The recession is not your greatest threat. It may be your greatest ally. The recession will affect your business but not necessarily in a negative way. So, how will the recession affect your business?… It depends on what you do with it. Here are some of the best things I have seen business owners do in past recessions that they have weathered. Let’s also dive into how this recession can help you thrive and position you for greater growth in the future. Here are 7 lessons I have learned from past recessions.
Focus on the Fundamentals of business during Recessions
When we hit a downturn in the market we are reminded about the fundamentals of business and a lot of the extras and distractions fall to the wayside. Recessions cause us to look closely at our expenses which almost always grow disproportionately during the good times. When cash flow is good, we get lax with our discipline. When cash is tight, we remember that we need to focus our resources on delivering exactly what the customer needs in line with our strategy.
We can’t do everything and things that seemed nice in the past are seen for what they are, just an extravagance. I don’t need premium, first class, VIP, white glove care for me. I need it for my customers. Then they will take care of me. I was working for a company that traveled the world to teach leadership. It was 2009 and budgets were a bit tight for our global customers and our own team needed to be cared for as well. It was customary when we went on long flights to book 1st class tickets so the team could arrive fresh. We would fly over and then the next day spend all day in hotel ballrooms or conference centers facilitating or teaching and then hop back on a flight and head home. We would arrive pretty tired and never really got to know the countries we visited. So, we offered any of the staff who wanted, could go one day early if they flew coach and we would give them an extra $1000 they could use to visit the sites, get a massage, and rest up before starting the day with the customers. The team loved the extra day off, enjoyed time together seeing the sites, pocketed the difference, and we saved $6000 a ticket.
This was just one of many opportunities we found to tighten the belt while still delivering everything the customer needed. We ended that year up a little in revenue and significantly higher profit margins. It was a banner year for our business in an industry which normally suffers severely in a downturn. Other opportunities will be to renegotiate contracts, leases, subscriptions, loan terms, and anything else that can give you a little wiggle room and refocus your energy.
Keep your customers close
Recessions also cause us to get really close to our customers and understand what they need and how to best deliver on those expectations because they need our help to make it through and we can’t afford to lose any more customers either. During the brief but stark downturn at the beginning of the pandemic, we had half of our subscriptions cancelled due to fear and tight budgets. We reached out and listened to what they were most worried about and began creating content to help them and anyone else who needed it as well. We put all this content outside of the membership wall so any of our clients who canceled their subscription access it to get through this time of uncertainty. We saw traffic increase, received lots of grateful feedback, and within a few months were back to pre-pandemic shock levels. Our customers saw that we were there for them and wouldn’t abandon them in tough times. Well, shouldn’t we always be really close to our customers to understand what they need?
Recessions weed out poor players, hold on and gain market share
Recessions also help weed out less worthy competition and noise in the market place. In quickly growing markets, many of fly by night competitors swoop in to eat up some of the excess margins by offering lower cost solutions and lower quality service. The market complains about the poor quality but the demand is so high, they buy anyway and the industry gets a bit of a black eye.
During the housing crash of 2008, contractors were hit hard but the years leading up to the housing bubble had flooded the market with low quality contractors that were stretched beyond their ability to deliver. These competitors gave the construction industry a bad name in many markets and lowered trust with new home buyers. The hot market dried up almost instantly and many of these contractors went under. As they went under, many jobs were left unfinished, deposits were lost, and jobs really got behind but the good companies were still there to come in and find a way to finish the work and help the market see who were the good players in the space. The really good ones gained even more market share and grew even faster when the market returned. In a good recession, the bad players are weeded out and the best companies become better known and trusted. Stay true to the brand promise you have made to your customers and double down on delivering consistent value to them and you will come out on top at the end of this recession.
Recessions spark innovation
Recessions get us back to our scrappy roots and we often innovate just to survive and start brand new businesses or offerings that position us for growth once our customer’s purse strings loosen again. Return to some of your founding stories and share them with the team. We had to create things out of air. We figured things out. We made things last or did without. We used our creativity instead of our checkbook to meet customer needs. We celebrated. We laughed. We cried. We conquered. There is a spirit of scrappiness that is extremely valuable when creating something new that as we get more systematized, we sometimes lose in favor of predictability. Recessions are a good time to reignite that scrappiness to discover new solutions and innovate around our processes so we are ready for the next stage of growth.
Invest while demand and prices on certain things are low
Recessions are a great time to invest. We often hear the adage, “Buy low and Sell high”. Guess what, a recession is the “low”. It is time to buy. Those competitors that are going out of business often have some great equipment, a few great employees, and a market they were serving even if not as well as you can. It is buy time, not time to just hole up and weather the storm. Keep your eyes open for opportunities to invest this recession. They are there, you just have to get disciplined around your cash fast so you have some squirreled away to use or some available credit line to tap when the right investment comes along. If you know you will need new office space, rents tend to be down in a recession. If you need additional equipment for your assembly line, you can get fire sale prices as competitors go out of business and creditors liquidate assets. Recessions are great times to invest.
It is easier to build fierce loyalty in recessions when other companies are not
Recessions are a time to build loyalty in your team. I just said that now is the time to invest. Well, it is time to invest in your current team as well. You may be tempted to look at your team as the biggest expense that you have and the place where you can cut back to weather the recession. Don’t do it. If your team is the right team, don’t cut into it. If it is not, I don’t care what kind of market it is, you need to work to get it there. Either helping them to succeed in your business or helping them find success outside of your business. So, back to investing in your team. They are worried. The lousy media is telling them they are supposed to be afraid. Prices are increasing and income security is decreasing, they are afraid. You can help them see the big picture. Help them see the blue skies beyond the storm. Reassure them of your commitment to them and invest in helping them improve. If work is slow, train them. If you are losing customers, invite them to help you find new ones or better ways of serving the remaining ones. If cash is tight, ask them to help you get more disciplined. Show them you see them as the solution, not the problem. Show them that they matter more than short-term profits. It will take less than 2 years to come out of the recession but you will win a decade of loyalty and engagement by showing that you are there for them in the down times. The return is incredible. The journey will be forever memorable.
In the recession of 2000 several companies I know shut off their leadership pipelines. They stopped for just 2 years intentionally hiring talent for future leadership needs. 10 years later I was working with those same companies and every one of them told me it was a terrible decision. They were still suffering from a talent shortage. During the Great Recession not one of them put the brakes on hiring for leadership. They sacrificed in other areas to ensure they would not hamper their growth again by crippling their team.
Let the recession in the market remind you that life is more than profits.
Recessions can also remind us of what is most important. All that extra time invested in growing the business can evaporate in a matter of days. What was it all for anyway? When our business is down, the market kicks us even harder. Where do we get the strength to move forward? It doesn’t come from the market; it comes from our family and friends. They lift us up. They help us start again. They believe in us, even when we are down. That is the kind of investment worth doubling down on. Now that things have slowed down a bit, you might take a moment to reassess your priorities, and begin building the business that will support what is most important to you and your family. Taking a step back for a moment can create incredible clarity and energy for the next phase of your business. Use this time to be intentional about your life and not just your back account.
To wrap up, Recessions are just a moment for the market to breath, rest up a little, and get ready for the next season of growth. We have technically been in a recession for a couple of years, many of you have grown through this time, now let’s take a breath, get clear, and get ready to grow in the areas that matter most to us and our team.