It's time: How to think re. plan B

It’s jittery out there. Nervous. On the one hand, CEOs are happy because business is (mostly) going well, and there is still good growth in most sectors. And on the other hand, they are worried, knowing that a slow-down will probably start sometime within the next 6-18 months.

In a previous article, I investigated the dramatic shifts in objectives and fundamental premises for doing business. The headlines were

The world is different

Digital is not an option

Sustainability will become for real

We will see lower growth

We will see higher interest rates

We will see higher inflation (also after current surge)

So, plenty of challenges - and the question is: What to do? On the one hand, you don’t want to make any decisions that may impede your company’s current growth, whilst at the same time prepare for a potential contraction phase?

I have been talking to many CEOs about this conundrum over the last couple of months and gained an overview of some of the main actions that CEOs in some of the most successful companies are taking. Actions that I would recommend for any company and any senior leader. Here they are:

Ensure maximum transparency

As your business has grown, and as focus has been on revenue growth for a long time, it is time to make sure that you have your controls in place such that when the downturn hits, your first question won’t be “I wonder where we actually make our money”-like. Also, make sure that you know where you are making and where you are burning cash- so don’t just focus on the P/L.  

Reduce complexity and trim your costs

You know that you have too many products in your portfolio. You know that it’s a mess with the channel conflict in Germany. You know that the matrix organisation you implemented two years ago is right on paper – but no one really understands it. Fix it. All of it. Now. Reduce complexity in all dimensions and you will see your profitability increase – and at the same time have a machine that is ready for impact when the downturn comes.

And of course; trim away the “fat” now. Costs that are not needed to sustain growth – but just happened somehow during the happy days.

Go digital with focus on short(er) pay-back time

Digital solutions will help you many ways – with growth, with efficiency, with transparency, etc. So you should still invest here. But a bit more structured. Stop the “let’s try this and see what happens* approach. The experimentation days are over. Invest in digital solutions that will help you generate profits or take out costs but in the short(er) term. Things that also will make sense if your revenues are flat 2-4 years. Things that will help you keep momentum now – but will also save you costs in the long(er) term.

Invest short and fat – and create flexibility

Don’t stop investing right now. You are probably still growing. But do it with a focus on pay-back time. And have a hard look at the composition of your cost base. Those new sales representatives we need to have in Sweden – do they really need to be on our payroll, or would it be possible to employ them through an agency? And the cars they need – should we buy or should we make a short lease? So spend the money you need to continue current path – but do it wisely, and in such a way that you build some flexibility into your cost base.

Get real regarding your current initiatives

In any upturn (as the one we have had for the last decade), the portfolio of initiatives becomes swamped with a mixture of good and, well, less good projects. Some of them probably worse than that. Do yourself a favour – conduct an initiative/portfolio review. Now. Be strict. Look at pay-back time (rather than IRR or NPV) as a critical criterion for what survives and what does not. Look at whether the individual initiative will have merits in both an upturn and a downturn scenario. And kill your darlings. You will find, that after this review, your energies will be more focused on those initiatives that survive, hopefully creating more growth and you will have reduced complexity in your business – a good starting point in any downturn.

Capitalise on current activities

Look at your current growth plan. And reconsider it. You don’t want to start investing in completely new markets, channels, products, etc. right now – because you might be forced to close these down as a first action when the downturn comes, and you cannot afford to fund such initiatives until they are viable. Instead, focus your investments and resources where you already have traction – capitalise on the investments already made, and push even harder. So your current growth plan might say that entering Uruguay is next, because now you have gotten traction in Argentina. But rethink that. Put that investment into Argentina – double it in size now, and wait with Uruguay. This way you will be more robust – and still maintain your growth, at least short term.

D-I-G-I-T-I-Z-E

We all learned it the hard way during Corona – those that have a digitized operating model will be better off. Add to that the cost squeeze ahead and the constant need to improve your customer interactions and to improve transparency and insights. The solution is easy: Digitize. Do it strategically, look at is as investments the same way you look at buying new productions machinery. Re-focus your investments more towards digitization than currently. And invest in competence building.

Decide your (real) sustainability profile and make it a competitive force

We need to save to planet. Yes. And we all have a responsibility here. But you – as a business leader – also have a responsibility to ensure that the sustainability investments you make also pays off in your financial results. And there is no schisma here if you get your strategy right. Sustainability is such a big, global value driver that off course you should make growth and profits from your investments here. But that requires that you no longer talk about “our sustainability strategy” as a on-the-side item, but truly embed it in your corporate strategy in a way that ensures both “good-to-the-planet” and “good-for-business”.

Look at your team

It’s been great. You have had a fantastic time together. You have done well as a team. But still – you need to take a very hard look at the people side. In any growth phase where there is scarcity of qualified labour, you have a situation in your company where some are the A team, some are the B team – and maybe some are on the C team. Get rid of the latter. And know mentally who is the B team.

Further, have a look at the competences in your leadership team. Do you have a team composition that will (also) be right when the tide turns? If not, supplement your team.

Prepare Plan B and decide trigger points

It’s obvious – you need a Plan B, so if you don’t have it - make it. With your top team. And approved by your board. As importantly – decide now what the trigger points will be for its implementation. Plan B describes the actions that are on top of all the things mentioned above. Stuff that you will only do, when you are sure that the market climate has shifted dramatically. If your Plan B and its trigger points are in place, you can stop worrying about a future you cannot control anyways – and completely focus your energies on delivering your company’s growth for the coming quarters.  

Prepare yourself mentally

When the going gets tough, it will get nasty. You will have to implement Plan B. You – the leader that for years has communicated nothing but progress, success, etc. And if the paradigm changes – so will you have to. That is tough. How does Mr. Revenue transform into Mr. Costs? How does Mr. Customer transform into Mr. Efficiency? So, you have to mentally prepare yourself – such that you can switch fast when the time comes. The trick is – of course – not to let this mental preparation impact your current leadership style, which should still be focused on capitalising on the good times.

Exciting times. Plenty of things to ponder. But now is the time to prepare. Are you ready?