As the coronavirus makes headlines across the globe, people are not only stressing about their physical well-being but are concerned about the stock market and their money. Last week, the Dow had its biggest one day point drop in history, plunging 1,191 points.
There is a lot of uncertainly when it comes to the coronavirus. If there’s one thing we know, markets don’t like uncertainty. With growing widespread fears of a recession looming, there’s no better time than the present to prepare your business.
As a business owner, your company is your Golden Goose, your pride and joy. To grow and nurture it, you worked countless hours and sacrificed time with family and friends—not to mention forfeited sleep. When you see the axe of a recession swinging down on your goose’s head, you’ll do anything to make sure it survives.
Keeping your Golden Goose alive in a downturn is your top priority, but that doesn’t make tough decisions, like laying off valued employees, any less difficult. The hard truth is that you’re simply not going to survive without a lot of pain unless you have a written plan in place to deal with hard choices. We call that plan an “Emergency Brake,” a tiered system of cuts to be activated when certain predetermined metrics are reached.
In this article, we’ll explain why you need these tiers in place before a recession strikes and how to define them for your business so you can weather the downturn with minimal damage and pain.
Why You Need an Emergency Brake
You might be thinking, my business is recession-proof; I don’t need an emergency brake! Maybe you already have a solid plan in place to get you through the next recession, but you can’t control all the factors. This is why every thorough recession plan needs an emergency brake.
It’s a failsafe that could save your business from catastrophe in a worst-case scenario in the same way an emergency brake saves a careening, out-of-control train. Sometimes, things go off the rails and the best thing you can do is prepare ahead of time to minimize the damage.
The beauty of having a tiered emergency plan, meaning you make cuts commensurate with how bad the situation has become, is that it eliminates the stressful, sometimes heart-wrenching decisions that leaders usually have to make during these times. Because everything has been laid out in advance, there’s no uncertainty about what needs to be done. All that remains is to execute the plan if and when the time ever comes (and recessions always come around).
If you set your tiers strategically, you will stay calm and not be tempted to make any rash (not to mention dangerous and illegal) moves like committing insurance fraud! Fear and uncertainty can cripple you and your business in a downturn and cost you a lot of money; that’s why you need a plan for when you are going to pull the Emergency Brake.
The best time to start creating your plan is now, so let’s take a look at how to define your tiers and the triggers that activate them.
Find Your Canaries
To set your tiers, you first need to figure out how you’re going to know trouble is approaching. It’s different for each organization, which is why you need your own custom canary in the coal mine.
If you’re not familiar with this expression, it comes from the days when miners literally took a canary down into a mine. They knew that if the bird fell off its perch, it meant there was too much carbon monoxide, and they better get out of there.
Your canaries should be the metrics in your business most likely to change your behavior. There are many potential answers here: revenue, profit, backlog, or pipeline, for example. Choose one or two that have the most impact on your business.
Once you’ve chosen your warning-sign canaries, you’re ready to set Tier One, which is where we’ll pick up in my next blog!
Jonathan Slain has seen how businesses with successful leadership mistakenly hit plateaus. Now, working exclusively with founders, owners, CEOs, and management teams, Slain uses that experience to help best-in-class companies worldwide achieve their vision of success.
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