While we usually address trends in this newsletter, it’s hard to predict those without discussing the state of the economy. And truthfully, I know much more about trends than the economy, so I found this article on McKinsey’s site very informative and helpful. And though McKinsey typically addresses big business concerns, there’s a lot small businesses can learn from this as well.
When you balance the “very hot” economy with the signs of an economic “slowdown,” you’re left with the question, “Is this the end of a boom, the beginning of a bust, or something different?” In its most recent survey of business executives, McKinsey found that over half think a recession is coming soon, while almost half believe it can be avoided.
McKinsey says its research shows that the moves companies make now could significantly impact their futures. And they say most businesses fall into “one of four camps” regarding readiness to withstand whatever is coming.
Companies that are “poised to thrive…enjoy relatively inelastic demand for high-margin products, find it relatively easy to attract and retain talent, and have blessedly simple supply chains. Financially, they have strong balance sheets, low leverage, and ample cash.”
Other businesses are “more constrained.” They’re more “susceptible to a slowing economy, [may have recently lost] market share to new entrants,” and have “thinner margins, labor challenges, and more complicated supply chains.” These companies can resolve to reform.
Then there are those businesses that “face a fight to survive. Their balance sheets are loaded with debt, and their cash reserves are dwindling.
The fourth group consists of mostly newer businesses that so far have “focused on growth and market share rather than profitability.” However, if they do not pivot to profit, more funding will probably be harder to find.
McKinsey says all four groups need to build resilience “through foresight (understanding the challenges and opportunities disruptions cause), response (mitigating challenges while taking advantage of opportunities in real-time), and adaptation (longer-term strategic pivots to emerge from the disruptions stronger and better positioned for growth.” This, it adds, will help you be more sustainable.
There are so many details in the report; I really encourage you to check it out.