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10 Lessons for Recessions with Derek Southall Founder & CEO of Hyperscale Group

And so we are officially in a recession…

Jobs are being lost, litigation is on the rise and costs are being cut. Ironically over the years, I have listened to numerous versions of business continuity plans dealing with pandemics such as Bird Flu and SARs but the key component that many have missed is the devastating effect on the economy and specific industries which we are now seeing. The unthinkable has happened and people have had to learn fast.

I obviously don’t like recessions but thankfully I have been around long enough that they don’t scare me in the way they perhaps used to. I have been blessed to work with some great people and over the years have learnt some good tactics to navigate the choppy waters that recessions bring – these great brains have also drummed the message into me that based on history expect a recession every 7-8 years and so you need to plan for them. Also, those of you who know me well will know “Southall’s Law” namely that “The only real problems in life are health and death – everything else is sortable.” Recessions are not fun but are equally not the end of the world.

We are helping a few business leaders through these difficult times at the moment and one conversation has spurred me on to share a few thoughts on lessons learnt from previous recessions – just to be clear I am not saying these are the only things you can do but just that I have seen these tactics work in the past and so they may help:

1. The Strongest Look after the Weaker.

In these torrid times, the reaction of some is to simply look after themselves to ensure as little adverse impact as possible. In some ways this is a natural reaction but is it far-sighted – we all need to bear some pain surely? Even now I hear some businesses being criticised for 80% salary rules and mass furloughing only to maintain profits and income for those at the top. Instead in the past, I have seen savvy leaders lead from the front in a very Simon Sinek “Leaders Eat Last” fashion – the higher the earner in the business the bigger the financial hit they take, it being accepted that more junior people have lower incomes and less flex in their finances. Senior Partners look after the Junior Partners who look after their teams and business services – you preserve the firm for the good of everyone and clients. I have been both a giver and receiver of such support in the past and the model works. The same applies to confidence. More junior people will be worried and concerned. If you have lived through this before your role is to support and reassure others. In the long term, both of these tactics will pay back in spades. 

 

2. Revisit Targets and Take Market Share.

In recessions, the market changes dramatically. Every day I speak to demoralised salespeople as their markets have been turned on their heads with a pipeline turning at best to a trickle. If a market changes it is pointless sticking to pre-recessionary targets. They will be unachievable and will simply demoralise people who are already at an all-time low. Also, chances are the type of work you will need to win will be different which will impact on targets. Instead, revisit and refocus targets and look at other core objectives – if the world has changed and your targets have not you will have failed your business. In a recession winning market share is also a key objective (and opportunity) and this should be a core focus of your planning.

 

3Maintain Team Resilience and Come Out Fighting.

The immediate reaction of many businesses in a recession is to cut headcount. We are seeing this already and the end of furloughing is likely to bring more. I do get that this can be necessary but in previous recessions, I have seen firms do several waves of redundancies which also wrecked morale (if you do need to do it, do it once and get it right – people who work in fear will not perform at their best). Again though in businesses like law firms which sell knowledge, maintaining the team is key. Lesson 1 above applies here too. Previously I have seen firms really thrive as they have maintained the team and have accelerated out of recession as the market has improved. Also, let’s be clear, people will remember how a business behaves for years to come and any negative behaviours will affect their loyalty. People are switched on enough to know your values are about how you behave, not what you put on your website. If you keep your people secure they will remember it. The same applies to your suppliers. What goes around comes around. 

 

4Clients – Do More for Less.

This sounds mad I know but to state the obvious in a recession there is less work to go around. Sales and winning new work is harder too. Yes, you do need to try to sell but your return on effort is probably lower than preserving and expanding the clients you already have. Also, all your competitors will be after your clients and so you need to protect them. My advice is to give your clients as much attention you can muster and deliver unparalleled client care. It is now that they need you. If you have the spare capacity do soft deals or give the capacity to your clients and ensure their success. When the going gets tough that’s when you know who your friends are – your clients will not forget your support.

 

5Spring Clean but Manage Cost Sensibly – Don’t Crush Your Supply Chain and Paralyse Your Business.

In a recession, you absolutely need to look at your costs. A few observations though:

1) Do this sensibly and prudently. All too often I have seen people indiscriminately cut headcount or cost without giving any thought to what they actually need as a business going forward. If you are looking to sell more do you really want to apply an enterprise-wide cost reduction to a marketing function? If you are looking to become more efficient and digitise should you actually be spending more on IT not cutting spend and headcount? What is your business’ revised plan and what headcount and capabilities will you need to deliver it?

