By Hillel Glazer, TCV Growth Partner -
"These Changing Economic Times"
Please tell me you’re as sick of this phrase as I am.
If for no other reason than “economic times” are always changing. It only even depends on your scope. A quarter? A year? Five years?
Sometimes using that phrase is meant to assuage concerns, sometimes it might even be used to stir fear. That all depends on who’s using it and in what context. Worse is that it’s frequently used in speeches or columns to lay the groundwork for excusing everything that comes next as non-binding fluff.
For once I’d like to see someone follow that phase with something actually useful. *Gasp!*
So here you go: How to “change proof” your business to withstand economic shifts.
You’ll get different answers from different viewpoints. I’m sure you’ve heard some say to hunker down on your core competencies and trim costs and exposures; others will say to diversify to hedge against losses in any one area. Neither are entirely wrong, but neither are entirely and universally right, either. Which way do you go?
By the time you figure out an answer to that question the economy could likely change AGAIN!
Assuming a business isn’t so large that it doesn’t experience an existential crisis with each economic shift, what other options are there?
The right answer is always specifically and uniquely dependent on each individual business. Any kind of market-related answer in a broadly distributed medium is far oversimplified. So, what kind of answer can I provide that’s not just another oversimplification? That’s what I’m working towards. An answer that’s not nearly as exposed to the “changing … times” as those we usually hear from talking heads and business columnists. To my early comment, an answer that is “change proof”.
First, let’s be clear. The changes we’re experiencing lately aren’t great ones. And let’s face it, when things are looking great most business leaders aren’t terribly worried. And (unfortunately, in my opinion), business leaders get sufficiently complacent with their operation to allow themselves to not think critically about how they’ll respond when things stop looking so great.
Rosy economics hide a lot of wrinkles and warts that only appear when the bloom is off the roses. The lack of efficiency, the true cost of operations, or the ratio of product returns (or customer complaints) to the total products or services sold often surprise many business leaders far too late—after the disturbance in the force has propagated into the P&L.
To “change proof” a business is to move a business to be in a state where there are no surprises. Or at least, none that are lagging so far behind the present that they are only exposed after they’ve become a raging fire by the time the heat is felt.
This sounds like we’re discussing data and decision-making tools. True, these are important attributes of such a state, but this state is not created by merely adding data or decision-making tools. Excluding businesses with lighthouse stability every “change proof” operation shares a common underlying attribute: responsiveness. Rather than buttressing the business to “withstand” changes in economics, small, medium, and mid-market businesses are far better served by being able to “ride along with” the changes.
By analogy, many people wonder why an airplane’s wings bend and flex while flying. This is particularly noticeable in windy or turbulent air. For one, making them rigid would actually provide a smaller range of safe operation. This is because rigid things are brittle and brittle things fail quickly at a fairly specific stress levels. For another, making them rigid (especially rigid enough to withstand high enough amounts of stress) would make them tremendously heavy and heavy things are really hard to make fly.
In other words, if a business were an airplane, it’s easier to allow the business to bend and flex than it is to beef it up so that it defends itself against changes by brute strength. Besides, say a business were to “prepare for the economic downturn” by trimming, focusing, shedding, or doubling down—whatever—what happens when things turn around? A responsive business is responsive regardless of the direction of the economy. By making a business responsive and able to bend and flex, a sudden swing returning to a prior state is just another change to ride along with.
Speaking of airplanes. At the beginning of the pandemic airlines slashed flights, parked planes (or eliminated them from their fleets entirely), and let go of pilots, flight attendants, and ground personnel. Because airlines have become notoriously incapable of being quickly responsive (not entirely their own faults, I should disclose), when demand for airline flying jumped far higher, far sooner than anyone expected, we experience the airline travel Summer of 2022 as reported in this Wall Street Journal article.
Steps towards a more flexible, bendy, responsive operation:
1. Treat time as the enemy. Do everything you can possibly imagine to reduce the amount of time it takes to do anything in your business. This does NOT mean ask people to “work faster” or “work smarter”! This means never stop looking for and eliminating things that chew up time that do nothing for your business. Let everyone in the business do this. Everywhere. All.The.Time. Nothing is sacred. No one is spared. Be ruthless.
2. Do not start work you can’t complete. Incomplete work is a time-suck. You’re better off waiting to start working on something until you have everything you need to get work done: people, materials, information, collaboration, than to start and then stop. Wait. Start again and stop and wait again. And on and on.
3. Let everyone in on what’s going on. Ever wonder why not everyone in a business seems to contribute? Often, the reason is they don’t know what they can contribute to, or that they can at all. When everyone knows what’s needed, you access the magic that happens when everyone can contribute. Your people will reward you with trust, loyalty, and better ideas than you’ll ever discover in your boardroom.
4. Identify and define all the work. Not just the work of what is delivered, but everything that happens in the business. Not only does this expose non-value added activities, but it facilitates items 1 and 2 above while leveraging item 3. When defining, be sure to include who the customer of the work is, what value they receive, as well as the content, sequence, timing, outputs, and outcome of the work. Tie tools, automation, and data gathering wherever possible to gain rapid insight into process performance and to take low-value activities out of human hands.
5. Subordinate work in favor of delivering. Especially during economic downturns, economists and accountants will advise to seek to make your operation more resource efficient. This is exactly wrong. Well, OK, it’s exactly misleading. You always want to be resource efficient. However, you do not want to be resource efficient to the detriment of your ability to be delivery efficient. In fact, focusing on the efficiency of your ability to deliver will push you towards being efficient with your resources. On the other hand, you can pursue resource efficiency indefinitely without ever moving towards delivery efficiency.
6. Iterate. That is, learn from steps 1-5. Study what worked and what didn’t. Understand why. Then go back to item 1. Or item 4. Wherever. Improvement is the iterative and continuous process of revisiting each of these steps.
Notice these steps don’t start as far back in the business as “values”, “principles”, or “mission”. Let’s pretend to be experienced business people and agree that these are critical, important, and already in place. Having said that, it’s never a bad idea to bounce everything you do when executing these steps off of your values and principles. Your values and principles are how you adjudicate the most appropriate way to make trade-offs and handle priorities. It’s also not a bad idea to question them, too, should you find that there are inconsistencies between your work and why you work. Something has to give and sometimes, companies do need to refocus their “why”.
In fact, changes in the economy can require a change in a company’s “why”. Think of all the companies that refactored themselves at the beginning of the pandemic from whatever they did pre-pandemic into becoming part of the pandemic response. E.g., a vacuum cleaner bag company became a mask-making company or a distillery that switched from spirits to hand sanitizer.
We are predisposed to treat these steps as finite, self-contained, and self-explanatory. We know better. You know better. Don’t Panic! As an incurable process performance nerd, please feel free to reach out for a conversation about how to make your business “change proof.” Hillel@TCV-Growth.Partners