In our recent members-only huddle, CEOs explored what triggers they are looking at and what their “break glass” plans are with the possibility of recession on the horizon.

To get the conversation started, the group looked at a presentation by Live Oak Bank who surveyed mid-market companies (10 million to 500 million in revenue) about their expectations. The results were a mix -- 36% believing the economy will mostly stay the same over the next 12 months and 21% believing it will get worse.

A sampling: What four CEOs are seeing right now

• Construction  - “I think we are going to see a lag. We have a lot of government money. But even though the funding is there, delays are still happening. What we saw in COVID isn’t going away. So these projects may not happen. We may not have the construction we are counting on to get people out in the field. We are watching those indicators to make sure we aren’t overly optimistic.”
• Environmental test chambers - “My company is in a bubble. We are supported through regulation money for the batteries. Things are looking really strong. Our biggest risk is China. We are so heavily into tech and if tech isn’t going to continue to move into China, our programs are at risk. In the current market, we do still struggle from a labor rate perspective.”
• Consumer products - “Our jewelry is at a low price point ($50) so we really are recession proof. The Lipstick Study showed that in a recession lipstick sales go up. A woman can’t buy a full outfit, but she can buy a new lipstick. During COVID, we had all time high sales on earrings.”
• Dental distribution - “We’ll be watching the unemployment numbers. As long as people have jobs and insurance, they are going to the dentist.”

Key takeaways from the discussion

1. The job market hasn’t softened (yet)

The unemployment numbers and the reality of the current job market came up in the discussion multiple times. One CEO questioned how we can go into a recession when everyone has a job and when there are more jobs than workers.

A CEO who had just returned from Silicon Valley, mentioned he was told by a top executive that, as of right now, tech layoffs are in excess of the lay offs from the .com bubble.

This was an interesting data point, but not what the CEOs on the call are experiencing. Although there was a feeling that the labor market is starting to shift, it was still seen by most to be in a place where new hires and current key players can make demands and get what they are asking for.

Experiences of a few CEOs:

• “We are still being forced to overpay. People are demanding 30% raises for specialized labor or will walk out .”
• “You still have to pay the As what they ask for, the Bs are a question mark and the Cs are a conversation.”
• “In 2023, we are going to start calling people’s bluffs.”
• “We haven’t been taking more than a week to make an offer, but now are moving away from this and slowing down the pace of hiring.
• “I’m giving out 40% raises to the A players. Everyone thinks they are equal and that’s not the case. You have to have some hard conversations. Just because someone gets a raise, doesn’t mean everyone should.”

2. It’s important to be clear on the main triggers for your business

One member shared a comprehensive document that tracked both external and internal metrics to help him and his board have a real understanding of what’s happening in order to make informed decisions in the face of a downturn.

External metrics they track:

• Gross domestic product
• Housing stats
• Unemployment
• Consumer confidence index
• Business confidence index
• Manufacturing PMI
• Treasury yield curve rates

Another CEO made the point that it can be overwhelming to have too many external metrics you are tracking and that for his team he focuses them on the 2-3 that have the biggest impact on the business.

3. Now is the time to have a “break glass” plan in place

Several CEOs shared that they have a plan in the works or already in place. One has the plan written out with all levers layed out and is ready to discuss this at his next board meeting and another said they are using the plan they built at the beginning of COVID. He said, “We are clear on what’s nice to have and what’s essential. We know which expenses are more discretionary.”

4. The CEO’s most important job in a downturn is managing their people

One of the members said, “As a CEO, managing the team, spirit and attitude is the most important job you have.”

He shared that in difficult times like this, it’s so important to show this kind of leadership. How do you work with the employees to help them stay calm in the storm? The two “mantras” he shares often with his team if there is a crisis are, “As a private company, we have the luxury to think in decades not quarters” and also, “Our history is that we win the disruptions.” Which leads to the next big takeaway…

5. Disruptions provide some of the best opportunities

“You can win the disruptions, even when the overall news is negative.”  

The group agreed that in a down market there are many opportunities, with two of the biggest being:

• Talent acquisitions that you wouldn’t have had access to when the labor market was strong. As the price of labor goes down, there’s an opportunity to grow portions of the business by hiring people who in the past were out of your range
• M&A opportunities with competitors who can’t weather the storm or because PE firms are stepping back and there’s more space to have conversations with companies they might have been pursuing in an up market.

The encouragement from one long-time CEO was that even if a company is small, acquisitions can be a huge opportunity in tough times. One example he shared was, “If a business owner is 55 or 60 and they are looking to get their money out soon, and don't know how a downturn is going to impact that, they might want to protect their downside. I can come to them and say, ‘Let me buy you out and I’ll write the check to grow the business. I’m going to fund your growth and you’ll get a check at the end’.”

Final Thoughts

David Cohen, a Strategic Facilitator of Katahdin Group and former CEO in finance and banking closed out with these thoughts:  

“The confluence of data and the fact that we have more jobs than people will continue to be a factor here. After we see the end of the fourth quarter, I don’t think there will be a huge spike, but I think the unemployment rate will start to shift in the first quarter.

And a reminder that this all happens in real time. The big companies don't see it coming any better than you do. And it’s industry dependent. Stay very close to your customers and pay attention to your competitors. Understand your customers’ mindsets. If you do, you are one step closer to what’s going on.”

ABOUT THE CEO HUDDLE: Our quarterly CEO Huddles are member-only events for those in the Katahdin Group’s CEO Collective peer network. This is a forum for discussion and peer feedback on topics that are timely and important for those in the CEO seat. To learn more about the CEO Collective, contact us.