Managing Through A Challenging Economy
This week we had our second debate, or issue lead, event. The title of the topic discussed over breakfast was "Managing through a challenging economy". Whether or not we are technically in a recession right now doesn't seem to matter, everyone believes we could very soon be in for one of the longest recessions we have known for a very long time.
And in that environment how do you run your business? Clearly all businesses will need to tighten their belts, and those that are venture backed will have to make the cash they have, from prior funding rounds, last longer (possibly at the expense of growth), or risk a down round in order to secure their future, or worse.
But it's not all doom and gloom there will be some software companies who continue to grow during this period and perhaps if your strategy includes M&A valuations of the businesses in your sights, will be much more realistic. Great businesses will remain great businesses no matter what the economic outlook.
Nevertheless it seems we are currently standing at an inflection point. I spoke to five European Software CEOs last week, all of whom said they are only just beginning to see the very first signs of a slow down in demand and change of buying behaviour in their customers. And so each was struggling with how to budget 2023.
We were at the same place, when I was CEO of Exact in The Netherlands at the start of the pandemic. We built a budget with three scenarios that we could switch between depending on what we saw; the base case (our typical budget), the downside case (weakened demand for our products), and the doomsday scenario (radical action needed to ensure survival). Happily Exact continued to thrive throughout the pandemic, as small business owners increased the rate at which they digitised their businesses as a consequence of the COVID pandemic.
"Tactics dictate strategy..." Marc Benioff
All this leads me to the need to be nimble, to be set-up to switch your plan and approach quickly. At Salesforce.com in the mid-2000s, I was CMO, working for Marc Benioff the Founder, in San Francisco. One thing he used to say to me was "tactics dictate strategy". He was simply saying that as we executed our plan, based on what we were doing and what we saw, we should be able to update or amend the strategy. Our vision and strategy were not handed down from on high, and set in stone. They were based on our real world observations of what worked and what didn't, in an ever changing environment.
And as an Executive Committee we got together quarterly to reflect on and review the business. In those days we prided ourselves on being scrappy, almost street fighting our way to success. And then each year, or sometimes more often as things changed, we would review and revise our strategy.
No Sacred Cows
With no sacred cows, we were prepared to change things radically if that was what we thought we needed to do. We agreed our vision and what was important to us, and wrote it down. We would identify the things we needed to do to achieve our vision and prioritised them, and agreed how to measure each item to ensure we knew when it was complete and working or not working. We also wrote down the obstacles, things that might derail us. All this was codified into a business planning method which is today known as a V2MOM (Vision, Values, Methods, Obstacles, Measurements) and adopted by many software firms around the world eager to emulate the success of salesforce.com
(in the video Marc explains the V2MOM process TikTok style in 30 seconds)
After returning to Europe, I have used this tool at each of the four companies I have been CEO of in the last 15 years. It's simple, easy to understand, and can be cascaded quickly through the organisation. Critically it doesnt leave strategy stuck in the boardroom, it helps operationalise it and make it real. And most importantly in these difficult economic times it allowed us to be nimble and change course as required.
Planning & Budgeting 2023
So if you are a CEO struggling to plan & budget 2023 as we head towards an inevitable recession, heres some thoughts that might help :
Plan different scenarios (base, downside, doomsday case), and be ready to move between them as the situation emerges...
....be prepared to be wrong, but discuss this with your team now and be sure everyone is ready to change things rapidly
With less £ to spend, get scrappy, you may need to street fight your way through the next 12-24 months of a recession.
Have everything in place so you can change direction quickly as the situation dictates
Be prepared for tactics to dictate strategy.
And if you are looking for a tool to help you clarify or redefine your vision for the business I would thoroughly recommend trying out the V2MOM with your management team.