Is 2023 The Year to Right Size Your Business?

“If you’re not growing, you’re dying” is a phrase that is often used this time of year.    Dollars to doughnuts, you’ve heard it said about business as well as your personal growth.  There’s a great deal of wisdom in that statement.

However, I believe 2023 is, for some, the year to do it differently.  It's possible that being the biggest dog isn't the right thing for you and your business right now.

Growth is usually good, but not always.  Take, for example, a company that grows too fast, takes on too much debt to feed the growth and then becomes hamstrung, failing to deliver what they promised.  Or the team leader that sets inspiring, kick-tail goals that will only result in the team feeling kicked, not pumped up.

We need to pause and consider what growing our business over the past three years has demanded of us:

• Start 2020 feeling optimistic about life
• Close up shop in March
• Maybe start back up. Potentially completely change your business model
• Ramp up for rapid production and volume if you were considered essential
• Have your employees retire early because of COVID
• Have your other employees join the Great Resignation due to burnout
• Have your remaining employees risk burnout by stepping up to filling in the gaps
• Not be able to get your hands on needed materials and supplies
• Watch your transportation costs blow up
• Watch the rest of your costs blow up
• Be unable to find replacement or new talent
• Deal with the uncertainty of the economy
• See interest rates go back to more historical levels
• Endure physical and mental stress and fatigue…

And that’s just at work!

Given all this, a case could be made for 2023 being the year of “right sizing.”  I believe there are several important drivers justifying this:

Labor Market

The labor market situation has not shown any signs of loosening any time soon.  While the economy may cool, it’s unclear whether there will be downsizing across the country or in your area.  If there is, the question will remain as to whether those seeking new employment fit the positions you want to fill.  There’s also the question of whether wage expectations will be aligned with what you are accustomed to paying.

Labor availability is a critical limiter to growth.  Regardless of whether you sell goods or services, you need the labor to serve your customers.  The only alternative to human resources is technology – AI and automation.  The ramp-up time and expense for automating is significant. In the short term, if you don’t have the labor, you can’t fill the orders.  If you can’t fill the orders, particularly of new customers, your first impression will be the last.  The speed at which customer goodwill and your reputation can plummet due to overpromising and underdelivering will be hard to slow down.

Talent Retention

The Great Resignation has cooled, and the pace of turnover appears to have slowed.  Talent that jumped may even regret switching, but another job change is likely less appealing right now.  Your team members that stayed in place stepped up to the plate.  They’ve dealt with the changes in hours (extra  or fewer hours, depending on the company’s situation.)  They endured a great deal of uncertainty as they watched others leave the company and faced new risks in the workplace.  They weathered customer snarkiness and supply chain challenges that have made their jobs harder.  They’ve done their level best to adapt to change.  Lots and lots of change.

Realistically, we’ve all experienced tremendous volumes of change and upheaval in our lives over these three years.  Our collective stamina is spent. 

Ambitious growth goals demand that a team come together and charge up a new hill.  It often entails adapting to new systems, roles, responsibilities, and expectations.  For it to be successful, it means your team fully embraces the change required.

Is that a fair request given where we are at collectively?  There may be some overachievers on the team that are game, but something tells me that a far greater number of team members may be saying a four-letter word with their inside voices. (“Nope” was what I was thinking.  What were you thinking?)  Tanks are running low on fuel.  Pushing a high-growth agenda will be a risky  play.

If the Great Resignation taught us anything, it’s that people are listening to their inside voices more and more and talent tells us “Nope” with their feet.

When that happens, you’re left to pick up the pieces, propelling the cycle, in this labor market.

Demand for Goods & Services

Business leaders are often the eternal optimists, believing that there is only one direction for the demand for their products to go.  Many companies experienced a great deal of growth over the last few years.  There’s a temptation to assume it will occur into the future and build your church for Sunday.

Of course, consumer trends and demands don’t work that way.  But oftentimes, we don’t take a pause to play the movie to the end of the tape. 

I don’t pretend to be an economist, nor do I have a crystal ball to see what’s going to happen with consumer or business-to-business demand.  However, it’s possible that demand will  cool.  Additionally, the cycle of pent-up demand created by the Pandemic and supply chain issues are seemingly drawing to a close leaving many companies with over-purchased inventories at the same time their volumes cool.

Without  reflection and analysis of the demand dynamics for your products, you and your team can be caught off guard.

An example of this played out in the stock value of Kimberly Clark, the tissue and toilet paper manufacturer.  In the early days of the pandemic, demand for their product went off the charts and shelves.  Their stock price followed. However, stock analysts were brutal when the company came out with the forecasts that reflected what was bound to happen.  As supply chains and hoarding hysteria subsided, the demand for toilet paper would predictable cool.  Analysts were shocked and surprised.  What were the stock analysts thinking? They weren’t.  They allowed themselves to get caught up in the giddiness of the perceived growth rather than thinking it all the way through.  The revenue growth was a function of an external demand shock, not the fundamental needs of the customers over time. 

Your demand patterns have likely seen volatility over the past three years.  Understanding what drove the volatility should be a part of your reflection and planning around growth.

Internal Leadership Changes

Prior to the Pandemic, many Baby Boomer owners were sitting pretty well.  Business was going great, and they felt they still had gas in the tank to keep going well past the standard retirement age.  2020 and 2021 put a permanent hole in the tank and drained it.  Energy, interest, and desire to work as hard as they have been over the last three years is understandably dwindling.

Preparing a company for an ownership and leadership transition is a job by itself.  If improvements are needed to get the company ready for sale, this will call for energy at the same time you maintain a steady level of performance.  If an internal transition is going to take place, it’s important for the next generation of owner/leaders to step into a solid foundation.  Pursuing a significant growth strategy may or may not be advised depending on the situation.

That said, if selling to a third party is the chosen route, you do not want to take the foot of the gas entirely.  A buyer wants to see opportunity for growth if not consistent year-over-year growth.  The key is to have a well-considered plan that you can justify and explain why you are pursuing the level of growth you are.

One family business I am working with is navigating this very issue.  The leading generation has successfully grown the company from a very small company to a significant enterprise.  Realistically, the business has outgrown the owners.  In considering whether the next generation is ready to step in, they realize that there are holes that need to be filled to place the next gen on solid footing.  Further, there are some underperforming products that should be culled, and related resources redeployed, before the transition so that the next generation isn't handed a garbage pile to clean up as they settle into their new roles. 

Their success depends on being focused on setting up a strong foundation for future long-term growth. 

By right sizing in 2023, we afford ourselves and our teams the opportunity to catch our breath and recover from these “roaring 20s.”  Steady long-term growth occurs when the systems are healthy, and the foundations are strong.  It’s ok to pause short-term growth to get it right.

May your 2023 be just the right size for you.