This article was written by Joe Galvin
Business leaders started 2020 on an optimistic note. That was the key takeaway from the Q4 2019 Vistage CEO Confidence Index, which surveyed 1,604 CEOs from small and midsize businesses. The Index turned upward for the first time in seven quarters, indicating the U.S. economy was likely to expand in the near future, barring unforeseen economic shocks like the Coronavirus.
While we are seeing the impacts of the COVID-19 on various industries in the short term, the long term projection is still for growth in the latter part of the year. Alex Chausovsky, a market analyst from ITR Economics, the oldest privately held economic research and consulting firm, also sees signs of an economic upswing on the horizon. “The economy is slower today and likely will slow further during the first half of 2020. The industrial economy is a different story–we’ve been expecting a mild recession in that segment of the economy for quite some time now, and the impact of COVID-19 could exacerbate the downturn. We’re monitoring the data very closely to see how things develop” Chausovsky said, when asked to update perspectives he shared in my company’s annual CEO Projections report. “However, we are expecting the emergence of the next rising trend in the second half of the year.”
How to prepare for the return to growth
For business owners, this stage of the economic cycle presents a unique challenge, which has become even more challenging based on the pause caused by the coronavirus. You have to prepare for prosperity at precisely the moment when business conditions will feel weakest on the ground.
To manage this challenge, Chausovsky offered CEOs the following advice:
1. Begin laying the groundwork.
If you wait until the economy rebounds to develop and implement your strategy, you will be too late. Instead, start making preparations prior to the low point of the business cycle.
2. Get your timing right.
Some companies lead the economy–that is, they experience changes in the business environment earlier than the overall economy–while others lag it. As CEO, you want your business to be at a low point before investing for the next growth cycle so you can capitalize on any excess capacity.
3. Make talent a priority.
In many down cycles, reducing staff is normal and a good plan. However, due to the tight labor market conditions right now, rather than reducing your staff, invest in employee retention and training so you’re set up for success when the economy improves.
4. Invest in technology.
Utilize cheap money with the long-term in mind. To improve your firm’s productivity, consider making investments in automation or robotics now so you can outperform your competitors later.
5. Focus on profitability.
Remember why you’re in business. It’s not to grow top-line sales; it’s to make profits. As the economy improves, expect labor and input costs to increase. Attention to profitability now will pay dividends in 2020 and beyond.
Maintaining fiscal discipline is critical for the short term, while growth is gaining momentum. Continuing to measure how your business performs, while also staying on top of how quickly things are changing, will tell you exactly when to take action to capitalize on the next growth cycle.