Act Lean, Question Everything, and Think Globally: A Finance Executive’s Blueprint to Survive and Thrive Economic Downturns
Roei Khermosh| Aug 10, 2022
Forward: The text here below is very likely the most practical and actionable one you can find out there right now in the whole “how to survive a recession” blog genre.
Yeah, it’s a bold statement. Maybe a little arrogant. But this opening you’re reading was actually re-written after we finished editing this article – because we were in awe of how useful and applicable, it is.
Probably because Roei Khermosh wrote it, an experienced executive financier (read: it’s not his first recession)… who also happened to be the former CFO right here, at Papaya Global, where he spent years servicing and advising global businesses, studying them from up close.
Only a handful of people worldwide can share their views from such a relevant vantage point. So, buckle up.
Surviving and thriving in a global recession isn’t easy. But, then again, nothing good is on the other side of easy. That’s why the list below is not theoretical or buzzwordy. It’s not offering inspiration. All I did was try to make things a little bit more digestible and offer actual help to finance decision-makers.
The 8 points below go from the basics all the way to comparing this to previous economic downturns, with some special attention to managing a global workforce. I hope you find it helpful.
1) Don’t Panic. Think Things Through
Whatever you do, first – do not panic. Nor be impulsive. I know the pressure seems to mount by the hour in the current atmosphere. But it’s the expectation to “regroup” and “reorganize” that should actually allow you to take the time to think things through.
So, spend that time pausing and reflecting, going back to basics where you can evaluate your playbook and SWOT model together as a team.
When people say that downturns hold opportunities, part of it is that only such a climate can squeeze an honest, fruitful discussion that is harder to achieve at a plateau. Historically, companies grew much more potent when they acted responsibly and creatively during a downturn.
2) Don’t (just) Think. Act
Secondly, think positively. Easier said than done, but then, nothing worthwhile is easy anyhow.
The point is that such market dynamics, filled with uncertainties, can create tremendous opportunities on both the external and internal business sides.
Externally, I suggest you explore M&As at favorable valuations, gain new customers that are in search of a more competitive offering and fit, and – yes – also explore Win-Win opportunities in renegotiating existing deals.
In an episode from July 28 of The Journal, Rent the Runway’s CEO explains to The Wall Street Journal how her company reacted to the almost catastrophic impact COVID had on her business, how it spawned a better business model, and how renegotiating existing partnerships propelled RtR into a better, more sustainable present. It’s a good listen and a great lesson.
Internally, I obviously talk about optimizing your cost structure, as every organization has room for continued improvement that may generate time or cost savings.
3) Be Lean
And so, I also advise you to think lean.
Review your organization’s project list and re-evaluate your priorities. I like to rank them from A to C as it helps me weed out the redundant ones, find some that may overlap, or the ones that are just unnecessary when looking at things from the lens of the next 24 months.
Thinking “lean” also means looking at cost avoidance vs. cost savings. It’s easy to find the low-hanging fruits for cost avoidance (like holding off some nice-to-have, slow-progressing initiatives that will not move the needle in the next 12-24 months). But another critical route here is to return to your suppliers and partners and not only renegotiate but also strengthen your partnership by understanding what your key partners need to in order to win their battles.
Regardless, this is also an excellent time to ensure you are aiming to optimize your operational KPIs. Once you decide on a few action items, you will have to be decisive, act fast, and ensure there is proper governance and accountability in deploying the execution plan. These things can be left behind in quiet or in hyper-growth times. Now you have the opportunity – no, the obligation – to make sure that every action you make is based on expected direct or indirect ROI.
4) Question Everything
Speaking of the next 12-24 months, I advise businesses to evaluate their cash runway and key metrics and KPIs. Then, to build 3-5 scenarios (ranging in optimism from low to high), assess the need for debt funding or other measures, and cultivate both bottom-up and top-down processes to evaluate demand, resources, headcount, costs, etc.
This will provide a frame, structure, and north-star when you and your team strive to assess your vulnerability and flexibility.
You’ll also have to be very communicative about it all. From harnessing your teams to the cause, to gaining feedback from your stakeholders, to ensuring there is no gap in expectations – communication and transparency are cliches, yes, but also incredibly important tools you have in your disposal to survive and thrive through hard times.
5) Talent is Ever More Crucial
It would help if you also looked into completing a trend assessment on your people analytics’/KPIs to ensure operational efficiency per function (CS/Customer, % of HR/Finance, OPS/Quality/Output ratios). This will bring up more questions and force you to a drill-down that will help leadership assess personal ROI and efficiency, especially while evaluating against external benchmarks.
Most importantly, take care of your top talent. After all, downturns may bring decreasing valuations/comp., which may trigger key personnel to exit the organization. So, assess your top talent, middle management, and vital individual contributors to ensure you are maintaining and retaining the most valuable people in your organization, the ones who spark the internal combustion in your company’s engine. Providing a fantastic employee experience will become a strategic, competitive advantage. (but still, work on succession plans…)
6) Dive Deep into Global Payroll
Global payroll is, as you know, a gigantic line item on your budget. And so, of course, your planning is instrumental here.
Anything you can do to improve efficiency on that end – from time and cost saving to increased accuracy and compliance – will significantly impact your business. Sometimes even right away.
When it comes to workforce decisions, deep diving into your hiring lists and prioritizing it all again is a must. But, while a downturn is an opportunity to optimize headcount, it also presents new hiring possibilities – with the dynamics around us meaning new talent and cost opportunities.
7) Seek Global Opportunities
More on the global payroll/workforce management aspect, there is clearly an opportunity to shift workforce to new geos/locations with a leaner cost-base and the right expertise. This may come through M&A, as I said before. But you can also achieve it in a more planned-out and less opportunistic way.
To that end, you should be exploring your global workforce’s type of employment as it may be beneficial to transition out of or into in some locations and/or move from contractors/ employer of record to payroll or vice versa, including establishing an entity in some a new location(s). Increasing operational flexibility both on the employee and employer side can become a lifesaver, and so this needs to be examined carefully to ensure compliance is met with domestic regulations.
8) This is Not 2008 (and that’s a good thing)
In many ways, managing a global workforce and dealing with a worldwide downturn in 2022 is a very different experience compared to 2008. One central aspect is the tools at our disposal, with software solutions to manage everything from cash flow to data to HR to comp to FP&A to tax to equity to accounting… and what not.
Additionally, over 90% of the world’s data was created over the past couple of years, and the amount is growing exponentially. The challenge of decision makers today is not only to gather it but to manage it. Tools that make it easier to extract data-driven insights and actionable decisions should be a top priority.
This is especially true when you have a global workforce with various systems across the org. Standardization, consolidation, automation, accuracy, speed, and reliability all become extra critical – and beneficial.
When you can bring together your entire workforce’s information into one place with robust BI analytics, a dashboard that provides sound benchmarking, driving insights, and supports your planning process, you will gain unprecedented confidence in your decisions. Even in what feels like a time full of uncertainties.
See You on the Other Side
Overall, this downturn feels different than previous ones, mainly since the global economy is stronger and better prepared for it. Central banks act proactively and actually learn from past events. Knowledge sharing is more common amongst economy leaders, and not only because there are more global common interests – between climate, covid, and other global events.
Downturns make it especially hard for organizations with a weaker market to survive and thrive, while solid companies – definitely those with a tech advantage and strong brand –grow stronger. I firmly believe that from a macro perspective, if you can follow the (many) steps detailed here and prove a decent positive DCF (Discount Cash Flow) model with a solid ROI, you should find yourself riding the quieter side of this wave.