Council Post: The Top Three Things Not To Do In A Cyclical Market

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The market is down 30%, there is talk of bearishness and uncertainty everywhere. Much like when Covid-19 first hit, macroeconomic trends and a sense of the unknown are deeply affecting the business landscape.

In times like these, most people have a tendency to over-correct, but this is a big mistake that can get you out of position when the market rebounds. What works well for a high-growth company like mine is to take offense, not protect.

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Here are the top three things not to do in a cyclical market:

1. Stop betting on yourself.

Market uncertainty can make you question your company, but it is important that you stay true to your business and don’t let anyone’s vision detract from your mission and plan.

When it became clear after a few weeks that Covid-19 was not going away, many businesses came to a standstill. Even our bankers wanted us to go into hibernation and protect business versus growth.

But because the company was already well capitalized and the balance sheet in good shape, I and other leaders felt we needed to buck the trend and accelerate. The team continued to bet on itself and ended June, July, August and September the best in company history, while other companies lost their market position and power.

2. Ignore your cash flow position.

Burying your head in the sand or hoping that things will blow up is a sure recipe for disaster.

Revisit your plan and take the time to do some modeling exercises for two to three years. If current economic factors persist, what can you change to keep your company afloat? Remember, you don’t need to finish your plan, but you do need to revise it.

Also, explore alternative capitalization methods, such as lines of credit, revisit your contractual terms and renegotiate agreements. For example, during COVID-19, the team reached out to each vendor to establish long-term commitments with built-in discounts, in some cases paying only $0.20 on the dollar. It was a win-win as it provided partners with stability and guaranteed income, while we achieved overall cost savings.

3. Stabilize your spending.

In a down market, it’s tempting to reduce your spending believing you should move from a growth business to an EBITDA-focused entity.

Instead, invest in your competitive advantage by doubling down on your core business with recession-proof initiatives. Following the most recent funding round in March 2022, we presented the board with 25 initiatives. By April, fearing the market conditions, what we had just planned was scrutinized a lot. The team reassured him that we were still going to do them all, but not immediately or at the same time. Instead, we stifled new ideas and consciously moved forward with proven winners, maximizing impact. We also agreed to increase scrutiny of their ROI to have visibility about the performance of each initiative.

The silver lining of a cyclical market being at the bottom means it will eventually turn back up. And by avoiding these pitfalls and taking proactive measures now, you’ll ensure that you don’t overcorrect and you’ll be in a prime position when they happen.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice related to your specific situation.


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