Clear-Eyed Strategies for a Murky Outlook

For a long time, Gympass marketed its service to potential HR clients as a benefit that would help them retain employees and attract new ones. And some prospects still hear how offering workers Gympass, which provides access to a wide variety of fitness classes and wellness apps, will give them an edge in a tight labor market.

But the company has developed a new message for employers in recent months: Gympass will help keep employees healthy, which can reduce health care costs, a message that resonates with struggling companies.

Cesar Carvalho, Gympass co-founder and CEO, says the addition of the new marketing strategy and its relatively quick implementation is a result of changes the company made during the COVID-19 pandemic. The company decided to empower its local managers to make more decisions because they're much closer to clients than the senior executives in the New York City headquarters are. The new message originated with local managers.

"That freedom wasn't there before," Carvalho says. As the economic environment grows ever murkier, he adds that he sees executives at other companies centralizing decision-making.

Uncertainty Reigns

Conflicting economic signals make this an inscrutable time to be running any type of company. Inflation is at a 40-year high, while unemployment is at a 60-year low. Meanwhile, consumer spending is increasing even though consumer confidence is falling.

Today's low unemployment rate has been overshadowed by news about mass layoffs at tech companies and across other industries. In March, consulting firm Accenture said it would lay off 19,000 people, while in February, Walt Disney Co. announced 7,000 employees would lose their jobs. Voluntary buyouts are also on the rise. For example, General Motors recently offered voluntary separation packages to most of its salaried employees.

These developments come against a backdrop of turbo-charged changes in technology, including AI and ChatGPT, that are transforming how businesses are run and how people live. Nearly 40 percent of CEOs say their organizations won't be economically viable if they continue on their current path, according to a study conducted last year by consulting firm PwC. That has left business leaders pondering how to prepare for the future when the current state of the economy is a blur and many are predicting some sort of slowdown.

Among CEOs, one major reason for pessimism is rapidly changing technology, according to Anthony Abbatiello, principal and workforce transformation leader for PwC US. The failure to innovate and adapt to shifting tides has always rendered some businesses and products obsolete. Remember Blockbuster? Walkmans? BlackBerrys?

Of course, there is no foolproof blueprint for navigating through a churning environment to ensure an organization can thrive in good times and, at the very least, survive a slowdown. Yet experts suggest that smart leaders can prepare for all conditions by upskilling employees, fine-tuning marketing, ruthlessly managing expenses and expanding into new arenas.

"What we tell our clients, particularly the CEOs, is that the No. 1 thing you need to be doing is understanding the viability of your business model for the future," Abbatiello says. "Be thinking about what the reinvention is, what you need to be in the future and making sure you're upskilling the workforce."

Training Is a Key

Peterson Technology Partners, which provides companies with tech talent, has been upskilling its employees for years to adjust to changing market needs. For example, in 2012, Peterson's clients said they couldn't find enough architects and designers with backgrounds in user experience for their websites and mobile apps. Peterson, along with three clients, set up a training program to fill the need.

"We are not a training school, but we were able to stay ahead of the curve and successfully service our clients," says Nick Shah, Peterson's president, who founded the Park Ridge, Ill.-based company 25 years ago.

When business dried up in the early days of the COVID-19 pandemic, Shah began cross-training employees so they could work in areas such as artificial intelligence and machine learning, rather than lay them off. Part of this was accomplished by having employees create a new recruiting system for Peterson, which would go on to help the company become more competitive. This was possible because Shah had built a healthy financial reserve over the years.

Abbatiello says the second piece of advice he has offered clients is to carefully examine their company's finances and find ways to optimize the balance sheet. That could involve anything from securing a credit line to choosing a less expensive benefits plan.

The PwC survey found that 52 percent of CEOs had reduced operating expenses, though 60 percent said they had no plans to cut staff in the next 12 months. Abbatiello says that the clients who aren't planning big layoffs or salary cuts are avoiding those measures because they don't want to lose talent in this period of uncertainty.

"I tell them to look at the levers that are available to them," he says.

Layoff Pressures

Still, some companies have been forced to lay off workers as they look for ways to bolster their organizations.

Sales at 916 Auto Mart, a used car dealership in Sacramento, Calif., have dropped 50 percent in the last 12 months as interest rates and inflation spiked. Last year, general manager and owner Thomas Holzmann laid off half the staff, cut management salaries by 30 percent, and reduced advertising and inventory by 50 percent.

It was a sharp contrast from the days during the pandemic when people were clamoring for cars. Back then, he was selling five cars a day. Now, he is lucky if he sells one.

"We had record years then, and we were just operating on the same business model," Holzmann says.

