Despite the financial impacts caused by the Covid-19 pandemic, economic recovery is inevitable. We’re humans, we figure things out and adapt to new environments all the time – it’s evolution. Planning for evolution, however, really isn’t possible. It just happens. Over time new ideas are tried, tested and refined until efficiency uncovers the new normal. Cultures and organizations then adopt their own variations. Here is one method: how to use an Alignment Map as your recovery playbook.
Now there is a sense of urgency to get “back” to work. But evolution doesn’t go “back“, it only moves forward; long-term consequences aren’t so obvious. Today, treating business recovery more like a startup than a relic will surely advance progress. We’ve got to develop new ways to safely interact with one another.
So much of what your organization was doing in the office can be done remotely. Most of your management processes can be reworked to be cloud based. The challenge is identifying each step in your former process, establishing its relevance to your future and finding the best alternative step. An Alignment Map is a great way to do this objectively and effectively.
Your ability to leverage digital communication will determine your ability to improve your business as we navigate through the pandemic. I don’t mean just using more email and video conferencing. It’s going to take a whole new approach to your website, app, social media messaging and chat technology.
Content is good, conversation is essential. Your brand going forward must exude trust, safety and reliability to build long lasting relationships with your stakeholders. Conversation requires listening. Connect your stakeholders and they’ll remember you, your brand.
Listening enables adjustment, and adjustment enables a good fit with your audience. An Alignment Map is your listening tool that enables you to optimize your business in the eyes of your audience. This translates to engagement and conversion.
Growth is painful. Change is painful. But nothing is more painful than staying stuck somewhere you don’t belong. An Alignment Map is a great tool to help you manage the growth curve and come out ahead.
One thing is certain. The trend of the post Covid-19 economy will be a re-concentration of resources—capital, skills, and infrastructure—into the hands of entrepreneurs able to serve the evolving business environment. If you’re not sure how to assess the optimal re-concentration of your resources, corporate finance consulting could be your best next step.
One obvious element to restarting the economy, and one becoming increasingly important in all aspects of business and life is digital. The more we can communicate electronically (rather than in person), the safer we will be. We communicate in a lot of different ways, so mastering these will lead to the new normal. It’s the race to digital adoption.
Why is effective communication so important? So we can avoid mistakes and make progress. We’re all in this together. As we work from home, every communication medium becomes more and more useful. The more we can leverage cloud technologies to share data, the more progress we can make in our efforts to grow and scale our businesses.
Getting organizations on the same page wasn’t easy when we all went to the office and interacted in person. Getting organizations to interact remotely and get on the same page is going to take a new way of communicating. One tool that can be extremely helpful is an Alignment Map.
What’s an Alignment Map?
By assessing your goals, resources, processes and analyses you can gain valuable insights on your strategy and the tactics that will take you to the next level—the result is an Alignment Map. We use an Alignment Map for a number of different purposes, including to:
- Assess performance weakness
- Identify cash flow killers
- Conduct brand audits
- Assess M&A readiness
- Identify acquisition synergies
We use an Alignment Map to help define paths for client companies to reach their full potential, no matter the situation or the goal. It’s a process that enables us to objectively assess a company’s (i) Product (or Service) / Market fit, (ii) Organization / Market fit, and (iii) Finance / Market fit. We identify the most relevant KPIs for the company in each of the three categories and we run them to score the company’s performance. The score is the starting point to identify areas for improvement, target KPIs and a process to get there.
Viewing every aspect of your business like a startup, as cities and commerce begin to open, will uncover opportunities for you to improve operations, processes and efficiency metrics, not to mention employee and customer satisfaction. Staying in the game is winning the game. To stay in the game you are going to need a viable playbook to help you call the shots while the economy reshapes itself.
More of what doesn’t work doesn’t work
Why is a fresh perspective on every aspect of your business a must? Because more of what doesn’t work doesn’t work. Diagnosing core problems isn’t easy, symptoms can be misleading.
What you focus on grows. Focus on what’s working, reboot what requires attention. What needs to happen next? Where there is a problem there is a solution. Stay mission driven and avoid labeling setbacks as failures. With clear purpose and intention your ideal with thrive.
The reason we focus on three business components:
is to build scalability into your business. If you actually are a startup business, the founder must compartmentalize each of these functions to stay organized without losing sight of administrative or financial responsibilities while doing the fun stuff: product design and development. As the business grows and people are added to the organization, they will primarily focus only on one area.
What we are looking for is good fit with the market in each of these categories. These three functions are sales, fulfillment and sustainability.
Organizations need diversity in skills and perspective. A group of like-minded people could have a hard time solving the problems they encounter. Similarly, one way communication from the top down isn’t likely to help develop creativity in your people.
Let them do what they were hired for: contribute to the organizational success; the whole is greater than the sum of the parts in a functional company.
If your business was in growth mode heading into the pandemic and it’s many incarnations, but lost momentum, now is a great time to evaluate productivity improvements that result in higher profitability. Even fully mature businesses can benefit from the Alignment Map process.
Why a recovery playbook?
Why do I need a recovery playbook to help my business navigate a path to sustainable revenue growth and quality of earnings as we deal with fundamental permanent economic changes? Finance is about the future, accounting is about the past. Many economic and business elements will be changed forever. Plan for the future by leveraging the past. Learn from it.
The reason you may consider developing a recovery playbook for your business is to reasonably project future events and plan accordingly as reality unfolds. There is only one true statement that has and will ever be true about financial projections: They’re wrong. It’s just a matter of in which direction and by how much.
