Scaling down successfully: how to survive the energy crisis

Amid the throes of a cost-of-living crisis, the burden of keeping up with demand while juggling higher costs and erratic supply dynamics falls heavily upon small businesses.

One of the most significant pressures is inflation, particularly regarding the cost of electricity and gas in countries across Europe and in the UK. 85% of small-business owners are concerned about inflation, according to recent data from MetLife and the US Chamber of Commerce; 1 in 3 listed it as their top business concern.

To meet the challenge of higher overheads, many are putting up customer prices and reducing inventories as well as shrinking budgets and expenses. Still more businesses are ceasing to trade or going into liquidation.

There are other options, however. Other than risky strategies such as investment and borrowing, businesses may want to consider downsizing – at least until the worst inflationary pressures have passed.

Why downsize?

While downsizing has negative connotations for businesses committed to a growth outlook, expansion just isn’t always possible during times of economic and political turmoil.

In reality, downsizing just means reducing operational costs by measures such as curbing the size of the workforce, closing selected outlets and making remaining departments more productive and efficient. Downsizing is not unusual in business climates like the present.

However, it’s very important that downsizing is done right in order to prevent overly negative repercussions for the business and its employees. There are various things that need to be considered in any business process and this one is no different.

Presentation

The way in which the downsizing is framed to stakeholders and employees is important in controlling the narrative. If investors perceive the decision as negative, they may withdraw funding – potentially placing even more financial strain on the company.

Potential ways for business owners to present the downsize may include foregrounding the benefits the business hopes to make from the decision – such as fewer overheads, improved efficiency and a better supply-to-demand ratio.

When breaking the news to employees, business owners must be especially careful. If the company is letting staff go, the prospect of redundancy could hurt the morale of remaining employees.

To minimise damage, it’s sensible to share the reasons for the downsize with workers and potentially ask for their input on possible solutions to minimise the fallout. Even if they unable to offer alternative solutions, if employees feel included in the decision, they are less likely to allocate blame or hold resentment.

Practice

In terms of practical measures to take, there are multiple steps recommended for the successful scale-down of your business.

One of the earliest and perhaps most important things any business owner should do when considering downsizing is to seek advice from an external source unaffiliated with the company.

Downsizing often involves making tough decisions and for someone personally attached to the business, financially and/or emotionally, it can be overwhelming. Where a business owner may not be able to make impartial, objective decisions, an advisor or career coach could help.

Secondly, cash flow is a big priority. Lack of funds or profitability is invariably the main reason for a downsize, so it’s important that once the decision is made to restructure the business, company spending is controlled with an iron fist.

Take time to analyse where the business may be losing money unnecessarily and find cost-effective solutions – such as redistributing work that was previously outsourced. Do not increase overheads without attracting additional income to finance it.

Finally – and in a similar vein – automate processes where possible to minimise the need for extra staff. Paying employees is a major expense for a business struggling to balance its books and may be remedied by replacing human processes with mechanical alternatives.

Be careful though – if you cut too many staff, you’ll risk losing the element of human touch and relatability that often attracts customers in the first place.

Priorities

Planning will be an integral part of the restructuring process, and to plan effectively it is necessary to decide on a set of priorities. There will undoubtedly be certain aspects of the business that will need to be let go – but this doesn’t mean losing the company’s identity.

Start by focusing upon the company’s core principles and revisiting the reasons it was set up in the first place. Anything that doesn’t directly serve that purpose should be deprioritised.

According to Lisa Zigarmi at The Consciousness Project, it’s important to refocus on 1) what you do best, 2) whom you do it for and 3) why you do it. The vision behind the business is the driving force, and the capacity to implement that vision is the vehicle.

To strengthen the vehicle – and thus the delivery of your goals – focus on critical thinking and problem solving. Identify which parts of the business are working better than others and grow those parts. There’s no shame in asking for help if you need it, just as there’s no shame in admitting to potential clients that you don’t have capacity for a certain project.

The bottom line

No one likes to admit they’re struggling, but at the end of the day downsizing your business may be the decision that stops it from going under. Additionally, it doesn’t have to be a permanent adjustment – it may be that once inflationary pressures have eased, or with the help of government support, operations can be scaled back up.

There are also learning opportunities within the downsizing process. Often, downsizing is referred to as ‘trimming the fat’, meaning getting rid of what’s unnecessary or unhealthy. Having ‘trimmed the fat’ once, you may decide to incorporate the process into routine procedure to help build a more resilient business model.

Whatever the reason for downsizing, it’s not unusual to discover unexpected perks to the process. Try to focus on these, and you may not find the process quite so unpleasant.