Where are we? It’s a question that companies around the country are asking these days, and certainly one we hear from our customers and clients.
Going back to early 2020, the U.S. economy was beginning to show cracks. Labor was tight. The yield curve, which had inverted the previous summer, was beginning to invert. The nation was feeling the effects of the China trade war. And the inevitability of a recession, ending the long U.S. expansion, was in hot debate.
The Covid-19 pandemic then intervened to deliver, from an economic perspective, a severe supply-and-demand shock. After this initial shock came more disruption in the form of Delta and Omicron Covid variants, and the Russian invasion of Ukraine. Results of these rolling disruptions have included broken supply chains, product shortages, the largest number of unfilled jobs on record and the highest inflation in 40 years.
After initial slowness in response to the inflation threat, the Federal Reserve has raised interest at an accelerated pace since March in an effort to rein in price growth. However, the return to a more smoothly functioning economy will take time – and some pain.
Global Reach, Local Impact
For individual businesses, this complex combination of domestic and global events and forces means that three things have happened: Costs have increased, labor is more scarce and more expensive, and the cost of capital has gone up.
The resulting margin squeeze has left many business owners and managers bewildered and panicked. When these three base components – the components that drive business success – are out of whack, what do you do?
The answer is the sum total of many actions, but it starts with stepping back and realizing that, at a high level, this actually is business as usual.
The economy has always gone through ups and down, booms and busts, recessions and prosperity. Every decade of the last century has seen major events and trends in which many businesses have failed and others have thrived. And in every one of those times, businesses that have made it through have adhered to a few key principles.
First, it is crucial to stay close to your customers, your suppliers and your employees. Talk with them. Be upfront and honest. Figure out where they are struggling and what they need. It likely will be somewhat different than it was just three years ago.
Instead of just pushing your product or service, engage with customers and develop real relationships. Once you start talking, keep it up.
Then, figure out your competitive edge. Listening is the first step. Next is taking in the information you’re learning and adapting it to your organization.
Can you meet some of the needs you’re hearing about from customers and prospective customers by adding real value to what you’re already offering? How can you adjust, whether through internal operations, management, partnership development or other?
This is how to determine and hone your competitive advantage – in your industry, in your area, among your competitors. It often means listening in a way you’ve not done before, and developing ways to differentiate through an unfamiliar lens.
This doesn’t mean that every company should make a dramatic shift. It does mean that businesses must take a new look at what their customers and prospective customers need now, and that they must be open to change in ways they may have never thought of before.
Businesses that can manage well in a volatile economy will have a better chance of making it. This is a time to reevaluate, reassess, and refocus strategy and tactics. Scrutinize processes and procedures, particularly in line with the customer needs you have identified.
Ask yourself: Are you looking at order sizes? Can you minimize shipping costs? Is it possible to make it easier or faster for customers and suppliers to do business with you? Is this the time to fine-tune your supply channel or narrow your offerings?
Remember that when things are going well, details are less important. Now, though, every detail counts.
Don’t overlook employee operations and relations. What kind of environment are you creating for employees? No matter what the industry, businesses with limited ability to attract and keep labor will suffer. Where can you up your competitive edge in the hiring and retention areas?
Level the Noise
Things may just get worse before they get better. But they will get better. Inflation will come down. The demand-supply equilibrium will be restored. In the interim, business owners and managers can put their heads down and follow the best practices that separate good business from bad business.
There will always be turmoil and noise. It’s your choice whether to get caught up in it or not. You can turn down the volume and get to work navigating a different economic environment than we were all used to.
In doing so, you may see your business survive and thrive. And you’ll be putting yourself in a much better position to handle the next economic shift…because we all know it will happen.
Chuck McKay is vice president of corporate development at Mitsubishi HC Capital America, a Norwalk-based provider of customized financing solutions for a wide range of industries, including work trucks/transportation, clean technology/mobility, manufacturing, construction, IT, staffing and healthcare.
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