Are you Stuck in Neutral?

As people have settled into (my new, least-favorite phrase) the “New Normal,” one of the trends that I’m seeing is companies and management setting things on cruise control. The reasons vary, ranging from “I’m just happy we survived” to focusing on new roles as home-schooling teachers. There’s also a sense that growth and new initiatives are just not possible and are best delayed in many cases. That mentality is frankly simply giving in to a sense of ennui.

I think McKinsey put it best when they framed this as a crisis in which we have to safeguard our “lives” and “livelihoods.” Before we go further, we must acknowledge the toll this has taken on our lives. As of this writing, over 200k people in the U.S. have died due to this pandemic, and millions more have lost jobs or suffered levels of emotional stress they’d never previously encountered. I don’t want to dismiss or minimize this. But, recovering our “livelihoods” requires bold moves from entrepreneurs. “Winners” don’t sit still. They recognize that every crisis brings opportunity with it — an opportunity for value creation, revenue growth, and those often lead to job creation. So, what are the “winners” doing? In our work, I see those companies doing three things:

Three ways we see “winners” competing right now

Repositioning the Workforce

A theme that we see from larger companies is a well-crafted culling of lower-performing talent.

So how are you repositioning your workforce?  At this point, most companies who’ve needed to made headcount adjustments.  But more importantly, in the middle market / lower middle market, we’ve seen a trend towards “re-homing” high performers in high-need roles.  In some cases, the current environment has created an opportunity to move a person out of an existing assignment into a “Tiger Team” type role that is pivotal to the organization and likely to last beyond the pandemic.    

Thanks to our new fondness for remote work, companies have also successfully hired remote talent from unlikely places.  Yesterday I spoke with a DC-based entrepreneur who managed to onboard a remote employee from Louisiana for a high-end software engineering role.  A year ago, that hire would have been all but impossible due to customer requirements.   The company has essentially conducted a Proof of Concept on staffing highly qualified remote technical staff at more competitive rates.  Now the company is rethinking its entire staffing strategy.        

The bottom line is that continued uncertainty has created a unique opportunity to reposition staff and source talent in new ways.   

Reevaluating Fixed Costs 

How do you feel about your leased office space right now?   I haven’t been to our HQ office in months, and I can tell you that I’m feeling great!  Of course, it just so happens that we are sitting on an expiring lease and had been shopping around to upgrade that location.  (Sometimes procrastination does pay!)  Now maybe it’s dumb luck – at the same time, I’ve spoken with plenty of companies that just signed leases that they now view as essentially worthless/expensive boat anchors.  Most companies would gladly reduce their space (and fixed cost) footprint right now.    

Here’s the thing with fixed costs: when times are flush, it’s easy to justify the “below the line” bloat that comes with adding fixed expenses.  But if, and I mean when that top line ticks down, those easy decisions from 2019 suddenly feel terrible (and probably make you feel a little guilty for blowing off the CFO).  Case in point:  we work with a client that recently added significant production capacity (at the cost of several million dollars) on the expectation that they’d grown into it.  Not only have they not grown into it, but it’s also questionable whether the market segment they were targeting will recover in the near- to midterm.   

Of course, hindsight is 20/20, and it’s easy to second guess decisions post facto.  Part of being an entrepreneur is the willingness to take risks with the expectation of rewards.  But sitting here today, we have no idea if we will see the second wave of lockdowns and business disruptions.  We should all remain in the belt-tightening mode, and we should continue to be ruthless in managing fixed spending.   

Identify (and attack) Competitive / Competitor Weak Points

Ruthlessly attack your weaknesses. Ruthlessly attack your competitors

That’s right.  So, we are sitting here something like six months into this pandemic.  Everyone I know keeps using that exact damn phrase, “the new normal.”  Do you know what the new normal is for leaders?  For people in positions of responsibility and authority?  The new normal should be the same as every other day was during the old normal. What I mean by that is every single day, we should be attacking our weaknesses.  We should be sizing things up, measuring how we stand, and diving in on hotfixes to address the most significant issues first.  We should be doing the same thing within our competitive landscape.

Our current situation gives us all a unique opportunity.  In times of stress, weaknesses start to show themselves.  I’m willing to bet that each of us has been surprised in some way by which employees, friends, and family members have stepped up to the plate and put in the work…. Where others have been a shrinking violet that went softly into the night.  Stress and stressful situations shine a spotlight on weakness.  It’s time to take stock, identify and categorize those weaknesses, and attack them.   

What’s Next: Start Next Year’s Plan Early 

What does all this change mean for planning?  Start early.  Prepare contingencies.  A year ago, there weren’t a lot of folks planning for “what if my workforce suddenly goes 100% virtual?”  Well, it’s time to work some optionality into your plan.  Taking it a step further, we should all probably consider how these past few years have intruded on our plans – for growth, profitability, enterprise value- and a potential exit.   

So, let’s do this.  Time to get moving!  

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Dan is the Founder of Quantive and Value Scout. He has two decades of experience in leading M&A transactions. Additionally oversees Quantive's valuation practice and has performed thousands of business valuations.



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