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3 ways a downturn can encourage smarter decision-making

Judgment calls from the leadership team may come off extra decisive.

3 ways a downturn can encourage smarter decision-making
[Image: syolacan/Getty Images]

Even in the best of times, business leaders face a host of challenges. As an executive, I have learned that running a company requires foresight, perseverance, creativity, and, most important of all, a team of talented and dedicated individuals. When the economy becomes turbulent and uncertain, strong leadership is more critical for business than ever.

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What makes an effective leader has a different meaning for each individual person. It’s influenced by disparate life experiences, and it tends to change over time. But regardless of the different types of leadership, a recession amplifies the qualities of a company’s leadership. During periods of economic turbulence, massive shifts in the economic landscape allow some companies to thrive, while for others they can be detrimental.

Having successfully navigated the recession in 2008 heading my cloud technology company, I believe there are a few philosophies leaders can follow to minimize the impacts of an economic downturn on their business and take advantage of resulting opportunities.

Take bold action despite uncertainty

Life is uncertain, and business is even more so. But as a leader, you must be able to make and execute decisions promptly and without hesitation.

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Decisiveness is most crucial during times of economic uncertainty because the delayed execution of your company’s plan to combat the recession can result in a “death spiral” of reactively chasing declining revenue. On the other hand, preemptive and decisive measures can position a company to operate proactively—even allowing for more cash and room to maneuver.

With the right strategies and people in place, leaders can be more confident in their company’s ability not only to survive but to thrive during a recession. Your executive team is crucial to keeping the company focused on its strategy and operating with a sense of urgency during times when the margins for error are nonexistent. Always stay vigilant while you enable and guide your capable and experienced team to execute the business strategy.

Lastly, focus on what you need to get right and stop worrying about all the things that could possibly go wrong. Though there will always be some level of uncertainty, unless there is a compelling reason to change course, focus on achieving your ultimate objective. Initiative, assertiveness, and discipline are key to operating in any situation, and clear guidance will promote motivation and better teamwork.

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Be prudent but not defensive

When markets are turbulent, businesses typically become more risk averse, a natural reaction to economic uncertainty. The first inclination of many leaders is to tighten budgets and shed any unnecessary expenditures. This can include rightsizing the company’s workforce and curtailing certain programs and activities within the company, or doing away with them altogether. Oftentimes, this is the appropriate reaction to assure a proper runway, but knowing what is necessary and what is unnecessary to sustain a company is not always so clear.

Scaling down personnel and programs too drastically can create more problems than it solves. While companies are inclined to reduce operating costs to weather the storm, it can have the negative impact of stifling growth and innovation during a time when it is the most crucial for a company’s survival.

Once a business’s leadership has determined the best strategy for the company to follow, they need to ensure that resources are promptly allocated to the right places. Again, taking decisive measures early on will give your business more latitude to operate strategically and allocate its resources appropriately.

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A downturn is most commonly seen as a hardship for businesses, but it can also be an opportunity. When many companies are scaling back, there is an opportunity to make great strides in the marketplace with innovative products and services. When innovation slows, it leaves a hole in the market that bold, audacious new innovators can step up to fill.

Nurture your workforce

Even during periods of prosperity, executives and senior leaders must recognize the importance of surrounding themselves with people who have more knowledge and experience than they do in every function to build and maintain a sustainable organization.

Then, leaders need to serve as a guide and mentor to help their team members grow. After all, if your team members can’t grow, neither can your business. Nurturing talent within your company delivers better business results, helps retain talent, and supports business growth because that talent will lead your company in the future.

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The stronger your team is, the better you can execute on your company’s vision and goals regardless of economic conditions. This philosophy is even more critical during an economic downturn, but leaders shouldn’t wait until they face adversity to put it into practice. It should be a guiding principle at all times. This is an area where many leaders fail.

Though the knee-jerk reaction is to cut costs, it can be detrimental to downsize your workforce in the wrong areas. Once a strategy is in place to combat an economic downturn, you must have people with the right skills in place to execute that strategy with room to grow.

This one won’t be the last

We all know that economic conditions are cyclical, and each cycle presents unique challenges for different sectors of the economy. But confronting challenging economic conditions with the right approach has defined some of the great business leaders throughout history.

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Business leadership needs to be prepared to take action during a downturn—not just cut costs. You need to anticipate these scenarios as best as possible, have the right team in place, and be prepared to take bold action. Perhaps most importantly, don’t wait until a recession hits to harden your business strategy and resources.


Lior Koriat is the CEO of Quali, a software company.

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