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There’s a Storm Coming
Despite a record setting stock market, recessionary indicators continue to be mixed. Last time, we promised to outline basic recessionary tactics that can help guide firms through tough times. While the economy may come roaring back in Q3 and beyond, it’s never a bad time to freshen up contingency plans.
Regardless of your industry, here are five basic tactics to help you, and your company, weather the storm of recession:
Conserve Cash / Secure Credit: Conserve cash is really just a nice way of saying “cut costs”. If an expenditure isn’t business critical, eliminate it. Look beyond basic administration costs, though. Are there hidden expenses hiding out in your range in the form of inefficient products or services? Do you have expenses tied to future commitments, like event sponsorships, that need to be cancelled?
The credit crunch has already begun, but the time for a loan approval or line of credit is before you actually need it. Securing access to credit ensures that your company has a diversified capital structure to see it through the downturn. Ensure that any outstanding debt loads are manageable, and restructure if necessary.
Prioritize Investments: While you may need to reduce the costs of investments like advertising or product development, be careful not to impose draconian cuts. These areas represent the foundation of future growth, so be careful not to weaken your future competitiveness. Instead, rank each expenditure by priority and allocate resources accordingly.
Proactive Communication: a. Customers > Most firms receive the lion’s share of their revenues from a relatively small group of customers. This is the 10-20% of your customer list that must be absolutely prioritized during a recession. Proactive outreach will take on different forms for different industries; personalized calls, special supplemental offers, or hardship accommodations are all examples of outreach types that maintain customer bonds despite wider economic turbulence.
b. Employees > Your people need to be confident in their work, so be honest with them about the path ahead and how they fit into it. Foster open dialogue about the team’s capacity, and make collaborative adjustments if necessary.
Embrace Iteration: Long-term planning has no place in a recession. Instead, embrace the iterative process and project management methodologies like agile, which focus on shorter sprints to reach goals faster. As a bonus, the rush that comes from finishing more things than you start can provide your team with a bright spot of pride despite the dark clouds of a downturn.
Adopt an Opportunity Mindset: Despite their bad rap, recessions are actually periods of opportunity. They blow the dust off the shelf and force us to think about new ways to run our business, our lives, and our relationships. They can usher in adversity and fear, but those things bring forth renewed creativity and fortitude. Adopting an opportunity mindset allows you to see the bad news as a chance to try something new, to find a fresh direction or competitive angle, and begin working towards a new plane of accomplishment. What’s so bad about that?
Word on the Street
Uber and Lyft scored a victory in their game of chicken with California courts, averting a shutdown in the state.
Rent the Runway is closing all of its brick and mortar locations, calling it “something we had long considered as part of the evolution of our overall business strategy.”
When the best reason for your IPO is “we waited too long and our employees are desperate to cash out, man,” it doesn’t inspire a lot of confidence.
If Uber’s Food-Delivery Business Isn’t Profitable Now, When Can It Be?
The TikTok saga continues, with the Chinese company challenging the president’s executive order for depriving it of due process.
Logistics irregularities caused by the COVID-19 pandemic are forcing companies to actively manage inventories in new ways.
$AAPL - Apple
Apple recently announced a 4-for-1 stock split, a tool much more common twenty years ago when retail investors preferred stocks with a share price below $100. Many brokerages now offer fractional shares or exposure via ETFs, obliterating the need for stock sweet spots. Ever since the announcement, the share price has been on a roll, bringing the company’s total market cap to just over two trillion this week. So why the need for a split? We see two potential justifications, one bullish, one bearish.
The bullish take rests on the conventional wisdom that retail investors are more likely to buy positions in a stock with an accessible share price, say sub-$150/ share. Under this logic, Apple’s success has priced it out of a section of the market that has been booming recently, as brokerage firms cut trading commissions to zero, and FinTechs like RobinHood gamify day trading to lure inexperienced neophytes. By splitting the stock and reducing the price to an “accessible” level, Apple can fuel a stronger rise in the share price as retail investors snap up positions.
On the other hand, a bearish take considers the influence that Apple has on the price-weighted Dow Jones Industrial Average. If prognosticators inside Apple see a major, widespread market drop on the horizon, then a stock split allows them to dilute their impact and avoid headlines like “Apple leads Dow lower”. Apple may be attempting to insulate themselves from this sort of finger-pointing should stocks come back down to earth in the fall, a traditionally ominous time for markets.
She Said It Best
“For example, the average return for all the other eleven months in the year is about 75 basis points, but in September it is much lower and not only that it is a negative one percent and the difference is very strongly significant.”
— Professor Lily Fang details the September swoon
That’s all for now.
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