2) Think about your supply chain – it is both good business sense and morally sound to look after your suppliers and to think bigger – I already know of some suppliers who have been treated badly who will remember and will have a different attitude to partnering post-Covid. For what it is worth my smaller suppliers are high on my priority list for these very reasons;

3) We need to think about our larger purpose in the world and what role we should be playing in helping us to trade out of recession. If we all stop spending we simply prolong the agony for everyone – again be balanced;

4) What can sometimes happen is that businesses cut too deep and take away core capabilities meaning they have no ability to drive change or seize opportunities meaning they are effectively paralysed as a business – you have the tech but not the people to implement.

I guess what I am saying is do some prudent housekeeping and auditing but don’t wreck your own and other’s businesses by cutting too deeply and without thinking through what you need.

 

6Remember M&A and Distressed Assets and People.

Where there is change there is opportunity. In some ways, recessions are like a high-risk game of musical chairs. Businesses go through different stages of evolution, investment and profit but where were you when the music stopped? Sadly for some, they will have been in the wrong place. This means there will be opportunities. There will also be good people hitting the market – perhaps of a calibre that you could not previously have afforded. You need to focus on your M&A capability and financing. How would you deliver a deal quickly? Do you have the right processes in place? Who should you be targeting? Who is in trouble? I have worked with many corporates in the past and some are very good at this and are poised and ready to respond to key announcements the moment they happen. We have done a lot of work in this space and some businesses are already engaging to make sure they have the right team around them. You need to get yourself “match fit” for the opportunities which could come your way. 

 

7Don’t Take Finance for Granted.

Sometimes it is easy to miss the obvious. Nowadays most businesses operate with a level of financing and the reality of recessions is that banks get a lot more cautious. For individuals, the Buy to Let Mortgage Market is virtually shut for business and at the last count even in a mini housing boom (driven by people wanting better places to live due to lockdown and the stamp duty holiday) 10% deposit mortgages have gone down from a choice of 779 deals at the start of March to around 60 six months later according to Moneyfacts. The bank’s attitude to Law Firms has obviously hardened in recent years and already we are seeing examples of challenges in refinancing or of more onerous terms being imposed. Yes, the Government have helped provide support but the availability of finance (for existing or new purposes) cannot be taken for granted and so start any planning in this area early.

 

8. Wayne Gretzky – “Play to Where the Puck Is Going Not Where It Is”.

Recessions sort out the strong from the weak, they also allow the great to shine. Recessions also bring about a huge amount of change. Where there is change money can be made. For law firms, in particular, they don’t need a buoyant market to make money, they simply need things to be happening. The rules are constantly changing though – “playing to where the puck is going” has always been important but in recessionary times it becomes critical. Everyone needs to up the ante on spotting the opportunities and where there will be demand so they can pivot. A real estate contact mentioned to me the other day that every property deal going down was logistics based with – online sales now accounted for over a third of retail (Amazon have just announced UK sales have surged to £14bn) and there are other stats to support this in our conversation with a postman article. Also, tech companies are surging for obvious reasons whilst the commercial real estate is being hit. Someone will be buying it though if the price is right, there will be refinancing needs and distressed assets. Over the last 20 years more law firms have become sector focused and innovative – now is the time to prove this. There will be opportunities.

 

9. Shift to Innovation, Quality and R&D.

If a firm is quieter what should you be doing if you are able to preserve headcount? The wrong answer is nothing or simply telling people to sell in a market where work is scarce. There obviously needs to be some of that but there are many other areas that can be addressed too. Running a successful law firm used to be about having the right number of people with the right skills at the right time. If you got that right together with the pricing of work and salaries it was a winning formula. Things are very different now – the march of technology is impacting on the actual delivery of law. A law firm’s ability to make money is no longer linked to headcount and many are beginning to demonstrate this with new ways of working, product launch and the licencing and reselling of software. My point quite simply is that one of the biggest barriers to innovation has been the availability of domain skills. Lawyers have been too busy. If that is changing, is now the time to seize the moment? Develop new ways of working, launch new products, get your know-how and processes in good shape, become as efficient as you can be, put new models in place with third parties? A great leader or head of innovation needs to be orchestrating and driving this – it is a great time for lawyers to learn and in any event lawyers have a strong work ethic and so need to be kept busy.

