This article was co-authored by Ashford Chancelor, Dallas Practice Manager & Consulting CFO with vcfo, and Paul Hagerty, Sr. People Operations/HR Consultant in vcfo’s Dallas market.
What a time to be alive and in business. Depending on one’s perspective, that phrase either evokes genuine excitement, deep concern, or both sentiments at once. The reason for that is that we are now living and doing business in a time unlike any we as individuals have ever experienced – a powder-keg-combustible period marked by extreme polarization and compounding disruptions happening as previously unimaginable innovations and opportunities are simultaneously emerging.
Pick virtually any period and one will find a familiar bell curve continuum – one end populated by businesses that won’t make it through, a group in the middle that battles to just get by, and another end where to the market victors go the spoils. What’s critical to understand today is that the intensity of the environmental factors we now face is going to be matched by a similarly intense and concentrated period of businesses changing positions along this continuum – some for the better, and some for the worse.
Here, we look at how one’s ability to adapt in these turbulent times will determine whether your business sinks, survives, or succeeds.
Resolution will be a Reality
Let’s start with good news. While we as individuals have never experienced times and obstacles like these before, our nation has and emerged from them triumphantly before. We wrote about examples of this in a recent crisis navigation post – historical events such as The Great Depression, World War Two, and the 2008 financial crisis all being followed by periods of great prosperity and innovation.
The peaks of these periods brought about reckonings that forced society to change and adopt new ways for people to live and work with one another. Those who wouldn’t or couldn’t get on board with the changes struggled or, worse, failed, while those that shaped and embraced the waves of change surged ahead and reaped rewards. That’s the type of moment we are in today – one in which doing business as it has always been done will not get businesses where they want to go.
Seeing and Shaping What’s Ahead
Given the backdrop above, the management team that’s gotten a business this far may not possess what will be needed to get the business through the next phase. Specifically, doing business in turbulent times requires leaders with open minds and remarkable foresight. A CFO that’s great at closing the books and ensuring everything is reconciled is wonderful to have, but are they also innately wired to see and assess what’s coming (threats, trends, new technologies, changing systems) from far in the distance and to then translate those things into strategic dialogue, adaptations, and recommendations?
This is not a time to fall into a confirmation bias trap of “I think I know my people pretty well.” Tools abound that can shed meaningful, objective, and data-backed light on the makeup of one’s team. Use them. Personalysis is one such tool that enables an organization to identify and leverage individual strengths and to see where gaps are present. It describes those foresight-laden individuals noted above as people who are “motivated to anticipate the future and create clarity. They focus on context, purpose, and potential impacts. They are sensitive to subtleties, are curious, and innovative.”
Positioning Your Financial Profile
Turbulent times mean more storms will need to be weathered and capitalizing on opportunities will call for a different financial profile than the one in place under calmer conditions. Generally, businesses will need to have more equity and liquidity amid turbulence to enable the adaptability and storm-proofing we spoke of above. Below is a great historical example of this that also highlights the importance and value of leadership foresight.
In 2006, before the financial meltdown that would come two years later, Ford Motors chief executive Alan Mulally sought investor funding that he said would “cushion to protect [the company] for a recession or other unexpected events.” At the time, naysayers described the move as foolish and desperate. Fast forward two years. While rivals General Motors and Chrysler were compelled to borrow $17.4 billion from the federal government to stay afloat, Ford’s pre-emptive moves allowed the company to remain on a path of independence and transformation that vaulted it above the competition and continues to pay dividends.
Right now, leaders should look to their balance sheets to understand their company’s current liquidity profile, identify opportunities for increased liquidity, and assess whether liquidity traps may be present and in need of removal. With cash, the time to liquidity is instant. Accounts Receivables, however, often include a mix of relatively liquid and illiquid assets depending on payment terms, agreements, and other factors. Inventory, marketable securities, and other assets have still different liquidity characteristics and variables at play. A clear picture of both the company’s current liquidity profile and where it needs to be will set the stage for defining how to get there.
Adaptation and Avoiding the Bite of Inaction
In the overwhelming majority of strategic planning conversations we have with clients, concerns cited by owners and executives tend to center on easy-to-latch-onto factors like inflation, staffing, or supply chain problems. They rarely, without impetus from others, go as deeply as is needed to understand the larger drivers of these issues and what they say about their business. In other instances, leaders acknowledge the presence of such drivers but rationalize a mindset of not believing their business or market will be impacted by them in a meaningful way.
Don’t let a return to what some might call a sense of post-COVID normalcy lull you and your business into a vulnerable state. History and an array of present signs show us that we are heading into a period of increasingly intense turbulence for businesses. The degree to which a business can put the right people in place to see and understand these signs while achieving and maintaining the financial profile needed to navigate accordingly will determine whether it sinks, survives, or truly succeeds moving forward.
Could your company be doing more to safely navigate turbulence and emerge in a stronger position? Request a Free Consultation from a vcfo expert who can help. We’ve partnered with more than 5,000 businesses in our 26+ years and would love to share our expertise and experience with you.