Surviving and Thriving Through an Economic Downturn
We are experiencing rocky roads.
There are a few things businesses need to pay attention to in order to survive and thrive through an economic downturn:
- For better or worse, this downturn is different than past ones (not an apples-to-apples comparison)
- Ongoing workforce management issues won’t be solved soon
- Prepare now – won’t happen overnight
Bain & Company, using data from the Great Recession (December 2007-June 2009), discovered that the top 10% of companies they analyzed saw their earnings climb steadily throughout the period and continue to rise afterward. A study by McKinsey found similar results. What made the difference?
Preparation. The Bain study revealed that stagnation in the aftermath of the Great Recession resulted from a lack of contingency plans or proactive evaluation of alternative scenarios. “When the downturn hit,” the Bain report stated, “they switched to survival mode, making deep cuts and reacting defensively.” Many companies that merely limp through a recession are slower to recover and never really catch up.
To prepare your business to survive and thrive, here are six areas of resilience to focus on.
Six Areas of Economic Resilience
Focus on decision-making.
Match decisions with expertise. While this is always a good practice, it is easy in the midst of a recession to centralize decision-making for control. Although this is an understandable action, decisions need input from employees at all levels. But it is critical that those tapped for input have expertise in the discipline and operations. It is vital to note that recessions offer opportunities for change.
Ways to make your operations resilient:
- Read and comprehend economic signals
- Invest in a business coach
- Communicate with employees – include them in problem-solving
- Be open to change
- Know who your vendors are
RESOURCE >> Vendor Documentation & Contact List
Technology can make your business more transparent, more flexible, and more efficient. When proactively managed, technology can help cut costs – a critical element of surviving an economic slowdown. Also, IT investments increase agility and lay a foundation for companies to handle the uncertainty and rapid change that come with a recession. Finally, technology will create increased flexibility for changes in product, volume, and supply chain issues.
How to Save on Technology During a Recession:
- Don’t wait on purchases your business needs (refer to the Financial section below)
- Be smart on purchases – you buy cheap, you get cheap
- Discuss ways technology can streamline your operations or increase productivity
- Review your vendor partnerships for redundancies (and the value of services)
- Schedule a complimentary Technology Alignment Review
A CommWest Technology Alignment Review provides your business with a breakdown of current technology and identifies gaps or inefficiencies. This information allows you to be informed of necessary purchases, possible redundancies, and other items that will impact your business.
RESOURCE >> Spread out your purchases with Technology Lifecycle Management so that no year is overloaded with technology expenses
Businesses need to stay top-of-mind during an economic slowdown. Therefore, those companies that choose to find cost-effective ways to stay in front of the market have a greater success rate.
When marketing, remember:
- Be sensitive to the times
- Keep messaging relevant and keep the company’s brand identity front and center
- Keep website and publicized information up-to-date (business hours, contact information, location)
Don’t run out of money. It’s a reality. A recession usually brings lower sales. And that leads to less cash to fund operations.
During a recession, you need more cash, which means less debt. But that is when less cash tends to come in the door. The more debt you have when less cash comes in, the more cash you need to make your interest and principal payments. And that places you in risk territory. This result can lead to making aggressive cuts that will restrict your survivability and post-recession growth.
When discussing ways to save cash, don’t automatically eliminate necessary purchases. There are reasons to buy now instead of waiting for the economy to pick back up.
If you are needing to make a purchase, here are reasons to buy now:
- You’ll never get anything cheaper than you will today – even if inflation decreases, prices won’t
- Availability of products is not guaranteed, especially in an emergency
- Interest rates are on the verge of increasing (if they have not already)
ADDITIONAL READING >> 8 Tips to Adapt to Price Inflation
Look beyond layoffs.
Companies that emerged from the 2009 recession in the strongest position relied less on layoffs to cut costs and leaned more on operational improvements. That is not to say that they did not manage their staffing and cost balance. It is to say that they understood that cutting staff and instituting layoffs are costly in the present and, most importantly, in the future. The hiring and training process demands a significant investment in time and is costly, creating a financial hit when it is time to rehire. Layoffs can also hurt morale, dampening productivity when companies can ill afford it. Therefore, instituting practices such as furloughs, hours reduction, and performance pay can increase a company’s survival rate and ability to thrive.
The flip side of layoffs is employees quitting. As mentioned above, workforce management issues are not going away anytime soon. That is what makes retaining your talent even more important for your business. Unfortunately, there are no one-size-fits-all solutions for businesses when it comes to employees. For that reason, we’ve provided additional articles to read on this topic.
Focus on core competencies.
Companies that scale back to the products and services that perform best and generate revenue and profit have a greater chance for a positive outcome and future. They limit their budget in trying to support weaker products or services. And, if possible, identify ways to generate multiple streams of revenue that promote that core product or service.
Invest in existing customers.
As they say, “A bird in the hand is better than two in the bush”.
It is well documented that acquiring new customers is 5-7 times more costly than maintaining existing ones. During a recession, however, people clamp down on their spending. This action can make the acquisition cost even higher, but more importantly, it can create churn. People begin to look at how and where to cut costs, making businesses vulnerable to displacement. Companies that invest in deepening relationships with their customer base have a greater success rate during and after a recession. The focus needs to be on demonstrating the depth of the company’s value to the current clients and acknowledging their importance to the business.
A few tips as you focus on competencies and customers:
- Customer experience is important, especially now. Customers are looking for ways to cut costs, and the customer service and overall experience they receive will be make-or-break for your business.
- People like talking to people, not answering machines or automated messages. Here are ways to make your communications more effective.
The mind is a powerful thing. Don’t just accept that business is going to be flat or down because of the “R” word. Motivate your employees and establish a culture that is one of growth. A recession is a perfect opportunity to conquer your competition and grow your market share. By keeping focused on these resiliencies, a business leader will create the opportunity to remain healthy through a recession and come out of it strong and thriving.