Leadership During Economic Uncertainty
What an interesting last few years these have been. Few would have foreseen a global pandemic that shut down much of the world’s physical operations for nearly two years while we watched the stock market climb, resisting correction. Those in tech sounded last call culminating in some insane valuations and acquisitions. Remember when Snowflake acquired the tiny open source company Streamlit for $800M, a possible 1333x valuation on earnings! Now the music has slowed, shifted to the minor keys, one that values the fundamentals and plan to profitability rather than the old triple-triple-double-double-double playbook of prior years calling for “growth at any cost”.
Now more than ever, at least in the last 20 years, are the effects of the macroeconomy challenging leaders that rose through good times. These leaders rose through the ranks without having to deal with worldwide drought, the Russia/Ukraine war with overt threats of nuclear war, and our own economic and possible military tensions with China over Taiwanese semiconductors. A PWC poll showed that 50% of companies are planning layoffs and that seems to already be playing out across both tech and non-tech segments. Regardless of the external conditions, we are also watching “The Great Resignation” and “Quiet Quitting” materialize internally because old management styles of over-using, under-investing, and under-appreciating are no longer being tolerated by Millennials and were never tolerated by Gen Z. There are even massively popular Instagrammers whose niche are translating, “fuck you,” in a business-appropriate manner. The people are changing as fast as the markets, what will Gen Alpha be like?
So take the following as examples of what great leaders do in tough times. The create stability and inspiration, in turn, their employees flourish.
Remember: People come first. People are your IP. Protect your people.
First, Be Empathetic
There are lives and livelihoods on the line. Be empathetic and transparent — insofar as you can within legal bounds. Even if the business is strong, layoffs from other companies and the market as a whole are not going unnoticed; people fear for their stability and their family’s well-being. Remember, earlier this year 2,500 workers at Carvana were fired via pre-recorded Zoom message from their CEO. And in 2014 a Microsoft EVP buried the news of over 12,500 layoffs in the 11th paragraph of a memo. Don’t do that. Even something relatively minor like the elimination of reimbursed lunches may impact employees who are on shoestring budgets. Every change creates impact, for some more than others.
Second, Be Honest
Reality check with yourself first, because this affects you as it does everyone in your employ. Your company may be going ass over teakettle so is there a light at the end of the tunnel or is it an oncoming train? Do you need help understanding the information to better relate it? Call upon the Board or your fellow executives to look at the situation and get clarity. Worst case, the ship’s going down and it’s critically important that you lead your team to safety.
Imagine a Navy Captain who has emboldened his sailors to bail water and man the guns after a torpedo strike, all the while he’s being lowered into a lifeboat.
Because if you’re not honest it will kill your credibility doing anything I’m about to recommend. As long as you’re honest with yourself and your team, you may not even need confidence. But you need honesty.
“I honestly don’t know what’s going to happen. I hear rumors and the reports aren’t looking good. I don’t know if the team or even myself will be here on Monday but I’m proud of everything we’ve accomplished.”
Then, Communicate
Perhaps the most important action is to simply be transparent and honest. We have an ingrained sense called ‘gut feel’ and quickly lose trust when our leaders’ messages and actions conflict. They need communication that is
clear with no room for misinterpretation or ambiguity, and check with your staff often to ensure they understand and are communicating in the same line. Communicate again and again as many times as needed so nothing is lost or muddled over time.
simple to understand and interpret the complex mechanisms at play. You don’t need nor should you explain, “Our operating margin needs improving because our gross revenues are missing projections. Combined with high cost of goods sold and increasing equipment, inventory, and payroll costs…” just say, “We are losing profitability because we are spending too much.”
concise because people can only remember so much, it’ll be good to distill the most important information and end with takeaway points. “…we are spending too much. We need everyone to 1) reduce their expenditure by 20% by November and 2) cancel all non-essential travel.
and honest above all. Take, for example, when a CEO announces that business is good one week and then announces layoffs the next. Contrast that with a CEO who says, “There are unforeseen challenges and we’re not going to meet projections. We’ll do everything we can to protect our people but there may be layoffs.” Same outcome, different message, but which would you hold in greater respect if you were one of the affected?
