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he UK government has released its yearly budget. In his speech on March 15, the Chancellor Jeremy Hunt sounded sensible, but some have drawn attention to a blind spot in his thinking. Bodies such as the Institute of Directors, the Confederation of British Industry, and the Federation of Small Businesses are worried that there isn’t enough to support businesses. These organisations are calling for the chancellor to adjust his plans to better accelerate growth.
No matter where you stand on the above, it’s clear that the headwinds affecting UK companies aren’t letting up. A sputtering economy creates challenges for entrepreneurs, but it offers opportunities too. Whether growth is spiralling or stalling, leaders must learn to parametrise the downside – and play for the upside. “Parametrising” isn’t a word you hear every day, but here it simply means setting aside the things that could go wrong in the future. You identify threats and try to figure out if you can live with them if they get worse. Doing this takes time, imagination and a willingness to approach hard situations.
Parametrise the downside
The first act is to get your team into a room and ask: “How bad can things get?” There will be events coming over the horizon that create stress for your business. Picture yourself in a tough future where – for instance – inflation and operating costs are going up, and customers’ spending power is going down. How would your hospitality brand cope with a pandemic in 2025? What would an upsurge in cybercrime mean for your legal firm? How would you pivot if your apparel company was forced out of its biggest market? If this process is making you uncomfortable, then you’re doing it right.
After listing everything that could conceivably go wrong, you pose a second question: “If this happens, would my business survive?” In this part of the exercise, you draw up a plan of contingency, imagining responses to the threats you’ve assembled. Visualising the future in this way creates certainty – if the worst happened you have a plan, your company would keep the lights on by for example discontinuing a product, closing that site or reducing this cost.
Play for the upside
With the fundamentals covered, you are free to consider the opportunities on offer in any proposed future. Other companies in your category might not have put resources and time into their resilience plans. This means they’re likely to take longer over decisions or act out of fear. Uncertainty will encourage them to defend their position rather than expand. This is why some of the most innovative and resilient companies are built during downturns – incumbent brands find themselves outmatched by new entrants that are hungrier and more forward-looking. A surfeit of pessimism prevents leaders from recognising opportunities, but taken in the right dose, it’s the way to unlock resilience in your organisation.
This approach of parametrizing and playing has been instrumental in the success of OakNorth, the bank of which I’m CEO. Right now, the market is presenting a raft of stress cases for our industry. There’s still the threat of recession in the UK, a difficult credit cycle and a significant drop in the housing market. These are things we can live with, even if they get much worse.
Business leaders praying for tax breaks or government support in the forthcoming budget may find themselves disappointed this week. Entrepreneurs mustn’t wait to be saved, or hold out for a change in circumstances. Instead, they ought to start with a question: “What’s the worst that could happen?” And then ask: “Where’s the opportunity?”
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