerful side benefits. After modeling for a while, we had historical models to look back on to see how well or poorly we had managed. We gained insights into enhancing our forecasting methods and risk management as well. Well-run companies operate this way and work for consistent growth. Modeled properly, they will always be able to see future cash flows. So, taking the time to look ahead isn’t just a good idea. It’s essential to growth and survival.

The second tip is to find experienced business mentors. I am sure this recommendation will be impactful. Find mentors and build relationships with them. They should be people who know more than you and have been where you want to go. Their experience and wisdom shaped from the times they’ve lived through may come in very handy as you look forward to avoiding land mines your business might hit. 

Consider for a moment having a mentor beside you helping to navigate the forecasting and risk management principles I described earlier. Every principle that I am relating to you requires some change of habits. Your mentors can help you shorten the learning curve for things you need to do well because they have done it before.

How can I stay focused on the future while running my business?

This third tip worked quite well for me. Appoint a ‘Chief Radar Officer’. I gave one of my C-level officers the additional duty of chief radar officer. In most cases, it was my Chief Operating Officer who kept an eye on the economy, competitive trends, and technological change. He was a trained set of paranoid eyes, looking ahead regularly and sometimes more often than I did. You could also describe this role as the chief safety officer.

  • There’s an important side note here. I have referred above twice to technological change and trends. We know that rapidly changing technology can quickly obsolete products and services. But being aware of coming technology changes allows you to adapt or potentially obsolete your products and maintain a relevant business. Product companies with the potential for obsolescence typically have research and development centers. How and what you spend your R&D on can be critical to your survival. Recognizing a competitive product move too late can make for difficult, if not very expensive, recoveries. 
  • My chief radar officer not only looked on the horizon for technological obsolesce, he talked to our customers often to learn what they wanted, why they wanted it, and how it would improve their product experience. He enlisted some of our development team members and our customer service and delivery personnel to help him assess the market more comprehensively. This convinced him that our competition was asking the same questions and looking for ways to take our customers. That’s what good companies do. He was very good at protecting ‘our turf’. In this case, an ounce of prevention is worth a pound of cure. We probably should have given him the title “chief paranoid officer”.
  • I have one more thought on this specific topic. When attending trade shows, don’t ignore trends you see or the ‘futurists’ presentations prognosticating about coming change. Technological change surprises can be deadly, but the good news is that you should be able to see this well before it happens and adjust in advance of facing significant danger. 

How can I mitigate the impact of changes in the US or world economy?

My fourth and last tip is a bit more challenging to achieve. At the beginning of the article, I asked if you were ignoring economic trends and world events. This more ethereal question involves consumer-related market conditions, economic activity, financial markets, supply chain mechanics, supply and demand trends, the labor market, and more. These matters can impact the business climate your company may face. Many business schools teach these concepts well enough for their graduates to think intelligently about the potential impact on their companies. Some Executive MBA programs fill this need well. But not all of us have access, time, or can afford that route. 

Mentors can be the perfect alternative here. Underneath the grey hair and wrinkles of men and women who have run businesses for most of their lives is a mind that remembers these economic situations. They likely experienced them from beginning to end. They learned to recognize easily that economic trends lead to other changes and outcomes interwoven and connected. And they feel how these trends can affect businesses across many industries. Knowing how to take advantage of certain economic climates and avoid the dangers of others can be pretty impactful.

I can speak to this option personally because most of the sound economic information and tools I learned came from my mentors. And they were available to me at just the right time to save me from potentially detrimental outcomes. There is an old saying, “it is better to be lucky than good”. That isn’t true in business. Competency is essential, and mentors can often raise your competence by their presence or proximity. Take a hard look at this option. I think it will bear significant fruit for you.

To summarize:

So, let’s list the broad benefits of ‘looking ahead’ in a disciplined way. 

  • First, properly executed ‘over-the-horizon forecasting’ will help you manage your top-line performance and efficiency, resulting in higher profits and a more solid and predictable cash flow. You will manage your business’s risk more effectively. 
  • Next, it is extremely difficult to scale your business safely if you are not planning appropriately. Drive your business. Don’t let your business drive you. Use disciplined tools and processes to continue sustained growth
  • Lastly, you will handle business, economic, and competitive surprises better if you have the right tools and knowledge to recognize what is in front of you. Yes, it does require time, the deliberate attention of someone in your organization, and perhaps the coaching of the right mentor, but in time these habits of success will only get stronger and make your company safer.

To conclude: I’m sure you can see that while these concepts are not complicated, they do require discipline. So, keep your head up and look well ahead of your current horizon. Your business cycle doesn’t necessarily have to mirror unfavorable economic conditions. You cannot avoid or take advantage of what you don’t see. I believe these disciplines are vital for any size business to be able to endure over time. And yes, a little paranoia is a good thing. You can do this. I ask that you think about starting today.

I enjoyed talking about topics like this. If you’re ready to speak with me, click below to schedule a session. https://calendly.com/dave-kerford/

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