Most companies treat their mid-year assessment like a checkpoint. They just want to make sure they’re on target to reach their strategic goals. Usually, a few small changes to course correct are all that’s needed.
But sometimes, unexpected shifts in the economy, labor market, or other external factors will force companies to take a hard look at their plans. In today’s down economy, businesses must quickly figure out if they need to make big strategic changes in order to succeed–or even survive.
Mid-year assessments are a chance to recalibrate how you’re going to tackle business operations for the rest of the financial year. Both external and internal changes can make an impact on whether you go full speed ahead or scrap everything and go back to square one.
Sometimes, external changes will impact your assessment, like:
- Global crises, war, supply chain disruption
- Significant government policy changes
- Increased competition in your industry
- Weakening or growing regional economies
- Development of new technology for your industry
Other changes can come from within:
- High staff or leadership turnover
- Sales are higher or lower than projected for the year
- There’s a new use case or opportunity for your product
Are you too focused on ARR?
Here’s an example of why a business may need to change their strategy mid-year. Startups often focus solely on increasing the annual recurring revenue (ARR) from their customers. This means a lot of upfront investment is put into acquiring and maintaining customers. Only focusing on ARR is a growth-at-all-costs mindset.
In an unexpectedly down market, your acquisition cost for each customer can be too high to be sustainable. So if your investors want to see profitability in the near term, using ARR as your main measurement is risky.
In this scenario, your leadership team needs to review the costs of your sales and marketing programs. Using tools like Salesforce, analyze the effectiveness of each marketing channel. Identify which ones have the highest and most predictable close rates. Ruthlessly cut spending on all low value or experimental channels.
Change is uncomfortable
Not all change is bad, but mid-year pivots can be uncomfortable, especially if they disrupt the day to day lives of your employees. Make it a habit to frequently communicate why you’re changing strategy, especially when staffing, software, and workflows are all being overhauled or re-organized.
Your fundamental mission and vision for your company is still the same, so try to avoid short term thinking and crisis management decision making. Use your original fiscal year plan as the baseline. Having access to effective data analysis software is crucial for determining if your original plan is no longer realistic.
Be mindful that your employees are also affected by any decisions to change, or not change, course. If you decide to keep your original strategy and have your teams chasing goals that they feel are unachievable, they’ll soon be demoralized and unmotivated. If you’re going to change goals that will affect how their performance is measured, make sure that you’re providing the right incentives.
How to assess your performance
Start your mid-year assessment by revisiting your strategy for the year and reviewing how your company has performed to goal so far. Has the team been able to make progress towards the goal? Are they motivated by the incentives you’ve put in place? Can you discern whether your original targets were too ambitious or not ambitious enough?
The SWOT method is a helpful framework that can help you identify where your company stands and what needs to be immediately changed to bring you back into a good place by the end of the year.
- Strengths: What is your company really good at? What do you do better than your competitors? Do you have a recognizable brand, loyal customers, competitive pricing?
- Weaknesses: What does your company struggle with? High customer turnover, lack of capital, high customer acquisition cost?
- Opportunities: What opportunities are available for you to take advantage of? Is a major competitor losing traction in your market? Are you looking to grow your business in a new region? Can you fill a new need created by the economic downturn?
- Threats: What threats can harm your chance at success? High employee turnover, higher costs for materials or services, increased competition?
To pivot or not to pivot?
After completing your SWOT assessment, you’ll know if your strategy needs to change. Reasons that your company may have to pivot into a new direction in order to improve revenue or stay in business include:
- Your product’s use case isn’t doing as well as you expected
- Competition is fierce or a big brand competitor has entered your space
- Your industry has changed in a big way, like new technology or government regulations
- Supply chain issues or higher cost of goods and materials makes your customer acquisition cost far too expensive
- There’s an unexpected labor shortage or limited talent pool
Figure out your must-have resources, including headcount. For expenses that are only nice-to-have resources, you’ll need to cut that spending quickly and aggressively. To try and reduce the toll on your headcount, take a hard look at your technology infrastructure.
Most companies are wasting money on software applications. Auto renewed contracts and easy signup pages result in you spending more money on tools than you realize. Review your entire inventory and see which contracts you can cancel, which you can reduce, and which tools can improve your processes and workflows.
When growth-at-all-costs becomes a problem
VCs and startup founders have pursued a growth-at-all-costs business model for years. Recent economic problems have shown that this isn’t always sustainable–or in the best interest of the company in the long term.
It’s very important to invest in your product and spend money on marketing campaigns that will reach new customers and expand your brand. But if you’re losing money on every transaction, you’ll never be profitable.
To pivot your strategy mid-year, focus on unit economics instead. Analyze your data and determine your customer acquisition cost and churn rates. Is it possible to achieve profitability based on your current metrics?
If you’re paying too much to acquire and retain your customers, review which marketing and sales channels are bringing you the highest lifetime value and reduce resources on unproductive channels or poor customer fit segments.
Communicating with your employees
Don’t leave employees in the dark about the changes that are coming; share strategic information as appropriate. Even if you don’t have concrete answers yet, at least update them on your assessment progress. Don’t feign positivity about the future, especially when you have a rough H2 ahead of you. You’ll ring false and your people will see that.
Communicate the reality of the business with employees. Focus on explaining what the current problems are and how a change in strategy will fix them. Don’t downplay the seriousness of changes in strategy. Allow yourself to be vulnerable with employees, especially if you have to cut headcount to keep the business afloat.
Be practical about your new strategy. If you set unrealistic goals, it can demoralize your employees and you’ll lose their trust and confidence. For example, telling employees that they’ll have to work harder doing the same strategy in order to save the company, when it’s clear the strategy is not working, will diminish your leadership at a critical time.
Be available for questions, share updates, and avoid speculating without the right data to back yourself up. Ask your team if they’re on board with the changes that need to be made. If they’re not, be honest about whether it’s time for them to move on. If you assume that everyone understands and is onboard, when they actually aren’t, you’ll hit resistance and low morale.
Need more guidance?
Leading a company through an economic downtown is extremely challenging. If you’re looking for more advice on how to talk about stability with your employees, visit our blog and subscribe to our newsletter.