As Q2 gets into full swing, 2023’s difficult global economic realities are being thrown into ever sharper relief. With a
major recession growing more likely, myriad experts are of the opinion that it is time to embrace a back-to-basics approach to business management.
In this blog, I’ll explore why this is necessary as well as the benefits of reducing costs, freeing up cash flow, increasing speed, and simplifying processes, all the while staying well within the realms of regulatory compliance.
The global economic environment at present
It can be easy to forget just how many challenges the world has faced in recent years, ranging from political instability to climate change as well as technological disruption. Compounding these hurdles has been the COVID-19 pandemic, which has seen many companies struggle to remain solvent during the difficult financial environment left in its wake.
As a response, many companies have rushed to adopt new technologies, business models and sustainability frameworks in order to maintain their competitive edge. However, this eagerness to innovate has come at a cost as many businesses have sacrificed the fundamental principles of business in their bids to adapt and drive business forward.
To combat this, governments across the world have implemented various fiscal and monetary policies to protect businesses from the worst effects of the resulting downturn. Unfortunately, these policies also had unintended consequences such as inflation, rising debt levels, and increased market volatility.
Regrettably, promising trends such as crypto and Web 3 have failed to create meaningful commercial success despite the significant investment and attention they received. Instead, these trends have been viewed as speculative assets, with few practical uses beyond trading and speculation.
Companies like Meta (formerly Facebook) which invested heavily in the so-called “metaverse” suffered billions of dollars in losses as investors abandoned them. That’s not to say that such avenues won’t produce worthwhile results eventually, but they are unlikely to do so in time to turn the tide on this year’s likely decline in growth.
A significant factor in the sharp decline of Meta’s stock is its reliance on a product that appeared to have no practical application. Their metaverse offering delivered an experience similar to the pre-existing videogame, Second Life, yet was marketed primarily as a means of socialising and business meetings. On top of that, the barrier of entry was notoriously high, with VR headsets costing between £399 and £1499, and the app could only be used at home, unlike the Facebook app. Given current headline news on the soaring costs of living, middle-class households turning to food banks, and energy bills reaching four-figure sums, this latest proposal from Mark Zuckerburg felt somewhat divorced from reality given the practical needs of everyday people.
This degree of out-of-the-box thinking is admirable, but not a good illustration of how to navigate a difficult economic landscape.
The core of business strategy
As a result of the global economic challenges mentioned earlier, numerous specialists are pushing for a back-to-basics approach to business. This means concentrating on the crucial aspects of conducting business while staying compliant with regulations.
Through this, businesses can enhance their adaptability and guarantee they are adequately prepared to withstand the upcoming economic hardships. Innovation will always to key to growing a business, but keeping the boat afloat needs to be the number one priority in the face of difficult times.
A focus on growth
Companies like WeWork and Uber managed to achieve household name status despite offering smart, simple, even somewhat ordinary products (office space and taxis, respectively), thanks to massive investments made before they’d even demonstrated the ability to turn a profit. While Uber has yet to turn a profit, WeWork has now closed its doors altogether.
Additionally, with interest rates looking set to rise, cheap money will no longer be the order of the day. Companies will once again have to prove themselves capable of delivering returns to investors, rather than simply relying on a compelling spin. Profitability will need to be founded on a realistic business model, rather than relying on venture capital investment to prop up unprofitable operations until the market reaches saturation and allows for price hikes.
Keep it simple
The intricate nature of many businesses can cause significant impediments to their growth. Despite striving to expand, companies are frequently finding themselves mired in bureaucracy, and struggling to keep up with changes in market conditions. Furthermore, the complexity of their products can exacerbate the issue by adding more layers of convolution. Nevertheless, by streamlining their operations, these businesses can enhance their responsiveness and adaptability, making it easier to respond to market shifts and seize new openings.
Back to basics
By focusing on reducing costs, increasing speed and simplifying processes while remaining within regulatory parameters, companies will be able to drive growth and become more resilient to these economic challenges.
Doing so will tee businesses up to withstand any wintery downturn on the horizon and allow them to reap the rewards when the economic springtime finally arrives again.