Planning for economic downturns helps set your business up for long-term success.
Two important numbers came out last week: the second quarter GDP figures showing growth over 4 percent, and July employment records showing the highest employment rate in almost 18 years. Additionally, Apple became the first trillion-dollar company by stock market value. Many people are celebrating these numbers and other positive economic numbers, but experienced leaders know that business is cyclical and what comes up must come down. On the near horizon are more recent employment numbers which do not reflect the potential impact of new tariffs, and we all know GDP only offers a snapshot in time, not a prediction of future conditions.
Business leaders think ahead and recognize that during the good times it might seem like the spigot of cash will only increase, but in reality, there is a downturn around almost every corner. While there is much to celebrate in current numbers, there are also many unknowns. Continued growth could be short-lived, or it could last for several more quarters. Eventually, things like interest rates, fuel costs, political instability and the impact of tariffs could dramatically alter the current trajectory.
Leaders are planners and act in the present moment, harnessing the power of now to create sustainable businesses. Businesses can withstand tough times, and if you stay in business long enough, tough times are guaranteed to come. Companies like Coca-Cola, Cigna and JPMorgan Chase & Co. have withstood wars, depressions, social upheaval and technological change. They’ve adapted, been nimble and prepared well for transformation. The takeaway is that if such a diverse array of businesses can manage change, your business also has the ability to not only withstand downturns, but even prosper in them.
Creating a sustainable business is not only a function of good luck and good products, but also leadership that recognizes the challenge is not how to prosper during the good times, but in knowing how to create longevity by harnessing the people and resources of the moment to create sustainability.
What actions can leaders take in the present moment that will pay off in the future downturns? Here are three key leadership actions that can facilitate this success.
Pay attention to quality
In my business, I have always lived by the philosophy that there is no competition if you are the best. I have not surveyed the competition to compete on price, nor have I cut corners to maximize profits. Instead, I have always focused on simply offering the best products I can to increase profitability. Consumers seek out things that last, and if you create a quality product, your business will last as long as your products do.
Companies often rush to take advantage of a hot market and assume they will have the ability to service defects or improve products as they enter the market. But perceptions can sandbag the long-term success of any business. The Iomega Zip Drive was a life-changer for me in 1994 when it gave me massive new storage capacity, but quality problems doomed it, leading to PC World rating it as the 15th worst technology product of all time. It became a flash-in-the-pan rather than an industry-changing standard that could withstand the test of time.
Build a loyal team
Leaders prepare for the future by not only creating strong products, but also by building strong teams. Investing in training and teambuilding has payoffs that can withstand the downturns of the future.
Employees are willing to stand by a company in tough times when the company rewards them in good times. During the last major recession when many companies laid off employees, companies like Apple refused to fire anyone. Apple built its trillion-dollar business not through acquisitions and mergers, which result in layoffs, but by investing in their own vision. Not every product has been a home run for Apple, and some have been failures (Apple Newton, Apple Pippin, the “hockey puck” mouse), but Apple has fiercely loyal employees and customers. They have always said they would stick by their supporters, including employees, and they always have. The loyalty of the team has always been paramount at Apple, and the market cap of a trillion dollars this week shows what the results can be.
Apple isn’t the only company to foster loyal teams. Even small businesses can value the individual and create a supportive team. By creating a spirit of comradery and a policy of transparency, companies of all sizes can build teams that band together over even the most turbulent economic times.
Leaders bank projects and ideas for the future
One of the hardest things leaders can do is to save a project or idea for the difficult times. Just like cash in the bank can take the sting out of a downturn, strategically holding these resources for the right time can make a huge difference. In my business, I almost always withhold a brilliant marketing idea for release in the summer months. Summer is seasonally slow for me, and knowing I have an ace-in-the-hole for the summer always helps me avoid ruminating or fearing the lean months. By doing this, I have consistently created enthusiasm and buy-in during a time when I used to draw a big red “X” across August in my calendar.
It is hard for leaders not to pull the trigger as soon as a good idea or innovation presents itself. By banking these, just as we use cash, we can avoid the booms and busts many other businesses suffer from.
Leadership is not only about maximizing profits, but also creating sustainable business. The methods articulated are proven strategies for sustaining business. These are the foundations of success for businesses that last a century, or even a millennium. And ultimately, leadership is about transforming the power of the moment into something that can stand the test of time.