In football the coaching staff refines a team’s playbook to give them options to deal with the game as it unfolds. The idea here is to improve the odds of success by accurately assessing the situation. The better you are at assessing the facts of your situation, the better positioned you will be to call the plays of your business as it unfolds.
Offense and Defense
Another not so obvious sports analogy to business is the game of soccer. Both teams have their offense and defense on the field at the same time and experience quick changes as the game unfolds. KPIs are critical to make appropriate calls on the field. How many shots on goal has your team taken? How many has your opponent taken on you? What about the number of penalties, out of bounds, off sides, etc. These are the KPI’s the coach is keeping track of to help direct his on-field talent work towards a win. Little wins every day help you achieve the big wins that really count.
You can have the same approach to business if you keep up with the facts about your financial situation, market conditions, M&A trends and all the relevant operating KPIs regarding your business.
The connection between your Alignment Map and your Recovery Playbook is essentially the specific KPIs most relevant to measure the success of your unique business. Having relevant, accurate and timely KPI’s will help you determine how to make good business decisions every day, week, month, quarter and year as time unfolds.
Financial Planning & Analysis (“FP&A”) will enable you to compare actual results (financial and operational) to what you had projected for a specific time period. You should do this every month to help management and your entire organization learn how to improve productivity, efficiency and profitability.
The point of having an effective recovery playbook is to be prepared. Be prepared for everything that is changing.
Know the warning signs by having accurate data and a good sense of what to watch for. The goal is to achieve good business / market fit.
Business / Market Fit
It’s pretty likely, if your business felt the impact like so many others you’ve lost revenues and earnings.
The most significant question to ask yourself? How much demand will there be for what you sell? Getting this right is key to how to use an alignment map as your recovery playbook.
Is your product or service transaction physically interaction dependent? If so, will it be economically viable given likely social distance standards?
The goal is to provide actionable steps to founders, CEOs and investors in the midst of one of the most unpredictable economic climates ever experienced. As a founder myself who has been though several downturns, I understand the challenges our community is facing. I hope this information helps everyone navigate what lies ahead: how to position your company for a downturn.
It starts with disciplined financial analysis. And this means you’ve got to know how to read your financial statements.
Industries tend to develop unique financial standards based on their product or service mixes, cost structures, supply chains, or just about any other factor. These standards can be great benchmarks for any single business to measure it’s ability to generate a positive ROI and not waste money. This can be measured in a number of ways on both the Income Statement and Balance Sheet.
Getting it right, being competitive, is Finance / Market Fit. It means you accurately identify, design, and implement the right capital strategy for your business objectives. You produce quality earnings from limited resources because you don’t waste cash or time. You understand how to use you balance sheet and income statement together to produce impressive results.
Finance / Market fit frees up cash flow, ensuring you’ve got staying power and increasing business valuation.
Starting Your Recovery Playbook
- Assess your current capital state and short-term cash needs, quantify your annual funding needs, outlining the timing around all upcoming payments (employees, rent, suppliers, etc.). Quantify your long-term funding needs. This assessment phase may require existing financial clean up, which you should consider serious. The more accurate your historical numbers, the better your projections.
- Evaluate your current access to capital including existing relationships with capital providers like lenders and factors, calculate your current cost of capital and determine whether other sources can help you finance your strategic objectives.
- Review your payables and other current liabilities (leases, loans, etc.) to identify potential obligations that may be relieved to free up cash. Identify key metrics to track in each relevant category. This will be critical when determining at what juncture you can afford to (re)incorporate employees.
- Establish the relationship between the above analytics in a detailed financial model that produces monthly financial statement forecasts for at least 12 months out. Once a plan has been established you can lead the effort in making the best financial decisions as the reality of your business unfolds.
- Compare your projections to actual results to measure variance and ascertain what caused it (“if you knew then what you know now…”). Leverage all the key performance indicators you like to paint an accurate picture. You need to set alerts to trigger if you trend off course from any metric to assess the viability of alternative paths.
What you need
- A lead financial analyst that can develop a financial model to import financial statements from your accounting software, design an analysis of your historical financial statements and relevant KPIs, and monthly forecasting capacity based on assumption inputs.
- A dashboard that provides the ability to customize all relevant metrics specific to any area of your business. The parameters would be cash flow, expense, and performance-based.
- The ability to test variable what-if scenarios around different debt instruments (leasing, term loans, rates, etc.), capital structures, revenue and profit forecasts.
- High quality and relevant monthly reporting and variance analyses that provide insights to operational cause and effect relationships to allow you to consider alternative paths to achieve your operational and financial business goals.
These are the goals we are ultimately aiming for: remember, sustainable revenue growth and quality of earnings are the hallmarks of a healthy business. The thing is you first have to figure out where you are at the moment. You have to take stock of everything to know what you have to work with, what you’re missing and just how much leverage you have.
My recommendation? Assess (i) the condition of your products and/or services, (ii) the state of your financials and (iii) the health of your organization chart to position you for future growth. From here you can make informed decisions and devise a stable strategy that has both offenses and defenses designed for growth no matter what the economy throws at us.
Related: How to Prepare Financial Projections
About Ian Shanno
Ian Shanno is a corporate finance enthusiast that has worked in Mergers & Acquisitions, Investor Relations and Management Consulting on around 500 engagements covering a ton of ground. He helps companies advance their productivity and profitability by uncovering viable operating improvements in different functional areas to achieve measurable results, attain transparent financial communications and increase enterprise value. He also helps sellers maximize value in a sale and helps buyers achieve maximum synergies in mergers & acquisitions transactions.