On the Start of Q1 Earnings, Economic Uncertainty, and Forecasting to Year End

As the quarterly earnings season kicks off, Investor Relations teams are under pressure to frame their narratives carefully. The first quarter earnings reports are expected to be cautious, with many companies likely revising their future projections downward. Amidst this generally bleak outlook, a few bold players are planning to go on the offense, realigning resources and maintaining their forecasts.

Gloom and Cut or Shift and Boom?

This earnings season promises to be a tough one for many businesses. A large number are expected to adjust their future outlooks downwards and announce significant cost-cutting measures. Phrases like “double-digit basis points improvements in margins due to restructuring” will be common as companies try to salvage their financial year.

However, cutting costs isn't the only strategy on the table. A select group of managers will use this opportunity for strategic reallocation, shifting resources to parts of the business less affected by the current economic climate.

Leveraging the Business Model Flywheel

In my recent work with a capital projects company, we dissected their business model flywheel to pinpoint recession-resistant areas within their customer lifecycle. Anticipating economic turmoil, we developed contingency plans focused on these robust segments, preparing to withstand the storm.

Strategic Forecasting and Resource Allocation

Now is the time to challenge your strategy teams. Task them with developing a plan that maintains your year-end forecasts for revenue and profitability.

• How are each of our segments impacted by current conditions? Which are less exposed?
• What portions of the customer lifecycle are less impacted?
• What are customers thinking right now? How are their plans changing? Are they retreating or going on offense? How are we going to support them in these moves?
• What are our competitors thinking right now? Assume they also have a strategy team also being asked the same questions. What answers are they likely to develop? What options do they have and what moves are they likely to make?
• What would it take to keep the year-end forecast? Assume we can shift resources; where should we reallocate?

This approach demands a thorough understanding of your business model, including your assets, competitive advantages, potential competitive moves, and customer options. If this kind of detailed business analysis isn't already at your fingertips, consider reaching out. My team and I specialize in documenting and analyzing these critical components to help businesses navigate through uncertainty.

1. Document the business model flywheel. It’s not always obvious where new business is actually generated.
2. Understand the relative value propositions and customer options at each stage in the business model flywheel. It’s here that you are likely to find your exposure or protection from the current market conditions.
3. Does the business model flywheel change by customer segment or do you have a consistent, ‘rinse and repeat’ model? Operating multiple business models can be complex, but it can offer optionality.
4. At each step in the business model flywheel, how efficient at customer conversion are your processes? You could use a Lean approach here to document and root out waste. Most likely, the first time you do this you will find a lot of waste and competitive disadvantage. Here is where you are likely to find opportunities to shift resources.

 Despite the weather, this can be a great time to go on offense

The beginning of this earnings season will likely be marked by caution and strategic realignments. While many companies will be focusing on cost reduction, the savvy few will be looking at how to strategically reposition resources to strengthen the more resilient parts of their business. This not only prepares them to endure the current downturn but also sets a foundation for accelerated growth when conditions improve.