Best Practices for Doing Business During a Recession
It’s time for a bit of honesty when it comes to the economy – recessions happen. Some companies fail. Some entire industries fail. The bright side, though, is that business during a recession can be quite good in some industries. Just as the next season is inevitable, so too is the fact that a recession will come, and it will damage businesses. Understanding whether it will damage your business, though, is likely more complex. What makes a company recession proof? And how can you ensure that the next economic downturn won’t do any serious damage to your company?
What Makes a Company Recession Proof? Know Recessions
The U.S. economy is a complex space. Growth as a whole is measured by gross domestic product (GDP). When the economy is growing, businesses make money and hire more people. People, as a whole, have more money to spend on products and services like yours. Economic expansion continues. At some point, though, that changes. After all, the economy simply can’t grow forever. It reaches the peak of the mountain, then heads down the other side. GDP begins to shrink. When it does so for at least two consecutive economic quarters, a recession is declared.
There have been more than 40 recessions in U.S. history, and none of them follow the same pattern. Some last for just a few months. Others, though, last for years. The Great Depression was the worst single recession in U.S. history. Many of today’s companies, though, are familiar with the financial crisis that lasted from 2007 – 2009. It’s tough to predict when the next one will happen, but in general, they hit about every six years.
The timeline of every recession is different, but so is the cause. It’s as difficult to predict the cause of the next recession as it is the timing. In some cases, a bubble in a particular industry bursts, creating a ripple effect throughout the economy. In the case of COVID-19, a public health emergency created a problem for many businesses.
Knowing how recessions work, though, as well as what to do is a great way to better understand how to strengthen your business. So, what makes a company recession proof?
Stay on Top of the Health of Your Business
Outside of knowing how recessions come about, the single best thing you can do is continually understand the health of your business. On a daily basis, seek to understand whether you have underlying inefficiencies with regard to your product or service offerings. Know exactly how much talent you need at any given time, too. Moreover, be familiar with the resources you need to both maintain what you’re doing now and grow.
If your health check uncovers any potential problems, you can begin to implement the necessary changes to protect your company. That could mean restructuring your overall organization to make better use of your talent. It could also mean evaluating your products and services to ensure that market demands are met but your offerings are diversified enough to handle a downturn. It may also mean adjusting your growth targets and benchmarks.
Focus on Marketing
What makes a company recession proof? You need to focus on the opportunities hidden in the chaos. You should consider what must change about your marketing during a recession. In most recessions, companies cut marketing expenditures in a big way, but that’s not always the best move. Of course, you’ll want to plan to contain your costs, but gently adjusting your strategy is a must. Think about your customers as you make a recession marketing plan. Remember, customer purchases depend on how confident they feel and how much disposable income they have on hand.
Traditional segmentation won’t work when you’re marketing during a recession. Instead of focusing on customers who fit traditional molds like “new parent” or “job seeker”, you’ll have to think about customers in very different categories – those who are working to eliminate all their spending, customers who feel the pain but are dealing with it, and those who continue to feel comfortable despite the economic change.
Once you better understand your customers, it’s time to better understand where your product line or services fits into a recession. Essentials are just that – required for survival. Treats are small, justifiable indulgences. Postponables are products that are somewhat needed but can be put to the side temporarily. Expendables are completely optional.
Most customers reevaluate what they want and need during a recession. Some cut out certain categories of spending. Others simply make a temporary swap. Knowing your base will help you better make targeting decisions for your next campaign.
Decide which products or services won’t survive, which ones may experience a drop but will likely make it, and which ones are going to sail through the recession without an issue. Concentrate on the options that will stay relevant to your customers to keep your company moving forward even when the economy isn’t. Define your KPIs, stay flexible, and adjust as necessary. What makes a company recession proof? Employees are a big part too.
Don’t Overlook Your Employees
Your employees are the lifeblood of your business. You want to maximize their abilities and comfort level. Offer encouragement and reassurance, no matter what the economic climate looks like. Continually work to identify any undiscovered leaders and ensure they step up to help you weather the storms ahead. Continually listen to your employees. Consider, too, what you have to offer them as a company. Intangible perks like flexible scheduling may help to keep them with you when an economic downturn happens.
Don’t Forget About Your Customers
You’ll want to think about your customers, too. Start by considering cutting a few customers. Sound strange? You likely have at least some customers who offer slow payment or difficult service in proportion to the amount of money they’re generating for your company. If you’re preparing for an economic downturn, cutting those customers makes sense because you’ll get additional customers from your renewed marketing efforts, which means the internal resources you were using to please difficult customers can be redirected to keeping new customers.
At the same time, you’ll want to offer as much help as you can to your customers. Continually work to learn about their pain points so you can offer added help and a better customer experience. If you can do something for them without drastically impacting your costs, you should make those changes.
What Makes a Company Recession Proof? Think Long Term
Remember, recessions aren’t forever, and planning ahead is a good way to better understand your business and what you can do both when things are going well in the economy and when they aren’t. So, what makes a company recession proof? It means something else for each company, depending on the industry. At AMB, we offer a free business health check to help you better assess where you’re at. Give us a call today to learn more so you can get better results every day.