How Partners Can Navigate Economic Uncertainty, Possible Recession Ahead

After not just surviving, but thriving during the COVID-19 pandemic, channel partners face another challenge with economic uncertainty and possible recession.

Every channel leader wants to understand how to prepare their business to navigate the next crisis in the economy. When should you take action and what are the most effective steps?

During his Channel Futures MSP Summit keynote, “Preparing Your Business to Survive Tough Times Ahead,” on Sept. 14, Peter Kujawa, vice president of Service Leadership, a Connectwise solution, will explore the lessons organizations learned that can help channel partners survive a climate of economic uncertainty — and whatever might come next.

This session will offer financial data on the state of the industry today. Learn how top performers responded in 2020, including taking cost out of their businesses and effective price increase management.

Preparing in Advance, Common Mistakes

In a Q&A with Channel Futures, Kujawa gives a sneak peek of the information he’ll share with attendees.

Channel Futures: We’re hearing a lot about economic uncertainty and an approaching recession. What should businesses in the channel be doing to prepare for this? Are there common mistakes that end up hurting instead of helping?

Service Leadership’s Peter Kujawa

Peter Kujawa: First of all, solution providers can benefit during an economic downturn because it creates pressure on businesses to reduce staff and outsource, including in IT. Businesses that may not have been interested in outsourcing IT suddenly become viable prospects during recessions. As a result, many solution providers increase their rate of growth during an economic downturn. Not only this, downturns can actually provide relief to solution providers via reduced wage inflation. And this reduction in the solution provider’s largest expense can mitigate the loss of any customers. However, ultimately the best thing any solution provider can do to prepare for a downturn is focus on improving their profitability and operational effectiveness while times are good. If they do that, they will be in a much better position to handle any downturn that comes along and may even be positioned to take advantage of it to their benefit.

The biggest mistake we see is waiting too long to reduce costs. What we frequently see are solution providers who convince themselves that recovery will come faster than it actually does and that they need to stay fully staffed up for when it does. As a result, they wait too long to take action. The longer a solution provider waits to react, the further the negative impact of a recession.

CF: What can enduring the pandemic teach channel partners about potential tough times ahead?

PK: The longer a solution provider waits to react, the further the negative impact of a recession. To help businesses survive the pandemic, various government financial aid programs were created worldwide. Most significantly in the United States was the Paycheck Protection Program (PPP) in 2020. While solution providers focused on certain verticals, such as hospitality, struggled in 2020-2021, the solution provider community overall did very well. When we looked at why, what we found was these government financial aid programs, such as the PPP, were only a small part of it. Most profitability was due to significant cost control measures taken by many solution providers in mid-2020.

When the economy rebounded in late 2020 and into 2021, we saw this cost come back as solution providers were able to rapidly staff back up to meet demand. It’s interesting how much cost can be cut without the much-feared inability to take advantage of a rebound. No one could have conducted a cleaner test case for solution providers.

Another key to surviving an economic downturn is that solution providers should begin …

… understanding their likely today-to-nine-months cash situation. They should determine what their likely revenue reduction will be, what their likely reduction in gross margin dollars will be (because you can only pay expenses with gross margin dollars, not revenue dollars) and how much cash will they likely have on hand to pay the bills. Solution providers that head into a recession with a strong cash position will be in a much better position to take advantage of opportunities that come along, such as acquisitions of solution providers that are struggling.

CF: How can channel partners cut costs while at the same time increase revenue? Is that the key to surviving during economic uncertainty?

PK: It is amazing how, when facing difficult times, expenses that were previously thought of as essential suddenly become optional. In March 2020, no one knew how long lockdowns would last nor when the economy would recover. It was a scary time for all of us in the industry, to put it mildly. As a result, we saw solution providers cutting costs throughout their operation.

What they frequently found was that they had employees who they probably should have terminated earlier that they had allowed to stay on too long, or marketing programs that they were spending money on that weren’t delivering sufficient results, and processes that could bring them efficiency to allow them to scale their help desk to run with less staff that they had been talking about but hadn’t yet acted on, and so on. These types of cuts are more a matter of the will to act and operational discipline. And when done right, they can leave the solution provider more effective, more nimble and better positioned for growth. As they identify opportunities in the marketplace, they then need to be willing to move quickly to pivot, to go on offense and start to make more investments in their business again.

CF: What are you hoping attendees take away and make use of from your session?

PK: What I want the attendees to know is that solution providers are resilient. They have survived past economic downturns and many will not only survive the ones that follow, they will emerge even stronger. The key is to be proactive. Take the necessary steps now to get as prepared as possible, so when the downturn happens you are ready and not scrabbling trying to figure out what to do. When I present, I’ll show data from the Service Leadership Index, the largest solution provider quarterly benchmarking database in the world, to back all of it up. And attendees will leave the session with the knowledge of what they should be doing today to prepare for whatever may come next.