On Resiliency, Optionality, and Confidence

Resiliency, Optionality, and Confidence: How Companies Win During Uncertainty

Not long ago, I was working with a client that built their business around long-cycle capital sales. For years, their success depended on landing large, complex projects — deals that often took several years to develop and close. It was a great business when the economy was stable. Long-cycle sales, in uncertain macro environments, can dry up quickly.

Capital budgets were delayed. Some projects were canceled outright. The company found itself dangerously exposed, with few alternatives if big deals didn't land exactly as forecasted.

The first step was to build resiliency to the changing conditions.

We shifted more focus to aftermarket parts and services. These revenue streams were faster, steadier, and less exposed to economic shocks. Even if a new project stalled, customers still needed parts, repairs, upgrades, and service contracts.

This pivot immediately strengthened the business’s resiliency. Even if new capital sales dropped by 30%, the company could still remain profitable, without needing massive cost-cutting or layoffs. The core operations became more stable, flexible, and durable.

Resiliency unlocked Optionality.

With a stronger base, we had more strategic moves available. The company could now pursue capital projects that were lower-risk, higher-margin, and squarely in their target market, No longer feeling forced to chase every opportunity, even questionable ones. They could say “no” more often. They could choose the battles worth fighting.

And with more options, came Confidence.

The risky prospect of expanding into new geographies, areas underserved by both us and our competitors, became a real, executable strategy. We had the resources, the cash flow, and the discipline to make bold moves while others hesitated.

The Resiliency-Optionality-Confidence Cycle

This experience reinforced a simple truth:

• Resiliency is about delivering on commitments even when the unexpected happens.

• Optionality is the reward for building resiliency. It gives you better choices and the ability to move faster and smarter than your competitors.

• Confidence flows from optionality. The confidence to act boldly, because you’ve done the hard work to be ready.

Companies that invest in these three pillars don’t just survive uncertainty — they find ways to grow stronger because of it.

The question for every business leader today is: Are you building resiliency, optionality, and confidence — or are you still hoping for the best?

On Market Conditions, Strategy, and Navigation

In Patrick O’Brian’s novels about the Napoleonic Naval Wars, it always struck me as odd that, even in the middle of a battle, all of the ships would stop and take azimuth readings at noon. This critical ceremony and navigational necessity transcended all other priorities.

For my friends locked in conference rooms churning out PowerPoint by the Pound readying this year’s STRAP decks, you are the navigators. It is because of the winds, the swells, the bullets flying, the smoke and the yelling, that we need a correct and timely measure of where we are and where we are going. As navigators, you are not ignoring the acute situation of tariffs and demand, you are using this to help the captain make the right decision about where to go.

The strategy team’s role in the organization is to help make better decisions. We create the options, evaluate each, and make a recommendation based on the evidence within the context of what is happening around us.

Understanding and documenting the Context is the critical first step

• Market Context

• Customer Context

• Ecosystem Context

• Company Context

In ‘normal’ market conditions, the Context should generate a small number of options available and the recommendations are usually clear from the data. We are not in normal market conditions. With unknown trade conditions, unknown demand conditions, unknown capital conditions, and a host of unknown unknowns, the strategy team will have to come up with a different move.

Create optionality

Creating optionality is about creating the internal conditions favorable to you no matter the external conditions. For example, using Lean to reduce cost of operations is beneficial no matter the market conditions.

Creating optionality is not the same as creating options. When we create options, we are developing a series of logic conditions; if-then statements about what do when this condition exists. For example, when demand reaches a certain point we will add a new production line. Creating optionality is about developing an organization and processes that is successful regardless of what else happens. For example, restructuring the production line to adapt in real time to demand.

Optionality uses the current crazy conditions to help steer the ship. The winds, swells, bullets, and more are helping you understand what conditions your optionality must be able to withstand. For example, if you are overexposed to a demand drop of 10-15%, what systems and processes need to be adapted? Again, don’t confuse this with options like, “if demand drops below this point, restructure that business.” Your optionality may be to absorb demand drops with flexible supply chains. Or, your optionality may be to offset demand drops in A with demand increase in B. For example, working with an Engineering (EPC) company that serves aluminum foundries, we strengthened the aftermarket support team. When demand for new projects is high, the aftermarket team can help support installations. When the demand for new projects is low, the aftermarket team pulls through parts and service.

1. How are the current conditions changing your plans? What systems and processes are impacted? E.g., demand is forecast down by as much as 20%, we have engineering resources with nothing to do.

2. What options are available at various conditions? e.g., demand is down 20% vs demand is up 5%, what changes in that system? Engineers are busy or bored. If they are bored, what else could they do?

3. Create optionality. When demand is high, engineers are working on customer installation projects. When demand is low, engineers are working on customer retrofits and repairs.

In Patrick O’Brian’s tenth book, Far Side of the Word (also a great movie starring Russel Crowe), Captain Aubrey used a deep fog and an unknown shoreline to his advantage. He created optionality using the adverse conditions to win the battle.

On the Start of Q1 Earnings, Economic Uncertainty, and Forecasting to Year End

As the quarterly earnings season kicks off, Investor Relations teams are under pressure to frame their narratives carefully. The first quarter earnings reports are expected to be cautious, with many companies likely revising their future projections downward. Amidst this generally bleak outlook, a few bold players are planning to go on the offense, realigning resources and maintaining their forecasts.

