More Economic Storm Reports: and Cognitive Dissonance

By Mark Allen Roberts 

Business leaders feel a storm is in the air. They fear an economic blip or even a recession is on the horizon. Another day, another storm forecast. And I don't mean the weather. In the last 11 hours alone, I read five articles portending economic decline. Here are some survey stats from these articles: 

McKinsey & Company …The Commercial response to Cost Volatility-The Time for Action is Now – Some companies are seeing cost surges of 25% Raw material costs have risen sharply since 2016. Tariffs on steel and aluminum, “fear of upsetting customers can lead to foot-dragging customers will rebel if you raise their price” 

According to a survey of chief financial officers by Deloitte, "Nearly three-quarters of CFOs expect a deceleration of economic activity by the end of 2020, while 15% expect a decline."

Oxford Economics researchers state housing concerns persist," A combined slump in house prices and housing investment in the major economies could cut world growth to a 10-year low of 2.2% by 2020." 

Forty percent of Americans polled by Bankrate felt the next recession has already begun. Bankrate's CFO, Greg McBride, warns," The stark contrast between everyday Americans' assessment of the economy and what data say about the economy highlights the risk of talking ourselves into a recession." 

TD Bank released a survey that says that 58% (out of 300 financial decision makers) are preparing for an economic downturn, and 39% are cutting back on expenses. 

My fellow business leaders. What do you think will happen? Should we all be battening down the hatches, trimming the mainsail and scuttling the jib? 

At a minimum, while optimistic about the US economy overall—I expect that companies will want to monitor economic uncertainty—and plan. Here's one more stat (last one I promise) in the TD Bank survey, "94% of executives feel positive about their own organization and consider the health of their own business to be excellent or good—And when accessing priorities for next year, the focus is on growth and innovation." 

It seems that the research subjects are both wary of the economy and bolstering themselves for a recession, but simultaneously are also planning as though economic growth will continue. To me, this reads like cognitive dissonance. Cognitive dissonance occurs when we hold two diametrically opposed ideas in our heads.  

This isn't a criticism—it's actually quite a sophisticated position to take. It's inspired me to create a list of six business actions I would take if I were both worried about the economy—but synchronously positioning my company for growth. 

●     Make the most of current clients- As the saying goes, "a bird in the hand is worth two in the bush." The bird sitting in your hand is your customer—and they are an opportunity to make more sales without incurring the costs of bringing in a new customer. My customers have also seen this as an opportunity to dial in on your pricing. For every product and client, there is a price that produces the optimal margin—while keeping the customer happy. At SPA, we refer to it as Strategic Pricing. In short, we segment your clients by size, profile their price sensitivity, product groups, analyze past pricing, define new pricing, and develop metrics and training to support the sales process. It's excellent stuff and adds 2%-4% to your profit margin within 90 days. If you are interested in learning more check this out. Develop key account strategic plans. Run analytics on what your best accounts buy and help your salespeople develop strategies to gain a greater share of wallet at each of your key accounts.

●     Have analytics in place for measuring exactly where we stand with each client- The Strategic Pricing mentioned above works, particularly when combined with a Whale Curve report. A Whale Curve graphs your clients from your most profitable, to the clients where you break-even and finally depicting the clients who are draining your profits. It gives you a true view-in to profitability because it factors the cost-to-serve. These metrics give you the data you need to work with your sales teams to make a customized strategy for each customer. It gives you actionable data to prescriptively increase marginsin profit leaking customers.

●      Voice of your customer research – hire a firm with experience in conducting voice of the customer research.Find out why customers buy from you and why they don’t. Find out the things your customers value and the things you are spending money on today customers wish you would stop. Learn how your buyers are making buying decisions today and what criteria they must have to make that buying decision. Find all the roundabouts in your current sales process and where your customers are exiting when they should be buying. Capture all the personas now involved in the buying decision and train your sales team how to use them. Update your sales tools and training based on the information your buyers share. Find your net promotor score and customer satisfaction scores. (do not ask your salespeople to do this research!)

●     Reduce costs-Kick off a strategic costing initiative. See what you can do to reduce inventory costs. Do you need to source elsewhere at a better price? Is your inventory too high? Can you drop-ship so you don't have to warehouse? Can customers consolidate orders? Does that account really need two visits from outside sales per month? What if they bought via EDI? Now is the time to reexamine all your processes and costs. Pay particular attention to variable costs to serve and make sure there are valued by the customer and they are producing the ROI you expect. Perhaps you should renegotiate that contract with terms that don’t cost you revenue, like those that force you only to ship complete or waive delivery fees. Consider the noise of a potential downturn as an opportunity to exchange ideas on how to prepare for hard times.  Perhaps you should show your whale curveand other analytic data to your suppliers and use it to negotiate better costs and terms? 

●     Look for partnerships and/or acquisitions- For companies that are strong strategically and financially, recessions can allow you to improve your positioning through alliances and strategic acquisitions. In order to be ready to pounce, you'll need to have a plan, a target list and well-prepared staff who can act quickly. For me, this is the action that requires the most cognitive dissonance. Partnerships and acquisitions are growth activities—quite the opposite of the standard "hunker down" mindsets that recessions bring, no?

●      Training – Is your team trained to weather the storm of price concession requests, list price overrides and requests for better term? Since 2008 over 70% of buyers have received training in professional negotiations skills and less than 10% of salespeople have been trained in negotiations. Who do you think will win in this skills mismatch when the winds start blowing? “But Mark you said to challenge my costs, button down the hatches, now you are asking me to invest in training?” Yes and no. I am not asking you to fly all your salespeople to a hotel for 3-4 days and have all those costs and time out of their markets. What I am suggesting is now is the time to have all salespeople take an assessment, identify skills gaps and fill those gaps with online microlearningsales skills training spaced over timedeployed over the salesperson’s mobile deviceswhen they want it, that’s just enough, on what they need most. Make sure and train and equip sales managers prior with coaching training and on the job application exercises to make the new training stick. 

Are you with me? Is it possible to be both braced for the worst AND in acquisition/growth mode? 

How do you plan to continue to grow your company during a recession? 

Please respond in the comments and thank you for reading! 

Maybe it’s my years in the Scouts or being a Scout leader for my son and his friends but if you believe there “might” be an economic storm heading your way the time to prepare is now…always be prepared. Healthy companies who take prescriptive actions based on data will not only weather the storm but use the storm to increase their sales and profit growth velocity. 

If you would like to discuss how you are preparing (or not) for an economic storm lets chat.