 

10. All Recessions Are Not the Same.

It is easy to assume all recessions are all the same. Yes, there are some common factors (including the absence of cash!) but do not lose sight of what is different and what effect it will have and plan for it. The Credit Crunch was a case in point – I had never seen financial institutions failing at such scale. You need to work out what worked well in the past but what is different this time around. What impact will that have? A few starters for 10:

  1. Commercial property always gets hit but has lockdown and the IT industry completely redefined our relationship with the Office and Retail forever? What effect will this have on pension schemes, travel, innovation and more? Working out your future relationship with real estate will be key for every business. There are choices which will have to be made.
  2. Domestic property normally takes a hit but it is having a mini-surge? Rural which was arguably declining is enjoying a renaissance? Where will this go long term and will this be the end of the London/region house price divide? Will this be a boom time for housebuilders? Will this end and will changes in the mortgage market suppress this?
  3. Will we see the end of the city? Who will want to live there if people don’t travel into offices? Who will live in the offices which are planned to be turned into residential?
  4. Retail – in fairness to online and logistics they have really helped us through lockdown but at what cost. Is on-prem retail dead forever? What is needed for it to recover?
  5. The world will be jittery as the unthinkable has happened. Will people now be scared of any form of contract and commitment? Do they worry that we will see another pandemic?
  6. Even without Covid-19 the UK had its hands full with the potential economic effects of Brexit. With a no-deal Brexit potentially on the horizon, we could have the perfect storm. Whatever the position this will affect the shape and nature of the recovery and we need to plan for that
  7. The war for talent as we come out of this will get more complex – if you don’t have flexible working arrangements will you be able to hire? Your talent can now come from anywhere? Some people’s loyalty to businesses will be irreparably damaged? Some will have completely redefined what they want from life and so will act accordingly. This could be a great opportunity to bring more diversity into the profession.
  8. This recession is global. Asia has been much better at managing pandemics but the West has more experience of managing recessions. Who will come out of this first and what effect will that have? Will this damage the dominance of the US and who is lending all the money that countries are borrowing? How will this affect the balance of power and prosperity in a post-Covid world?
  9. The world’s attitude to travel has again perhaps changed forever? By this, I mean both international travel and public transport. Also, we have seen a change to their attitude to the capabilities their own countries need to possess which again will drive change and opportunity? 
  10. The tax burden. The Government have provided unprecedented support during this crisis. In most cases, this has probably been necessary but we will obviously be paying for this for years to come. Will this impact the speed of recovery?

 I am not sure I have seen any of the above in previous recessions and perhaps the overall lesson is that this may be a very different sort of recession with more unanticipated side effects than we are used to? We all perhaps need to be more agile and alert with completely new strategies around Real Estate, Technology and Digital and People/Talent

In short, recessions are clearly not good. The world has a history of recovering though, there is opportunity as well as pent up demand (a conversation with a carpenter). This may be different from what we have seen before though in some ways but we need to remember experience matters. Those with experience have a responsibility to help lead and reassure those who have lived through less. Above all, we need to make the right decisions and avoid turning the wrong way into a skid. It is a time to stay calm and for the stars in the industry to shine.

Derek Southall

Derek Southall

Hyperscale Group
Derek Southall, founder and CEO is a high profile and very well connected figure in the legal technology, innovation, knowledge management and digital marketplaces. Derek has spent nearly 25 years in a range of leading strategic roles for a top 50 global law firm, for most of this time as a Partner and Head of Strategic Development and subsequently as Head of Digital and Innovation. During this period Derek oversaw and helped drive growth from £27 mil TO to in excess of £425 mil TO as well as driving and supporting numerous mergers and international expansion to 18 offices in 10 countries. Derek was ranked by the FT as one of the top three most innovative lawyers in the UK in its first study into the legal market. Derek also led the firm’s technology team to become ranked as the most innovative in Europe and subsequently the firm to ranked as the second most innovative firm in Europe as well as picking up a range of other awards. Derek has been the relationship partner for a long list of major household name clients in a range of sectors including Automotive, FMCG, Financial Services, Food and Drink, Fashion and Construction and has a strong track record in sales and product delivery. Derek has been ranked three times in the last three years as an Acritas Star for outstanding client delivery (based on independent feedback). Derek chairs and was one of the founders of the Legal IT Innovators Group (www.litig.org) which has 80 or so of the top 100 firms as members and which plays a key role in driving ahead technological thinking and change for the good of the legal profession. In this role he has worked alongside the United Nations and a range of other large organisations. www.hyperscalegroup.com recently joined forces with two other leading advisory businesses in the fields of technology, operations and financial management to create the www.intuityalliance.com which has been referred to as the “Holy Trilogy” of Legal IT. Its purpose is to pool experience and intellectual knowhow to ensure we have a more holistic approach to how they give advice. Derek also serves on the advisory boards of several start-ups and has recently been appointed to the advisory board of the Global Institute of Innovation, which brings together around 400 academics to solve some of the world’s biggest problems.