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February 21st, 2023
Every downturn is unique, impacting different industries and sections of society in different ways. During Covid, the leisure and hospitality industries suffered, while tech was on the up. In the financial crisis, it was financial services that felt the pinch, and thousands lost their jobs. This time consumer sectors are on the front line, but from an employment perspective, we have the opposite problem. Unemployment is still lower than prior to the pandemic, and skills shortages are widespread.
This leaves business leaders in uncharted territory, trying to drive growth while struggling to hire the skills and talent they need. Situational experience - relating to how a company responds to the market and creates value - is highly valued during challenging times, but what happens if you’re living through an unprecedented situation? Leaders who have previously navigated a recession – or more than one – are in high demand in the current climate. But few, if any, will have navigated an environment like this, where stagnant growth and a cost-of-living crisis have combined with an acute labour shortage.
Can businesses grow without hiring?
High-growth PE-backed businesses are under pressure to drive outsized growth within a defined timeframe. But how can they deliver that, or even maintain current productivity levels, if they can’t hire the right people fast enough? This is the biggest challenge facing businesses now, and it threatens to hit revenues and profitability.
Yet, if an experienced leader tries to follow their playbook from previous downturns, they are likely to come up short. In past recessions, firms have used staff reduction to boost profitability. But in the current landscape, the pressure is on to hire and hang on to staff, while simultaneously keeping control of budgets; a difficult balance when wages are rising, and employees are looking to progress in their careers.
An alternative route to growth?
Overcoming a unique set of challenges demands leaders who are prepared to think differently in how they interpret and manage the opportunities and risks ahead. If you want to emerge stronger, mothballing the company for 12 to 18 months simply isn’t an option.
Bold decisions need to be made. Do you sacrifice profitability by increasing salaries and benefits to attract and retain the best people? Do you capture growth through acquisitions, as valuations fall? Or do you secure investment to fund business transformation, for example by digitising your products and services to drive efficiencies and growth?
Leadership character
Business is about imposing your will on the world around you, and more than anything, the coming year will be a test of character. During challenging times, good leadership gets ahead of the challenge and turns it into an opportunity; withstanding immense pressure to make the right decisions. It’s a skill that can’t easily be taught along with technical competence.
The behaviours that will be most important in today’s leaders are proactivity, self-efficacy, curiosity, and low fear of failure, accompanied by the realism to know whether a team has what it takes to deliver on the growth strategy. Yet, individual behaviours are less important than the team. Does the team capture behavioural complementarity along with a range of functional, situational, and domain knowledge and sensitivity? This balance is vital to facilitate robust discussions and ensure decisions are tested with the right degree of stress.
Who will rise to the top?
While all downturns are different, there are always companies that rise to the top by making the right decisions at the right time. There’s a famous statistic that half the Fortune 500 was created during an economic downturn, including household names such as Microsoft, General Motors, and Airbnb. Unique challenges bring unique opportunities – and those with the right leadership team will ultimately come out on top.
Whether you're an investor, investee or a part of a leadership team seeking to increase value creation, our strategic consultants are on hand to guide you through your leadership journey. Contact us today.