GoTo recently commissioned a survey of 3,700 business leaders and IT decision-makers to pinpoint how small to medium-sized businesses (SMBs) around the globe feel about current economic conditions.
As part of the #GoToGetsIT series, we interview industry experts to share their perspectives on the data and what it means for business and IT leaders as they navigate uncertain times.
The economic forecasts are not looking sunny, and business leaders are facing some difficult choices in the months ahead. As we’ve discussed before, SMBs face a unique set of challenges in a downturn and there is an understandable desire to cut costs wherever possible. But don’t run off and try to hawk your company’s office furniture and industrial-sized rotisserie ovens on eBay just yet. To successfully navigate a downturn, SMBs must start with a strategic approach.
To better understand how to do that, we talked to Peter Cohan, Associate Professor of Management Practice at Babson College.
Practical Experience with Tough Strategic Decisions
Established in 1919, Babson focuses on business studies and is one of the foremost colleges for an MBA in entrepreneurship, according to U.S. News and World Report.
Cohan is personally very familiar with surviving tumultuous markets, having started a management consulting and venture capital firm in 1994. He’s since gone on to author 15 books, and serve on the small business subcommittee of President Joe Biden's Economic Policy Committee.
Cohan is an expert in strategic problem-solving and decision-making, and he’s spent his career advising business leaders – and future leaders – on how to make smart, tough calls in challenging economic climates.
Thinking Big Picture
Strategic leaders hoping to manage a downturn should go back to the basics, explains Cohan. When planning for the next few years, he recommends taking a holistic view of the company and asking: what exactly is your fundamental business?
“You have to really take a look at the question, why are you in business? What is your fundamental purpose, your fundamental mission? Especially in difficult times, you need to fall back on your purpose and your mission,” Cohan explains.
With purpose as your north star, it’s then easier to make sure you are developing a plan that’s pointed in the right direction. And knowing your purpose isn’t enough. Cohen tells us it’s essential to communicate it to your team. The combination of clarity and communication can not only help you make the right tactical decisions but also keep your workforce engaged.
Once you have redefined that sense of purpose as a company, it is then easier to put all business decisions through that lens to figure out what business functions and costs are truly essential.
Your strategy should focus on doing the essential aspects of the business better and faster, doubling down on the core of what makes you successful no matter the economic circumstances.
Where to Spend, Where to Cut
he flip side of this equation is then cutting back on areas of the business that might be less essential during a downturn.
Cohan says that the first place to start is to think about cutting what he calls ‘non-value added’ costs. The first place to look might be what many SMB leaders assume is a cornerstone of their business but could actually be a loss leader: office space.
If a lease for physical space doesn’t truly add to your value proposition, it might be a place to focus on cutting costs.
“After having seen the possibility of working from home and how many people are doing that pretty successfully, I know it's possible not to have all that office space. If you have all this empty office space, you can get rid of it somehow and save the money.”
While this might not be the best choice for all organizations, the fundamental thinking behind it is applicable to all: with your purpose and mission at the center of decisions, focus on the value you truly deliver and be willing to cut back in other areas.
This once again goes back to the ability to communicate the mission: as tough decisions are made by management, transparency can help maintain that strong relationship with employees.
And GoTo’s research backs this up: 77 percent of survey respondents believed it was important to keep employee morale high during a downturn.
Other Tactics to Prepare Your Company
When it comes to the kind of tough financial decisions and plans a company might have to make, GoTo’s survey offers more insight. Results show that many business leaders are also looking for new ways to put money aside as the economy worsens. 71% of respondents said they’re “nervous” about the state of their business, and 36% claimed to already have plans in place in case of an economic downturn.
Most importantly, Cohan says to remember that this won’t last forever. Downturn cycles in general, follow periods of growth and expansion.
“Even though it's easier said than done, but definitely important to bear that in mind and to plan for needing to be conservative about money for a period during the downturn to be around to thrive.”