NOTE: Many leaders make the mistake of over-analyzing before they communicate. What this means is executives know of a situation before their team and they begin to act different, consciously or unconsciously: closed office doors, calendars are suddenly private, decisions are deferred. People are smart — they have that gut feeling — and the longer you wait the worse the distrust builds. Somehow someone will find out and then you’ve lost control of communication and the rumor mill spreads. Get out in front of the message, the details can come later.
“…but there may be layoffs. The executive staff is looking at the information and convening on Wednesday to determine options. More information will be provided on the Friday all-hands.”
Create Safe Space to Discuss
After communication, you need to create an open forum where people can ask questions, voice ideas, and express feelings. Embrace openness and cooperativity. They need to feel safe because if they can’t clarify or opine then misinformation will flourish. You need to eliminate rumor mills. At minimum,
Finish your all-hands with an anonymous Q&A so your responses are consistent and clear across the entire audience.
Then create time where individuals can discuss privately, free from crowds or influence.
Then ensure you and your staff maintain an open door policy throughout.
Assess Business Objectives
With company vision intact, leaders should assess if their objectives are still relevant to the changing business environment. This direction leads employees through a muddled mess and provides relevant inspiration.
For example, if an objective from 2019 was “Enter into and sell $500M in EMEA markets” with a $200M budget, then perhaps, given new risk with the economic challenges of Brexit and global supply chain bottlenecks, pivot to “Improve the quality of service within domestic markets by $300M through cross-sell.”
What if you don’t have a direction to communicate? Trust your team. Remember the Hollywood cliche that when shit hits the fan the team asks the leader, “What’s the plan?” The leader either has one and they band together and get out of their predicament, or there isn’t one but someone inevitably steps up and they still get out alive.
Assess Priorities
Similar to objectives, leaders need to reevaluate their priorities. Ensure projects are aligned with and tied to business objectives.
Make special priority for those that generate a quick ROI with few resources. You’ll want to show that your business or business unit is a profit center (either directly or indirectly).
Make the most of threatened or diminished resources. A good leader will cancel a project, regardless of prior investments, if further investment is fruitless; they know those resources are better spent elsewhere.
Assess the Value Chain
Maybe you’re part of a startup and you do this on a quarterly basis. Maybe you’re part of a 100y/o blue chip stalwart. Use this unfortunate opportunity to assess the layers of your value chain — from talent acquisition, to suppliers, to resale partners. Optimize for outcome, not efficiency. Efficiency is what everyone is doing — cutting costs, running tight — but I’d prefer severing unproductive resources and relationships and investing in, moreso than before, on means that produce.
Company A and B are B2C FinTech, selling a portfolio of products. When the market turned, Company A cut 20% headcount across the board to balance the books. Lower revenue balanced with reduced cost, at diminished capacity.
Company B took longer to execute their strategy, in the end they sold off 20% of the lowest margin product lines, reallocating resources to the remaining divisions and funding an innovation team. Lower revenue balanced with revenue injection and reduced cost, at increased capacity and potential advantage.
Encourage Innovation
Encourage your team’s innovation and help deliver value back to the organization. Inspire your team with a vision and let their creativity run wild. Sponsor independant projects that can be completed quickly with immediate results. Don’t wait for hard times — this should be part of a leader’s routine… unleash the power of creative minds!
“(We’re in hard times and we’ll get through this! I need your help…) Investors are saying we need to reduce our Cost of Goods Sold (COGS)… any ideas?”
A flurry of ideas will follow: Streamline the onboarding so we can get productive teams faster, build a Customer360 dashboard to inform sales of churn risk or growth opportunity, automate the RFP process to capture sales opportunities with less effort, authorize sales teams to give minor concessions to speed up our close, remove certain features noone uses to push out more releases… The outcome will surprise you. People look to you for leadership, not to have the answers.
Trim the Fat
Look to ways to save money — money before people, always. The strength of a company, or a business, of a product is the people. Always look for ways to cut business excess. Look at frictionless back-office systems and identifying front-office opportunities. Double down on profitability and abandon zombie businesses. Consolidate and optimize, bringing resources local and controlling more of the supply chain. If you’re a first line leader, eliminate superlative expenses and embrace the remote office.