Is your business too lean?

The clocks have just gone back so the mornings are lighter but the nights are very much drawing in.  The supermarket Christmas catalogues have arrived and they are full of tempting things to eat and drink. 

No sooner have our thoughts turned to the lovely taste of warm mince pies (or whatever your cake of choice is at this time of year) than the harsher reality of tighter clothes, letting out the belt a hole (or two) and the weighing scales begging for mercy  also spring to mind.  We feel the pressure to become or stay lean (-ish)…..

Lean is good , better, more efficient, more economical.  That is what we have been taught to believe in relation to our economies and our businesses.  But what if that isn’t quite true?  Or, rather, what if it can be overplayed and thus what is a strength, up to a point, then becomes a weakness?

Some fascinating research on this topic in relation to regional economies has recently been published by Stanford University and the Santa Fe Institute in America.

The research was published in the journal Evolutionary Human Sciences.

Now this isn’t the usual place where you would expect to find relevant business advice and insight, but a key conclusion is that it highlights the weakness of lean economic systems in the face of uncommon but severe threats, such as the coronavirus. The most telling conclusion is perhaps:  

“One of the things we’re seeing right now is a world that has been optimized for efficiency and is extremely vulnerable to risk……..If you scale back organizations to keep them running at a mean level that’s high, and you don’t have a lot of slack, when a crisis hits you’re in trouble.”

And something very similar to this has been seen in relation to many businesses and those which are managing to weather the Covid-19 related economic storms and those which are struggling.  Businesses which had built up cash reserves and hadn’t spent them or distributed them to the shareholders have been in a better position to cope with the extremely rapid impact on trading and  cash generation brought about by lockdowns with the near collapse and then the slow and fitful regrowth of much economic activity.

Those businesses which had monetary ‘wool on their backs’  whilst perhaps not as ‘lean’ as those which were using debt to fund their growth were fitter (and in some cases, much more so).  That might sound odd; isn’t being fit the same as being lean?  No, it isn’t. 

Fitness is the ability of the organisation to continue and survive.  Having some financial ‘fat’ in terms of underutilised and ‘inefficient’ cash reserves  is the way to create that organisational fitness.  Having an employee base that minimises any dependency upon key individuals is another aspect of organisational fitness. 

But this fitness rarely occurs organically;  it has to be planned for.

It is the consequence of owners understanding what their businesses are there to do; what they want and need to achieve; where the weaknesses and faultlines are in their business and organisational models – and doing something to deal with these.

These are exactly the kinds of conversations which we have been having with a number of our clients over the lockdown period.  Some, with the ‘fittest’ clients, have been simply a continuation of the pre Covid discussions; for others, they have had to pivot from a focus upon leanness to fitness very quickly by both changing their internal organisational and cultural model and accessing external sources of support and help (such as CBILS and similar funding lines).

Business as with life is about survival and, if we can, flourishing and achieving our potential.  The period since March 2020 has perhaps shown ever more strongly than it is better to be fit and flexible as an organisation and a human being than ‘lean and mean’. 

If this resonates with you and where your business finds itself then come and talk to us;  wherever you want to go, we can help you get there.

To discuss the content discussed in this blog, please don’t hesitate to get in touch with our Corporate Finance Director, Stephen Gregson on 01772 821 021 or stephen.gregson@mooreandsmalley.co.uk