Your strategic plan is dead. How scenario mapping can save your professional services firm.
Remember that strategic plan you invested in? The one that was supposed to last you for 3 years?
Yeah, well that’s out the window now.
For professional service firms, recessions and global pandemics can kill your business. And you will need to move with incredible speed to change that.
As a leader you have to make decisions quickly, in an ecosystem that is continually changing. But how do you know what to choose? How do you make wise decisions?
(Because I’ve got to tell you going through a SWOT exercise feels pretty lame about now.)
You still need to plan, but the rules of the strategic planning radically change. It has to be more agile. And you have to be able to pull it off 10x faster.
You can’t make a strategic plan when variables are changing quickly, but you can do scenario mapping to equip you to make the best decisions possible.
Here’s what leaders of professional services need to know about scenario mapping when everything is shifting:
1. Redefine your objectives based on the current reality.
Rose-colored glasses will not serve you, nor will advisers who are trying to make you feel better.
The hardest thing in dealing with an uncertain economic climate is to forget what you thought the world looked like and immediately deal in reality. You don’t have time to mess around. You have to get real fast.
To have coherence, you have to have clarity. So, to start scenario mapping, your first goal is to define a new version of success.
Thought your firm was going to cross a milestone earnings mark this year? You know that is no longer going to happen.
Your new company goal might simply be to stay alive. To keep as many of your team together as possible. To come out the other side of this mess ready to grow.
There may have been business details you didn’t track with granularity. Right now, you need them because they define reality. You need to know what your cash is, what you are owed, what you owe, what work you have in the pipeline and what your bottom-line costs are. Those are the things you can know.
But, there are also things you don’t know.
You don’t know who will pay you (and who won’t) or when payments will come in. You don’t know what will happen with the economy. You don’t know if you will find new clients.
So, get clear fast on what you can know, and set your new objective.
2. Staying in the game is about managing cash flow. Dive into your metrics.
In a dogfight, pilots will often aim at the ground, then pull out at the last minute. They manage pitch and velocity to outmaneuver whatever is coming at them.
In an unstable economic climate, you do the same thing — but instead you are managing cash. When you run out of cash you hit the ground. Here’s what you are dealing in:
Receivables: What are your receivables (money owed to you) as a multiple of your minimum monthly operating costs? How much you need depends on how fast your clients pay. In architecture and engineering, average payments of receivables is 45–60 days after invoicing. If your payment cycle is similar and if your receivables are less than 3 times your minimum operating costs, then you are in a deep dive pointed at the ground and will probably hit it in 2 months. The only way to pull up is to have deep cash reserves or the ability to immediately cut costs.
Backlog: What’s your backlog as a multiple of minimum monthly operating costs? Backlog is the work that is under contract which you have yet to complete. In our engineering business, projects typically run for 2–3 years and we are under contract for the entire project. For us, we know when backlog divided by minimum operating costs equals 12 or more, we are fine and flying level. If this multiple is 10, then we are in a shallow dive. If this multiple is 8 it means we are in a steep dive and our monthly billing will drop below operating costs within 2, perhaps 3 months. Your multiple can be quite different if most of your work is short term. Know what multiple is healthy for your company by looking at your past.
Pipeline: What new work are you pursuing? Make this a short list that only focuses on the highest probabilities. If something is marked with a 40% chance of winning, that isn’t high enough to treat it as real. Get it out of your projections.
Cash on hand. You need a minimum one month of operating cash or bank credit line to serve as a shock absorber for your monthly operating costs. Trend line it and if you are going backward you are screwed. Make the hard decisions early to pull out of that dive.
Expenses: How much it costs to run your business needs immediate attention. In good economic times, we spend more. Make the cuts you can immediately make as fast as possible, then know your options for cutting deeper. First level? Bring all discretionary spending to a halt. Deeper cuts include ownership salaries, staff salaries, furloughs, and layoffs.
If you don’t have clean reporting structures for your metrics, get them in place. You will need as realistic a picture each day as possible.
A note about debt: if you run a professional services business that has limited debt or no debt, you have an advantage. But, most businesses leverage debt. In uncertain economic times, tempting as it is, debt is not your ally. What you borrow now you need to pay tomorrow. Many companies have used debt to stay alive in downturns, only to go out of business once a recession passes and costs increase.
3. Based on the metrics, map your scenarios and determine your options.
Once you know your metrics, you are in a position to map scenarios.
· What happens if 40% of our clients are slow to pay us and 20% don’t pay at all?
· What happens if our normal flow of new work dries up and our backlog drops?
· What other options do we have to fill our pipeline with new work when the traditional work isn’t there?
· What if we cut costs 10%, 30%, 50%?
You don’t have time to map every scenario so focus on a range of the most likely between optimism and worst-case scenario. Define them and get to your resulting choices as fast as you can. Document the options and be wide and wild with possibility.
Going crazy on this will spark innovation and creativity. You aren’t acting on it yet. Be divergent in your thinking because you may find something that saves you from things going sideways.
The goal is to do this fast. This is about orientation and generating solutions.
Then you start to narrow. Which options hit your new definition of success? The success objective you defined earlier stands as true north for your selection.
(By the way, that 3-year plan you had? Your brain is going to want to go back to that. Forget it. It is no longer relevant.)
4. Decide and act. Then repeat the process.
When things are changing quickly there is no perfect decision — but there can be good decisions.
So, decide and act. Don’t wait.
Here’s the thing. In uncertain economic times, this is not “one and done” scenario mapping. This is a loop that keeps playing out until you hit equilibrium. So, once you’ve made a decision and taken action, you start again.
1. You fix on the next objective.
2. You get a pulse on your current metrics.
3. You scenario map based on where things are now.
4. Then you decide and act again.
As a leader in a professional services firm, it “feels” safer to wait and see. The problem is that time works against you when managing cash flow in uncertain times, and no one has to tell you that adhering to a strategic plan created in stable times is untenable.
Here’s the thing. There is a reason you are here now.
Your team needs you to be the champion for reality and scenario mapping.
You can be the leader your firm needs right now.
In uncertain times, the pain of doing something is less than the pain of doing nothing.
And just by being willing to face reality and make decisions you are so much further ahead than most of the other leaders in your shoes.
You won’t flinch.
You will lead. Even though it is risky, painful, and without guarantee.
It doesn’t matter if you previously thought your A-game was talent in the discipline that made you successful. Right now, your A-game is moving fast and doing hard things.
Leaders are ordinary people who do what needs to be done.
You’ve got this.
