The answers to these questions will provide a roadmap for how conservative or aggressive your company should be in this current environment.

There are challenges on the horizon, but 2023 can also bring new opportunities for companies that take the time to think about the current market conditions strategically and creatively.

In Q4 2022, I had the opportunity to kick off the annual LLR Collaborate forum for CEOs and CFOs by reflecting on the current economic headwinds and their impact on lower middle market businesses. A conservative response to volatility might seem prudent, but as growth-focused investors that have partnered with companies to navigate multiple cycles through two eventful decades (including the Great Recession), the message to our companies was more nuanced. It’s about intentionality, opportunity and how to avoid getting stuck in the middle hoping for a quick rebound.

Three big questions leaders should ask in 2023

Here’s what I asked our CEOs and CFOs to consider when developing their plans for 2023. The answers to these questions will provide a roadmap for how conservative or aggressive your company should be in this current environment.

1. What is the impact on your customers?

Reassess your customer’s (current and prospective) health and make certain you know how the current market conditions have impacted:

  • Their ability to afford your products or services
  • Their ability to renew/repurchase or prioritize new purchases
  • The way their needs may have changed or evolved
  • Your opportunity to offer additional solutions that align with those needs

2. What is the impact on your competitors?

Look at how the current market may reward your competitors with capital and the conviction to invest or, conversely, how their growth efforts may be hindered. Ask yourself:

  • Does the current market present an opportunity to be more aggressive than your competitors?
  • Can you invest while others are being cautious or have limited resources?
  • Is now a time to innovate while others are cutting costs and retrenching?
  • Is now the time for opportunistic M&A?
  • Or is it more appropriate to shore up your balance sheet and reserves and wait for market conditions to stabilize?

3. What can you do for your employees?

This past year was challenging for most employers. However, 2023 is already showing signs of change, which presents an opportunity for employers to reassess these areas.

  • How do you position your organization as an employer of choice?
  • Does your organization and staffing model need to evolve to meet your employees’ needs and your customer’s needs?
  • Are there opportunities to evolve your operating model to drive efficiency and optimization?

Where to focus moving forward

Facing an unpredictable mix of opportunity and adversity, the worst thing an organizational leader can do is retreat and retrench before exploring all the options. In the conversations that took place at LLR Collaborate, the takeaways were clear. To help ensure your organization has the right plan moving forward, focus on the following.

  • Reassess your market, opportunities and risks. This is a great opportunity to develop a fresh perspective on your company’s market position. Avoid being overly insular and missing the opportunity to take advantage of others who are.
  • Be intentional and proactive. Have a point of view and develop a plan. Don’t be reactive to the changing market conditions. Where appropriate, take action to shore up resources and operating flexibility.
  • Ensure strong organizational alignment. Clarify the “why” on any changes to your organization’s priorities and revisit with your board and your teams each quarter to refine and revalidate.
  • Make use of your network. Now is the time to reach out to your network for guidance, especially those who have been through this kind of cycle before.

Here’s the bottom line.

This will be a challenging year (and likely beyond), but in two decades of working with the middle market, we have navigated these cycles before. The companies that leapfrog over their competitors during these times are those that take the time to think more deeply, look at the situation in a more open-minded way, and consider all the options. Now is the time to reassess your market, tap into the wisdom of your network, plan and execute with intentionality, and be ready to capitalize as opportunities arise.