One year into the COVID-19 crisis, product and business leaders are still genuinely struggling with extreme shifts in their environments, professions, and personal lives.
One of the central questions I hear most ofen is whether business leaders should play it safe or whether now is the time to place strategic bets and take some calculated risks.
The good news is that we have insightful lessons from the past. After more than twenty years spent with “Corporate America,” I realize the ability to build resilience and adapt is paramount. Companies that produce the right competencies will be the winners.
But how can you, as a leader, as a manager, make sure you focus on the right thing? How do you balance your short-term efforts while preparing for a bright future? What alignment should you seek with your CFO?
Let me share a few principles I’ve seen work over previous periods of profound economic challenges. They can be your North Star for today’s situation.
#1 — Forget your P&L for now. Focus on Cash!
It’s hard to generalize one approach to successful financials. Still, I’ve observed that teams tend to focus (reactively) on their budgets in crisis times and obsess over how to cut their spending. It’s a recipe for disaster, as you’ll likely let your finance team make the critical decisions for you. You’ll soon jeopardize your teams’ future, and uncomfortable discussions will take place (if they have not happened yet).
Here’s rule #1: even if you are in charge of your own P&L (Profit & Loss), you’ll do yourself and your company favor to consider cash is King! To shift your mindset, study your balance sheet. You will identify better ways to increase future cash or cash flow projections. The balance sheet really gives you more visibility on how the money flows between your assets and liabilities. But how can you do this if you’re not directly managing inventory, accounts receivables, or accounts payables? Here’s where product and business leaders can do their part:
#2 — Rethink costs under your watch.
Focus on variable costs, as they tend to easier to fix in the short-term. In case labor is a significant part of your cost structure, you know you have better alternatives than devastating layoffs, like hiring freeze or redistribution of work. Along these lines, look at your fixed costs and understand how you could convert them into variable costs. I’m not advocating that you lay off your whole team and hire great consultants instead! But look at how you can increase your flexibility by selling some of your assets and lease them back as an example.
Your supply chain and operations teams will likely do the heavy lifting on transportation options and warehousing. Yet, consider partnering with them on contract manufacturers if you are using such suppliers. Seek how you can turn more of your non-recurring engineering costs (NRE) into variable costs or waive them. Start with the product design, as the vast majority of your product cost is dictated by decisions made during the design process. Standardized and multi-sourced components are a rule, but you can help with BOM scrubbing (Bill of Materials) and initiate alternate designs with lower-cost elements.
The levers will obviously differ if you’re a SaaS-only business. Still, the principle of cost optimization remains the same. Take an audit of your key suppliers. Apply the 80/20 rule and focus on the top suppliers that fall under your P&L responsibility. Reconsider your major cost items with them for present (if possible) and upcoming developments. It’s also a perfect opportunity to rethink payment terms: moving from 30 days to 60 net makes a real difference these days!
#3 — Help rationalize the channel strategy.
In times of crisis, you should walk away from the lowest profit channels and focus on distribution channels with higher margins and more favorable payment terms. It’s not as easy as it seems, though. You will likely face a lot of resistance when relationships were established for years. Still, if your sales team is too focused on “farming” with the same accounts over and over, help them elevate their plan. The outcome should be a clear articulation of your channel landscape, the key players, their operating-mode for success, and expected penetration.
Remember, you don’t need to be everywhere. You have to be in the selling destinations that matter the most to your buyers. With this in mind, favor the high–velocity channels that show growth these days (probably online marketplaces). Reduce emphasis or eliminate presence with the high cost and slowing channels (think of traditional resellers with significant overheads and losing share). For more on this, just read the article I wrote on the “Top Secrets to Successful Pricing on Amazon“: it starts with a consistent channel strategy!
#4 — Optimize pricing and offers.
As part of such rationalization, you will be better served by strategic pricing with proper segmentation. Whether the segmentation is done along your channels, buyers, or end-users, you need to resist the pricing spiral-down syndrome more than ever. You have worked hard, creating value with your product or solution. You have differentiation. Value-based pricing is the way to extract maximum profit, as it forces you to rethink your segmentation and adapt your offering and price structure.
It would help if you also optimized your customer lifetime value by identifying the best ways to up-sell or cross-sell your customers. The goal here is to keep improving your revenue and profit by focusing on your existing customers. They are your lowest hanging fruit.
As already stated in different articles, strategic pricing is a complete framework that influences the way you go-to-market and feeds your marketing and sales efforts. It is critical to align your marketing story and programs with your pricing model. Your hard work on establishing value needs to be fully supported by an impactful marketing effort that credibly spreads the word.
#5 — Be highly strategic with your roadmap.
Now is NOT the time to slow your pace on the product development pipeline. You will likely have a lot of pressure to reduce R&D investments, so get your act together on your portfolio strategy, as stated above. The losing products (and their next generations) should have already been eliminated and have no roadmap presence.
Now is the time to pay specific attention to your rising stars. Step back and review your markets’ latest trends, technology, and what this newest crisis is disrupting or enabling. Fundamental shifts like “work can happen anywhere” have profound implications for many businesses. How do you embrace these changes and apply your core competencies to build differentiated offers that will meet demand? Only you and your teams can bring the right answers, so make sure you dedicate your most strategic thinking -and time- to your company’s future success.
As the world starts to emerge from this global crisis, we’re now going to realize who the real losers and winners are. So, should you think like your CFO? I think so, but you will need to balance your short-term imperatives and longer-term challenges properly. I trust we will observe how the winners went about cleaning their act, not being afraid of change, and redefining their future. So, don’t get stuck in tactical crisis management and cost-cutting.
Now is the time to build your healthiest future ever. Rethink your vision, methodically revisit your product portfolio, assess how you make a profit, and challenge your go-to-market assumptions.