At Zen Internet’s recent partner day, Paul Stobart, the company’s CEO, hammered home the reality of the difficult environment that every company in the channel will have to navigate. Stobart opened his keynote with question: “How do you manage a double whammy of a recessionary trading environment and rampant inflation?”
He gave a thoughtful overview of the situation in front of us. “The economy is not in a great shape, and the old adage that there’s no such thing as a free lunch is absolutely true. Covid has, for all sorts of reasons, cost the country an unbelievable amount of money, and we are going to have to find a way to pay that back. That’s not going to go away, so the levels of debt that we have in the country are such that there is a real challenge.
“Now in parallel, and I don’t want to get political about this at all, Brexit has cost us. The Brexit dividend, for all sorts of reasons, has not materialised in the way that was expected. As a consequence, there are at least a couple of points of GDP that have been hit by the fact that we don’t have a very large open trading partner next door.
“Our reputation internationally has been damaged. The Truss-Kwarteng interlude did real damage to our reputation and, of course, that had an impact on the value of sterling. The value of sterling matters because we buy a lot of our kit from overseas, and that kit is in dollars, and our rating versus the dollar is poor. That means that the kit that we buy becomes more expensive, and that will ripple through everybody in our industry in due course.”
Stobart explained that inflation is “starting to hurt” for everyone, with many interconnected factors having an impact. This includes the war in Ukraine, the cost-of-living crisis, rising energy costs, Sterling’s decline, and wage inflation.
Concentrate on cash flow
To get through this period, Stobart said, partners “need to be awake and wise to the inevitability of a much more challenging environment” and shared a few pointers that could help businesses through this environment. The first centered on cash flow.
Stobart explained, “In difficult times the number that matters is cash flow. Cash matters. I review weekly cash flow every week, and I watch cash every day. I get a report every day, into my inbox first thing: where’s our cash? What went out yesterday? What came in today? If you’ve not got that kind of cash flow reporting in your business, then you need to have it.
“You need to be able to sense check how it feels – which sounds like an odd thing to say about cash – but you need to know when it feels like the cash flow is not quite coming in as you expected it to. Or more is going out than you expected. You have to watch it like a hawk. You’ve got to know your business cash balance as well as you possibly can.”
Regular price increases
Stobart also discussed pricing and price increases. He said, “I am old enough to remember the times in the 70s and early 80s when price increases were the norm. But for many of you, you will never have been through an environment where it’s like that. You have to get used to the fact that price increases are coming our way.”
Stobart anticipates that major suppliers to the Channel will be raising prices just prior to, or just after, the new year, and no single company within the supply chain can absorb these price increases.
He emphasised the situation in front of many companies within the channel: “You can’t absorb that sort of price increase and that has to be passed on. It’s not nice. It’s not pleasant. But, ultimately, the end consumer is going to have to pay for the costs of these pressures coming through the system.”
Stobart said that the best way to manage price increases is to do them in small amounts, but regularly. He explained, “There’s a reticence today to do that. We wait and wait and wait and wait and then just slide a 25 per cent price increase on a customer. That’s horrible. It’s much better to do more gradual price increases more often.”
Partners can manage these price increases by ensuring they are talking to customers about what is happening. Stobart said, “We need to be having those conversations with customers explaining we’re going to have to get used to a different, more dynamic, price environment.”
Finding opportunities
Finally, he highlighted the importance of looking after existing customers to get through what could be a difficult period. He said, “We all need to be looking after existing customers as well as we can in a recessionary environment. All of us love the excitement of looking for new customers. But, in a recession, existing customers are the profitable business.
“Winning a new customer costs you a fortune in: time, expense, promotions, and marketing. In an existing customer, you’ve already got that customer onboard, it costs you nothing, it’s all additional margin. And we need to be keeping close to them.”
Stobart is positive the Channel will thrive despite these outward pressures, as long as companies react to what is coming. “In times of challenge, and this has always been the case throughout history, there is also immense opportunity.” And he believes the Channel is ready to grab hold of those opportunities.
This article appeared in our January 2023 print issue. You can read the magazine in full here.