Gloom and Cut or Shift and Boom?

This earnings season promises to be a tough one for many businesses. A large number are expected to adjust their future outlooks downwards and announce significant cost-cutting measures. Phrases like “double-digit basis points improvements in margins due to restructuring” will be common as companies try to salvage their financial year.

However, cutting costs isn't the only strategy on the table. A select group of managers will use this opportunity for strategic reallocation, shifting resources to parts of the business less affected by the current economic climate.

Leveraging the Business Model Flywheel

In my recent work with a capital projects company, we dissected their business model flywheel to pinpoint recession-resistant areas within their customer lifecycle. Anticipating economic turmoil, we developed contingency plans focused on these robust segments, preparing to withstand the storm.

Strategic Forecasting and Resource Allocation

Now is the time to challenge your strategy teams. Task them with developing a plan that maintains your year-end forecasts for revenue and profitability.

• How are each of our segments impacted by current conditions? Which are less exposed?

• What portions of the customer lifecycle are less impacted?

• What are customers thinking right now? How are their plans changing? Are they retreating or going on offense? How are we going to support them in these moves?

• What are our competitors thinking right now? Assume they also have a strategy team also being asked the same questions. What answers are they likely to develop? What options do they have and what moves are they likely to make?

• What would it take to keep the year-end forecast? Assume we can shift resources; where should we reallocate?

This approach demands a thorough understanding of your business model, including your assets, competitive advantages, potential competitive moves, and customer options. If this kind of detailed business analysis isn't already at your fingertips, consider reaching out. My team and I specialize in documenting and analyzing these critical components to help businesses navigate through uncertainty.

1. Document the business model flywheel. It’s not always obvious where new business is actually generated.

2. Understand the relative value propositions and customer options at each stage in the business model flywheel. It’s here that you are likely to find your exposure or protection from the current market conditions.

3. Does the business model flywheel change by customer segment or do you have a consistent, ‘rinse and repeat’ model? Operating multiple business models can be complex, but it can offer optionality.

4. At each step in the business model flywheel, how efficient at customer conversion are your processes? You could use a Lean approach here to document and root out waste. Most likely, the first time you do this you will find a lot of waste and competitive disadvantage. Here is where you are likely to find opportunities to shift resources.

Despite the weather, this can be a great time to go on offense

The beginning of this earnings season will likely be marked by caution and strategic realignments. While many companies will be focusing on cost reduction, the savvy few will be looking at how to strategically reposition resources to strengthen the more resilient parts of their business. This not only prepares them to endure the current downturn but also sets a foundation for accelerated growth when conditions improve.

On Tariffs, Val Kilmer, and Making Decisions

Why Taking the Initiative Can Secure Your Competitive Edge

Yesterday’s news about the death of Val Kilmer on the same day as the global tariff upheaval, reminded me of a line from one of my favorite movies, Top Gun. "You don't have time to think up there. If you think, you're dead."

When your competitors are paralyzed by indecision, wondering what their next move should be, it is the perfect moment to step forward and take decisive action. The ability to make a well-informed decision, even amidst uncertainty, can be the key to not only surviving but thriving in the competitive landscape.

Understanding the Power of Decision-Making

Decisive action is more than just making a choice; it is about committing to a direction and confidently moving forward. The consequences of indecision can be severe, leading to missed opportunities, stagnation, and ultimately, loss of market share. Conversely, prompt decision-making can propel you ahead, allowing you to capitalize on opportunities and navigate challenges more effectively.

Action Mitigates Uncertainty

Uncertainty is an inherent part of business. The tariffs and global turmoil is a massive uncertainty generator. Waiting for perfect clarity before making a move can be a recipe for inaction and failure.

When a business acts decisively, it can:

• Influence Market Dynamics: Taking the lead can shape market trends and set new standards, positioning the company as a trendsetter rather than a follower.

• Build Confidence: Decisive actions instill confidence in stakeholders, including employees, investors, and customers, fostering trust and loyalty.

• Create Opportunities: Early movers often have the advantage of exploring new markets, technologies, and strategies before competitors catch up.

Strategies for Making Decisive Business Decisions

To harness the power of decisive action, businesses must develop strategies that support informed and timely decision-making. Here are some key approaches:

Foster a Business Development Mindset

Fostering a culture that values agility and responsiveness enables a business to adapt quickly to changing conditions. Encouraging employees to think on their feet and make swift decisions can streamline processes and enhance innovation.

Utilize Data-Driven Insights

While complete information may be elusive, leveraging available data can provide valuable insights that inform decision-making. Implementing robust analytics tools and methodologies helps businesses make more informed choices amidst uncertainty.

Empower Leadership and Teams

Empowering leadership and teams with the authority and resources to make decisions ensures that the organization can act swiftly when opportunities arise. Clear communication and trust within the team are crucial for this empowerment to be effective.

Act While Others Hesitate

The ability to act decisively while competitors are mired in uncertainty can be a significant advantage. Decisive action not only mitigates uncertainty but also positions a company as a leader, capable of shaping market dynamics and seizing opportunities. By fostering a culture of agility, leveraging data-driven insights, empowering leadership, and balancing risks and rewards, businesses can cultivate the confidence and capability to make bold decisions that drive success. In a world where hesitation can mean the difference between success and failure, the importance of decisive action cannot be overstated.