How To Navigate Your Business Through Economic Downturns
What advice are you giving to businesses as they navigate the economic downturn? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
There’s been a lot of conversation and concern about an impending recession. We’ve also seen layoffs hit big tech companies. Despite this, we’re actually seeing growth among our customers. Pilot conducted a study of nearly 1,000 of our customers and found over 86% maintained or grew headcount in June 2022. Nearly 60% of companies grew headcount in the first six months of the year. And despite worse revenue performance across the board in Q1, pockets of SMBs are still growing revenue. The majority of SMBs saw revenue performance pick back up in Q2 with median revenue growth trending up at 50% YoY in Q2 (vs. 13% in Q1 2022) and returning close to pre-Q1 2022 growth rates.
Regardless, it’s always important to have a close eye on your business’s health, and here’s what I’d recommend doing to maximize business outcomes in the current market:
- Monitor your leading topline indicators weekly (leads, user engagement, sales pipeline, etc.). If a new customer acquisition trends below expectations or if customer churn is higher than you expect, you’ll need to react rapidly.
- Reduce discretionary spending such as travel and entertainment costs and unused software licenses. Make sure that you and your executive team understand all of the options for increasing runway, and what tradeoffs those imply.
- Know your cash burn rate, your forecasted burn, and how much cash runway you have. If you have less than 18 months of runway, you’ll need to act quickly and decisively.
If your business is looking to increase profitability, you should look into the following:
- Increasing revenue: Can you sell more, either to new customers or existing customers? Can you raise your prices without materially hurting demand for your product or service?
- Improving gross margins: Can you reduce the costs of providing your product or service through increased efficiency without impacting customer experience?
- Improving payment terms: Can more of your customers prepay for longer periods of time? (e.g. can you get more of your customers to prepay annually?)