The short-term mindset of downsizing is more practical for larger businesses than small, argues David Cliff in this piece.
As we enter a period of growth within the economy, one might reflect that all is now rosy in the garden and that the problems we have seen challenging businesses over recent years are a thing of the past.
Wouldn’t it be nice if that were the case? However, when we take off our tinted economic specs, and look at the reality of the situation, we are seeing some smaller businesses, which have battled their way through the recession only to fail as they move into this time of growth.
It seems counterintuitive that this should happen, yet it does, and we need to consider why.
In times of recession, it is natural for business owners to adopt a defensive strategy – offloading staff, reducing fixed costs, minimising internal expenditure – to survive.
Let’s look at the first of these, the reduction in staffing. When a large business offloads staff en masse, perhaps chiefly in manual, unskilled positions, the result is very different to when a smaller company has to reduce its workforce. More often, the small enterprise will end up shedding key personnel.
An example of one alternative strategy was when Vauxhall put its workforce on reduced hours. The result was that people kept their jobs, with the prospect of returning to full hours in the future when the economy improved. This is a good strategy for a larger firm but, again, it is not so easy for small businesses. Again, the loss of key personnel becomes the issue, because these people, often the drivers of the company, are less keen simply to survive and look elsewhere. Simply, they move on, looking for a new challenge and a retention or improvement of salary. They look for a business which has a similar forward-thinking and ambitious mentality to themselves.
When those proactive people leave, the business is left with people who have a survival mindset, as opposed to a proactive outlook.
The problems left behind can affect whole industries. Look at the construction sector, one of the first to see work plummet in the recession. Now that it is back on the rise, event the more forward-thinking and driven employers are finding that those people who were made redundant, or chose to get out of an industry in freefall, have retrained or moved abroad for work…and they’re not coming back. They are left with a skills gap.
Bosses in other businesses risk settling so far into the defensive mentality that they find themselves unable to decide when to move into proactive mode and suffer from stagnation. Additional problems arise when leaner, fitter businesses have emerged into the marketplace during the times of recession, occupying the same ground as the company which has cut back for survival. The difference between the two is that one is driving forward, while the other is sat at the crossroads, with the handbrake on when the lights have turned from red to green.
Further problems come when a firm has borrowed its way through a recession and come out of the other side, having exhausted the lines of finance, as well as draining its reserves and creating a credit history which makes finding the funds to push ahead all the more difficult.
Perhaps the overarching problem which is prevalent in all of these scenarios is short-termism. When managing through hard times, it is important to keep an eye on the bigger picture and ensure that the actions taken for immediate survival do not compromise so as to be unfit for the future. A balance of defensive and proactive strategy is vital, and it is those firms which take this approach which will continue to thrive through the growth times.
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