No more. Despite the downturn in business, he says no mechanics were laid off because they are necessary to ensure the safety of the cars that are sold. And within the last few months, Holzmann started Sacramento Diesel, a repair shop for diesel trucks. He acknowledged there is risk involved in opening a new business but says that in uncertain times, people are more likely to repair their vehicles than replace them.

"We felt that it was justifiable because we do have a lot of experience repairing trucks," Holzmann says. "It just seemed like a no-brainer. We probably should have done this sooner."

And while Holzmann is buying less inventory overall, he is purchasing more expensive cars. He says Sacramento and the surrounding areas have attracted high-earning tech executives who have fled the Silicon Valley's ultra-pricey home markets and often want and can afford more-upscale automobiles. Holzmann is also considering opening a rental car business specializing in exclusive brands, such as Lamborghini and McLaren, that he estimates could bring in as much as $1,500 a day. The dealership already owns a few such cars, and renting them would generate revenue until they're sold.

Slashing Expenses

Denver-based Cience Technologies, which generates business leads for other companies, has also had to shift focus and cut costs during this changing environment, according to chief marketing officer Eric Quanstrom.

He says that technology companies accounted for a substantial portion of Cience's customers, and that industry is struggling. Cience has laid off about 120 people—10 percent of its staff—over the last year and is now looking to expand its client base. The pharmaceutical and biotech industries are targets because of their relative stability, he says.

Quanstrom concedes that the company should have been tapping other markets earlier, though he admits that such efforts aren't top of mind "when you're winning business and hitting growth targets and forecasts and growing really, really, really fast." He adds, "I think that's the reality, and we're not alone in that."

To save money, Cience has closed its eight offices and is now fully remote. The company's CFO has also set up a new set of controls to examine expenditures more carefully. A broader array of leaders is involved in spending decisions, and the approval process takes longer. Quanstrom says the company formerly held events where 100 or so employees would be brought to a location to gather for a meeting, but those have been "put on ice."

"It feels like a very CFO kind of world, as opposed to a VP of sales world or a CEO world," Quanstrom says. "A lot of the CFOs are just saying, 'Where can we cut costs? Let's do that.' "

Lessons Learned

Some costs are worth carrying, of course. Jonathan Prichard, owner of Mattress Insider, was planning to shutter the company's only showroom, which costs about $18,000 a year to maintain. The company sells specialty mattresses, such as those designed to fit into vans, boats and other vehicles. Few customers visit the storefront located outside of Denver. The lion's share of the company's sales come via phone or through its website.

Before closing the location, Prichard created two websites, one which prominently featured the showroom and one that buried its existence. The former generated $35,000 more in sales in a month. The storefront will remain.

"I think it gives the business legitimacy," Prichard says. "I think it gives people more confidence."

Prichard says he's continually tinkering with the website because even the smallest changes in language can influence customer decisions. He started the business amid the Great Recession in 2008 and says he never forgets that business can turn in an instant.

"I'm always on guard," Prichard says. "I assume it's not going to be great forever."

One strategy Prichard has always used is pitting suppliers against each other to get the best price. However, he says that he is much tougher on big businesses such as FedEx and DHL than small business owners.

Still, during the height of the pandemic, he expanded his mattress vendors because of supply chain issues. He also moved to a larger storage space to keep more inventory.

"We developed relationships with a lot more manufacturers rather than just having all of our eggs in one basket," Prichard says. "We give them all small chunks of business to keep the relationships open."

Richard Laermer, who has owned New York City-based RLM Public Relations for 32 years, is also using lessons learned from previous downturns to maneuver through the uncertainty. During the Great Recession, Laermer opted to shutter his fancy office to save money but was surprised by the pushback from his existing and prospective clients. "They said, 'I don't want to meet at a restaurant, I want to meet at your office,'' Laermer recalls.

He eventually rented another office, though it was basic, lacking all the bells and whistles of his previous headquarters, which took up a whole floor. "It was just a bunch of rooms, and I overheard clients saying all the time, 'I love this scrappy office. It makes me feel better about working with you,'" Laermer says. Clients, he says, took it has a sign that he was a good steward of money, and not spending it on the "trappings" of a successful business.

Laermer closed that office during the pandemic but now wants a new gathering spot for employees and clients and is looking for a similar space. He says he wouldn't go back to a fancy office again because, in retrospect, it didn't benefit the business.

Before the pandemic, Laermer frequently hosted swanky dinners and outings for his employees. That has stopped too, at least for now.

"The Knicks tickets and stuff like that are super expensive and not important to anyone now," Laermer says. "Or at least not as much as getting a bump in salary."

Theresa Agovino is the workplace editor for SHRM.

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