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A recession is coming. The problem, 75% of the advice is irrelevant for service-based businesses.
We are experiencing the following:
- rising inflation
- high-interest rates
- increased lay offs
Business experts have prescribed three solutions to combat a recession.
- Cut costs
- Aim to be 1% better - the theory of marginal gains
- Look for Quick wins
You know the problem with this advice. It's irrelevant for 75% of businesses.
Why? Because it's provided through a manufacturing lens, not a services lens. Most, if not all people reading this article will be working in a service business in some form. Only 25% of modern economies’ GDP are driven by product manufacture.
Services businesses need a different set of rules to play and win.
First, let's break down the current advice and why it simply doesn't work for service-based businesses. Then we will share the tailored advice we give our service-based clients.
Let’s dive in.
Strategies for Manufacturers
1. Cutting Costs
With a recession coming, the natural response is to cut costs. Whether that be layoffs and reducing headcount, outsourcing, offshoring, automation or streamlining operations. These are the traditional ways businesses reduce costs.
What’s the problem with this approach?
For starters, you can lay off only so many employees in a service business before it starts to hurt your business. Your business experiences:
- Loss of expertise and knowledge
- Decrease in customer satisfaction
- Decreased employee morale
- Difficulty in maintaining continuity of service
Cutting costs only helps your bottom line, not your top-line revenue growth. If your goal is to stay afloat, this may be the best short-term solution. But it won’t create increased demand and future growth for your business.
The most obvious problem is that companies today are already pretty lean. Post-COVID and anticipating an economic crisis, businesses have already felt the ‘squeeze’.
Cutting costs when your business is already streamlined is virtually impossible for service-based businesses.
2. Aim to be 1% better
A step up from cutting costs is aiming to be 1% better across various processes. This might mean focusing on velocity, efficiency, and predictability. This works for a manufacturing plant, but how do you do that for a service business? How do you improve the performance of all your customer-facing people by 1% and meaningfully measure it?
What’s the problem with this approach?
To understand the flaws of this approach, you need to answer this question; what are you actually improving? Improvement means working within familiar territory. There is nothing new, nothing ambitious, nothing unchartered. You are perfecting the engineering of your products and services. But familiarity doesn't mean growth because you are contained within the limits of marginal improvement.
Organisations are great at achieving modest objectives when all the variables are largely known or within a small margin of error. But how many businesses really understand what a high-performing business feels like post-pandemic. Especially when never see most of your workforce.
3. Look for Quick wins
Though perhaps better than the last two pieces of advice, it's still not a real growth driver. Companies have been looking for Quick wins for over 15 years now…or longer. No organisation or brand has achieved great things by solving for quick wins. It buys you time and some improvements, but it never fundamentally solves real business issues. Meeting after meeting is resolved with “let's go find some quick wins”.
What’s the problem with this approach?
The problem is that business is complex. You’ve solved all the obvious difficulties. The real gains are in solving the non-obvious issues.
What if we told you that finding problems are the solution? "We need to be thinking about uncovering problems that we are not yet aware of to solve better problems that we are aware of already" (Joel Lehman and Kenneth Stanley). Problems provide us with the opportunity to learn and grow - especially during a recession.
Strategies for Service Businesses
The above advice all sounds familiar and achievable. However, it won't drive any tangible results for a Service based business. There are two pieces of advice we are giving our clients and acting on ourselves as a service-based business.
1. Customer Insight is Power
With customers feeling the squeeze as well, it is more important than ever to understand exactly what your customers need from you so that they believe they are getting value for money.
One way to do this is to reallocate wasted costs with minimal ROI to higher value and insight activities. From there, you can forensically analyse what expenses drive revenue growth and what areas are dead weight. You will be amazed at the amount of low-value time and effort expended by your people that never achieve anything tangible and valuable.
2. Innovate, service innovate, experience innovate
One of the biggest challenges for companies during a recession is to adapt and innovate. Businesses become too scared to take risks for fear that it could hurt them financially. This is a fair concern, but what people fail to comprehend is that jumping to the obvious solution is not beneficial either because you will fail to solve anything substantial. By not innovating, you will be left behind, which is just as bad, if not worse than taking a risk and not succeeding. This means embracing uncertainty.
Innovation was not born out of knowledge. It is the product of discovery. You must embark on a journey of rediscovering your business through your customer’s eyes. Each point of discovery is a stepping stone. You may not know where these stepping stones will lead at the beginning of your journey, but that doesn’t devalue the approach. You'll find that the more you discover, the closer you become to innovative solutions.
Why is that?
The problems destroying your prospects of success are often invisible to the naked eye. So you won’t know until you start. Investing the time to hunt for problems means that your solutions will be far more effective because you don’t waste time, energy, and money on superficial band-aids.
Catch you next week.
