Recent economic headlines have been dominated by the declining stock market, rampant inflation and widespread rumors of a recession. At Armanino, we use the term “VUCA” to describe such generally adverse market conditions. VUCA stands for volatility, uncertainty, complexity and ambiguity and illustrates the many challenges entrepreneurs and operators currently face.
Times like these can separate well-run companies from those with directional or operational flaws. Forward-looking owners and C-suite executives who provide strong direction are more likely to take their business through the storm. Faced with a sea of challenges, leaders have clear opportunities to make critical changes and prepare for better times ahead.
As an entrepreneur and CEO, anticipating and managing through VUCA is a constant focus for me. We’ve helped thousands of companies – ranging from early stage start-ups and late stage unicorns to mature public companies – navigate it by implementing practices that enable them to survive and thrive. After helping build a startup and going under the hood with many unicorns over the decades, I’ve watched some of the best founders and executives position their companies in times of stress to thrive on the other side, either by a successful IPO, SPAC exit or just stable growth.
It may seem counterintuitive, but AI’s ability to assess the quality of customer relationships can actually help companies become more ‘human’.
Looking back at what these companies have done to succeed, my top tips for business leaders encountering VUCA now are to strengthen their operations, invest in digital transformation, and look for mergers and acquisitions.
Empower operations to benefit from better market conditions in the future
Companies are increasingly focused on running their businesses better during adverse market conditions so that they can emerge stronger when the economic environment improves. In some cases, companies that had focused on IPOs or financing transactions for 2022 are now delaying until Q1 or Q2 of 2023, if not later.
Operations empowerment involves understanding and communicating relevant statistics. First, does your team understand the metrics on which your company’s success is based? Second, do your employees understand those numbers and how they can influence them? When times are tough, everyone in the organization needs to understand key metrics and how they can potentially improve them so they can better recognize what they need to do and why their role matters.
We’re also seeing companies increasingly emphasizing the idea of achieving a cash flow positive state. In the past, a “profit at all costs” approach has often taken precedence. But now it’s more about identifying the best earnings and focusing on controlling costs to achieve a certain level of cash flow positivity or at least a clear trajectory towards it.
In lucrative times, companies have traditionally focused on increasing revenue by aggressively adding new accounts. During a recession, it’s critical to focus on your most engaged customers and invest in building deeper relationships with fewer loyal customers. Companies need to scrutinize key accounts to analyze the strength of relationships and strengthen those relationships. In fact, many companies are now hiring more account managers instead of salespeople to improve customer relationships and promote additional services to paying customers.
Invest in digital transformation to make your data actionable
If becoming cash flow positive and developing deeper customer relationships are important goals, then focus on technology and digital transformation is vital. Companies need to assess how they can use their infrastructure more efficiently and extract more valuable information from their data collection.