Respond to your company’s warning light

By Dr Jana Matthews | 6 min read | Listen to your company’s warning light. 

If the warning light is flashing and your company is struggling in the current environment, it might be a small comfort to know that you aren’t alone.

Those of us who have been through turbulence have “seen this rodeo before” and have learnt some hard lessons. One critical indicator of whether you should try to “stay alive” is whether your company’s warning light is blinking red, yellow or green. CEOs must be able to recognise whether your company’s warning light is blinking red, yellow or green, because each colour suggests a different set of issues and requires a different response.

Red Warning Light – DANGER

Businesses that are in the danger zone right now may have paid their employees their entitlements, closed down, and are hibernating. Some are trying to negotiate lower rent with their landlords or a reprieve from rent for a period of time. Banks may have provided  relief on mortgage and interest payments. It’s important to remember that this relief is temporary; it is not “free”. At some time in the future you will need to  pay back the rent or the deferred mortgage and interest payments. But sometimes a little relief is all you need to get through. So talk with your landlord and your banker ASAP. Be honest about your current situation and future prospects. Meanwhile, don’t forget to explore all the government assistance programs that are available.

As you are doing all this, look at your company from the perspective of an investor. Because that’s what you are. You are investing your time, energy and money in this business. Be honest about what will be required for it to be viable and ask yourself whether you are willing and able to make the changes required for it to re-open and start again?

If your answer is “no, not really”, then give yourself permission to close it down and spend time thinking about what you want to do with the rest of your life.

If your answer is “yes” and you believe the business is viable, then use these next few months to plan a “do-over” for the company. Engage remaining employees to help you look at your products and services, identify changes in customers or what they are asking for, develop a new layout or new systems, think through a better marketing strategy or refresh your website. Stay positive and think of this “hibernation” as a gift of time to make positive changes.

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Yellow Warning Light – CAUTION

A lot of companies are looking at a yellow light. As the leader you need to take this turbulence seriously and not think “she’ll be alright” or look the other way in “benign neglect”. Lack of attention could be fatal if the light turns red.

Begin with your financials. Study your accounts receivable, payable, P&L, and Balance Sheet. Project your cash flow for the next few months. How long before you run out of money and can’t pay staff and other expenses? Work on collecting receivables and think through how many expenditures you can delay.

Focus your efforts on selling what customers want and stop trying to sell the rest. Figure out how to make more of what customers want, i.e., put on a second or third shift or be willing to pay overtime. Stop selling to customers who cost you money.

Be honest with your employees. If you are over-staffed for the current volume of work, engage with them to come up with some solutions, such as taking vacation, reduced shifts or job-share.

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Green Warning Light – GO FASTER

There are some companies and some sectors for whom the green lights are signalling “go faster”. Some companies can actually benefit in the aftermath of turbulence.

One of our CEOs in the manufacturing sector wrote, “We have a record number of orders and are exceptionally busy. I have daily meetings with operations, finance and sales to monitor the rolling monthly forecast. We are identifying any orders in the production grid that may be at risk…and are projecting the impact that could have on budgets and timing. We are constantly reviewing our sales pipeline for changes and any signs of deterioration. I am running as much overtime as possible and shipping everything we can, as quickly as possible! If we do have a recession, I want to have as healthy a balance sheet as possible.”

You could call him “lucky”, but I would call him smart by responding to the green warning light and doing what a leader should do at all times, but especially when a crisis offers an opportunity to grow.

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My Lesson Learnt

I was in London when the 9/11 disaster shocked America. It took me several weeks to get back to my home and company in Boulder Colorado. Planes were grounded. Americans felt under siege. People simply went home and locked the door. Disbelief was wide-spread and panic was rampant. People were afraid we’d be invaded, who knew which city would be targeted next, or what innocent person might be killed.

Every week another one of our contracts got cancelled, but I kept thinking we would come through OK. In retrospect, I totally underestimated how long it would take before things were normal again. Knowing what I know now, I should have laid off staff and “hibernated” for several months, kept cash in the bank, and used the time to re-evaluate and restructure the business and plan the next stage of growth. But uncertainty plays tricks on rationality, and my staff and I alternated between worrying and comforting each other.

In the end, I had to let them go because we were nearly out of cash; the USA had no Job Keeper programs. All that worry took a toll on my health and my family. When the economy did begin to recover, it took much longer for my company to break back and build momentum because we didn’t have the cash to hire/re-hire the staff needed to capitalise on the opportunities.

Rebound and grow

In a crisis or during significant turbulence, CEOs first need to ask themselves whether the company has a chance of surviving. What would it take to rebound and grow again? If it could survive, then take notice of your company’s warning light. Be prepared to make some tough decisions about people and strategy. Make the changes required to strengthen the company so it can rebound and grow again.

Like this article? Try: ‘How to lead during a crisis

Want to learn more about this topic? Try ‘Assessing risks and opportunities

Article updated November 2023

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