I have traded through at least four deep recessions in my career, and many downturns. In a prior post, I shared some of that experience, and in my last post, I discussed risk factors for companies to consider so they can shore themselves up ahead of the next inevitable downturn.
Here, I talk about the people, both those you choose to keep on your team, as well as you and the decisions you make that can make or break your firm.
The Right People?
Here are things to consider about those you are surrounding yourself with.
All-star reliance. Does your company rely too much on one or two recruiters? You are proud of your 10-person, $2.5 million business, but if the reality is you have three admin staff, and two of the recruiters account for $1.5 million between them, if the market drops and one of the big billers leaves, the tiny billers become almost zero billers. Turn out the light and shut the gate.
Lightweights. On the other side of the coin, and this may sound harsh, but are your recruiters lightweight? Flat track bullies? In other words, they survive, even look good, when the orders are flowing, and the times are merry. But in truth, they have no depth of relationship. They are order-takers and résumé-flickers. They can’t sell, network, or open doors. You need to evaluate this now. If that revenue dropped as described, who would have to go? Who would you keep? Would anyone be able to survive the post-apocalyptic recruiting world?
Extraneous staff. Do you have a fat layer around your belly? Lots of non-billing managers on high salaries, doing … what is it they do again?
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Leadership Failings
And then there’s your own ongoing management. Are your decisions and behaviors setting your firm up for success? Or failure?
You don’t read the signs. History has taught us that speculation and bubbles are the prelude to collapse (the dot-com crash, and the US housing crisis are just recent examples). I am not suggesting you can “time the market” to perfection. Or that you should be economic experts. But be aware. Sniff the air. Be paranoid.
You are seduced by the good times. You never talk about the possibility of a recession. You don’t run scenarios like the one I describe. You never prepare downturn cash flow projections. You don’t consider your strategy. You sail on merrily, until you fall off the end of the earth.
You get seduced by revenue growth over profit, and most important, you forget the importance of cash. Remember: Revenue is vanity. Profit is sanity. Cash is reality. You allow your debtors days to blow out, when in fact you should be managing this like a rabid honey-badger on crack.
You have too much debt. You borrow merrily because you have the profits and the cash to service the loans. You talk earnestly about a balance sheet that has good cash reserves as being “lazy.” You even borrow money to pay dividends.
You act too slowly. This is where you see revenue dropping. The signs are there. However, you convince yourself it’s a “blip.” You tighten the belt a little and let one person go. Two months later it’s getting worse. You chip away at the expenses again but hold on to “nice” people who you know can’t bill in a downturn. The next month it’s worse, and you are hemorrhaging money. But still you believe the worst is behind us, and you change the Friday beer to a cheaper brand as a nod to frugality. This is death by a thousand cuts. It destroys morale and, in the end, you are chasing your tail, never getting costs down low enough.
A quick, deep cut, a real restructure, while painful, will get you fighting fit and believe it or not, is better for morale. Not the day it happens of course. But once done, and explained, we move on leaner and better equipped to thrive in a world of less money.
So smart recruitment owners always build a company that can reap significant profit in an upswing but can hunker down fast in a downturn and is highly resistant to revenue falls.
But prepare now.
