In this episode James and Paul discuss when you can justify investing in capital expenditure projects during an economic downturn, exploring the business benefits of investing to fast track future competitive strengths.
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It has been a challenging year for many ecommerce businesses due to tougher trading conditions following bumper years in 2020 and 2021. Some verticals like furniture have struggled to hit sales budgets as customers cut back on spend, and businesses are reevaluating the need to invest in capital projects, as well as tightening the opex purse strings.
With this in mind, we’re exploring what can be justified reasons for investing in capital projects for ecommerce during an economic downturn. We ask is there a justification to invest during tough trading times, what are the risks of undertaking a big tech project during a recession and how do you mitigate risk and make the right decision?
Tl;dr – what we cover:
- Is there a justification to invest during tough trading times?
- What are the risks of undertaking a big technology project during a recession?
- What are the potential benefits?
- How do you mitigate risk and make the right decision?
Key discussion points
- Why would you spend during an economic downturn?
- Tackle known operational and tech issues/barriers that will prevent you from scaling up once the economy recovers
- Having the time to focus properly on operational capability whilst trading demands are quieter e.g. when fulfilment centres aren’t rushed off their feet, opportunity to upgrade systems to future proof for new/improved delivery options or through-put
- Reduce long term cost e.g. manual overhead, removing roles that aren’t needed on a more modern setup such as WebOps
- Reducing fixed and marginal costs of using an existing legacy tech stack e.g. strip out unnecessary 3rd party tools/plugins, reduce license fee by moving to SaaS, reduce S&M fees and general cost of development
- Strategic investment to reduce cost in other areas
- What are the project risks for doing replatforming during a recession?
- Over estimating how quickly you’ll get ROI
- Taking money away from other capital projects
- Distracting teams from squeezing the most out of your current traffic and driving as much sales as possible to counter the trading challenges
- Cost that isn’t considered / overages
- Trying to rush / do on the cheap / not involving the right stakeholders etc
- How should you approach this type of project ?
- Same reasons as beforReduce waste / make spend efficient
- Continue to allow for growth
- Free up internal resources
- Make roadmap items more attainable
- May help you negotiate better rates with vendors who want to keep their pipelines fuelled
- How do you make the right decision?
- Not thinking solely about cost – thinking about impact of spend and future benefits
- Don’t just rush the decision
- Continue to do the same level of due-diligence
- Ensure you’re investing in something that can scale around your business / goals
- Make sure the issues you’re trying to resolve are platform related and not just shifting them to a new platform
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