Happy New Year!
The New Year always provides the opportunity to step back and take stock. It gives us the chance to celebrate our successes and learn from our failures. It is also the time to get clear on our plans for the New Year with a clean slate. But this year feels a little different than recent years: there are storm clouds on the horizon.
Despite the poor finish to the stock market, most businesses I know had very strong years and have momentum going into 2019. Our last recession in 2008-2009 was a long time ago and has faded from many memories. There are all sorts of news reports about a recession coming in late 2019 or early 2020 (I sometimes wonder if these aren’t self-fulfilling prophesies). While no one knows for sure when the next recession will hit, it is important to be prepared. Having run an IT services company through three recessions over 24 years, I have learned that there are three things to focus on when a recession seems to be brewing.
Conserve Cash: When the economy is going strong and business is good, this is the time to invest in growth and innovation, spending our resources to expand our services and our business. When the economy begins to show signs of downturn, this is the time we want to slow down these investments and increase our cash. Nothing helps weather a storm more than cash. This also allows the business to be opportunistic when bargains present themselves (think talent and capabilities). Warren Buffett has a famous quote: “Be fearful when others are greedy, and be greedy when others are fearful”. Being opportunistic usually requires cash.
Be Essential: Unlike our government shutdown, businesses don’t react the same way – all or nothing. When a business hunkers down, it is a gradual approach and prioritized. As mentioned above, good business will react to an economic slowdown by evaluating places to reduce expenditures and prioritizing what to keep, put on hold, and cut out. It is very important that your services are deemed essential and not optional. In the last recession, our managed services were deemed essential and we saw very little decline; meanwhile our project business saw many projects put on hold. Since we were past the point where our managed services covered all our operating expenses, we maintained profitability without having to cut any of our talent resources or dip into our cash reserves.
Manage Excess Capacity: Every slowdown will affect capacity; the question is what to do about it. The decision will be to keep or jettison idle resources. In today’s tight labor market (top talent rarely moves, recession or not) any decent talent that is furloughed will be quickly gobbled up and you will never get them back. But you can’t just have people sitting on their thumbs and doing nothing or working at half speed. This can be a huge opportunity if properly managed, the time to catch up on technical debt, training, and innovation. The key is to manage your resources in the same, consistent way you would under normal circumstances: don’t burn them out, but maintain a steady constant productivity in good times and bad. If you let your resources slow down they will atrophy and you will not be able to ramp them back up when times improve. Lastly, work that gets put on hold in a recession will eventually need to be done. In each recession I have experienced, there was a wave of pent up projects that came as the economy improved; this work needs to be captured, organized, and planned for as well.
No one knows when the next recession will hit. What we do know is that the laws of nature say there will be another one, just like the change of seasons. The time to plan for the next downturn is before you are in the jaws of it, because then it may be too late.
What I am reading:
Professional: The Toyota Way to Service Excellence – by Jeffery K. Liker – Amazon Link
Lean Transformations in Service Organizations
Personal: The Grid by Gretchen Bakke – Amazon Link
The fraying wires between Americans and our energy future