Preparing for an Economic Downturn
Part 1: Introduction
Small confession: there was a time, about 20 years ago, I was on a night flight back from Houston. I had spent all week at a stressful NITA advocacy program. I was exhausted and couldn't wait to get home to my own bed. And for some reason, out of nowhere on this very routine flight, I developed an immediate and intense fear of flying that lasted for two or three years. For years after that night, every time I flew anywhere, I was freaked out and terrified about crashing. Not a super fun travel experience for Mrs. Mazzone.
During those fear of flying years, I would spend those fraught flights watching the flight attendants like a hawk. If they didn't seem like they were battening down the hatches and calling out “May Day!” then I kept my fear in check, more or less. I figured they had superior experience and information compared to me, and so I just treated them as my canary in the proverbial coal mine. Eventually, the fear of flying receded (though I still do not like it as much as I did before) and I moved on. But I still watch the flight attendants in bad weather or on really bumpy flights.
When it comes to the economy, and seeing what is ahead, I have a whole other set of canaries that I watch closely to see whether to panic and strap on my oxygen mask. Unfortunately, even the brilliant Nobel economists are pretty lousy at predicting what is coming next with the economy (looking at you, Paul Krugman, on transitory inflation). So, I cast a pretty wide net to gather broad, diverse information sources to get some gauge of how concerned to be.
One of those sources is that I look at what the large tech companies are doing. And they are doing some things right now that feel an awful lot like putting away the drink card and strapping themselves into their seats.
Specifically, Big Tech has been taking a machete to their headcount and laying off employees like crazy:
Meta (Facebook) 11,000
In all, so far, more than 120,000 tech workers have been laid off. This year.
So, whatever you think of Paul Krugman and the other practitioners of the dismal science, these kinds of numbers should attract your attention. If you are in private practice (and if you are reading this you probably are), and especially if you are own and run your firm, it is a good time to start to formulate a plan for dealing with what increasingly seems like an unavoidable economic downturn heading our way.
Law firms tend to be downstream from their clients in terms of when they feel the effects of a downturn, so don’t panic. You have time to assess your situation and start to think through what changes you might want to make in the coming weeks and months. But you don’t have endless time; this isn't a someday/maybe (for those of you Getting Things Done nerds) kind of conversation. This is something that should go on your project list now. Worst case (or best case, really) scenario is that you do some analysis and prep and no downturn comes in 2023. The time you spend and plans you make will have been a useful exercise. And if we do find ourselves in a downturn that is steeper or longer than anyone is hoping, you will be glad you took action before it came.
To that end, this article will serve as Part 1 of a series over the coming weeks on preparing for an economic downturn. I will share ideas and suggestions for things that might help you get your firm prepared for a difficult period ahead. There will be some focus on management (what operational things can you do to arrange your firm to be maximally resilient), some on marketing (what can you do with current clients and referral sources ahead of a downturn to dig your well before you're thirsty) and some on finance (where can you trim some costs and reduce expenses to keep your balance sheet tight).
I hope you will find some ideas and things of value in this series. Just remember, what doesn't kill you makes you stronger.
If you want to talk through this issue, you can always call me for a practice management consultation. Consultations are free for Lawyers Mutual insureds and steeply discounted for insureds of Lawyers Insurance Agency and LM Title.
About the Author
919.447.3352 | Erik@lawyersmutualnc.com
Erik Mazzone is the practice management advisor in residence at Lawyers Mutual. He is available to LML insureds to book a free practice management or legal tech consultation. You can book directly with him at www.calendly.com/erikmazzone
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