The recent stock market rally and more positive US employment data have raised hopes that we are in the midst of a strengthening economic recovery. I hope it's true—yet the US unemployment rate is still over 8%, Europe appears to be heading for a recession, and we know the US budget deficit is at record levels and will have to be addressed. With these conflicting signals, you are probably trying to figure out whether to plan for a stronger economy or be more fearful that we might have another recession. Given this uncertainty, how should you manage yourself and your business?
I don't have a crystal ball, but I would suggest three steps that will help you better navigate this period.
1. Figure out your biggest risks, and do something about them. Now. Think of the biggest exposures you face; loss of a major customer, a significant drop in sales due to a weak economy, or even a catastrophic health event in your family. Consider taking actions NOW that could help you mitigate these key exposures and weather unforeseen negative events. This could mean running your company (and family) expenses leaner, being more aggressive in reducing your debt if possible, and keeping more cash/liquidity than in the past.
You also want to be smart about the risks you are taking. Taking risk is part of business, but you don't want to take chances that are "asymetrical"—they have modest potential upside but, in the event of a downturn, could create catastrophic losses. This means more heavily scrutinizing decisions that could cause you to bet the ranch financially or push you to be over-extended.
These precautions should prepare you to survive periods of greater economic volatility and set you up to have the dry powder needed to take advantage of compelling new opportunities.
2. Do the "clean sheet of paper" exercise. What worked 5 years ago is not as likely to work today. The world is changing rapidly (technologically, globally and economically) and you must be willing to adapt. This means you need to take a fresh look at your business. Does your strategy still make sense? Have your customer needs changed? Do you have the right people and are you organized in the right way? Do you need to change your leadership style? All these questions get at the issue of whether the design of your company is still aligned with achieving your goals.
For an individual, this exercise may mean re-assessing your investment portfolio and other key aspects of your personal financial management.
Asking these questions is easier said than done. Some people are too emotionally close to their current way of doing things or are too isolated to recognize that they have got to make changes! If this sounds like you, I would suggest that you give this assignment to 3 or 4 of your up-and-coming stars. Ask them to do a "clean sheet of paper" analysis over 3 or 4 weeks and come back to you with recommendations. Remind them that there should be no sacred cows. In my experience, you will get great advice, motivate your key people and identify critical changes that need to be made.
As a leader, one of the biggest risks you face is isolation. There may be looming problems that you don't recognize and aren't hearing about. Doing the clean sheet of paper exercise will help you puncture this isolation and make the changes you need to succeed in a difficult environment.
3. Act like a leader. Keep your cool and don't play the blame game. The biggest potential casualty of this recent downturn won't be money—it will be confidence in your leadership. When things go wrong, do you blame others, shrink from taking ownership, fail to give credit when due or lose your temper? All these actions cause you to lose the respect of your people. Money can be recovered, loss of confidence in your leadership often can't be.
Tough economic conditions can bring out the worst insecurities in all of us. How you behave under this type of pressure sends a powerful message to your people about who you are, what you value, and how they should behave.
I see leaders every day who blame past leaders, get angry and engage in behaviors that distract and demoralize their staff. They miss an enormous opportunity to focus their people on the future.
This is a time to take ownership and look forward. You don't want your people looking over their shoulders. You want them thinking about opportunities and how to solve problems. You need to act as a role model for this type of behavior.
The next few years can be a time of great opportunity even though it will be uncertain and challenging. If you focus on managing your downside risks, regularly re-think how you do things, and act as a a role model, you have a great chance to thrive and grow stronger during this period.