It is difficult for many companies right now, and it may become even more difficult. The “R word” is on everyone’s lips, although many are reluctant to utter it. But not the World Bank: it started 2023 with the gloomy forecast that a global recession is imminent.
It doesn’t matter if you occupy a B2B, B2C, DTC or any other business category. If consumers cut back on their spending, so should businesses. There is a tendency to pull in on tough times hoping you can just ride them out.
Yet history has shown that the fearless can not only survive uncertain economic times, but also thrive. Instead of tucking themselves away, they fold and roll. Think Airbnb and Warby Parker.
Just trying to survive is not good enough. Nor was moving forward with a strategic plan developed when the economy was growing rapidly and global pandemics were events you read about in history books.
Companies that find the sweet spot between the two extremes can surprise themselves with their performance. Here are a few ways you can be a risk taker in a crashed economy.
Understand the risks and get ahead of them
No one knows exactly what the economy will do and how that will affect business. Nevertheless, a little knowledge of history and a little common sense will help you anticipate the future somewhat.
Be your own actuary. Investigate possible risk scenarios and consider how you can protect your company’s future against them. Don’t forget to focus on how your industry in particular will be affected. Hospitality, retail, manufacturing, real estate and construction are less recession-resistant than others.
Take retail for example. When consumer spending falls, retailers may find themselves with a lot of stagnant inventory. They have to find different ways to remove old and new products from their shelves. Instead of tightening the marketing budget, they may need to loosen their belts to convince wary customers that now is a good time to buy.
Plan now for what might happen in the next month instead of the next year. And don’t be afraid to try some innovative approaches to everything from product lines to brand messages and positioning. Informed short-term forecasts mean the only thing languishing on the shelf is that long-term strategic plan.
Fluff up the financial cushion
Businesses should apply the same financial principles to their businesses during economic uncertainty as consumers apply to their household budgets. You know them: save money, reduce debt, spend wisely and stick to a budget.
If you don’t have a comprehensive picture of where every corporate dollar is spent, start there. Then look for places where you can cut costs without undermining the business. For example, maybe it’s time to renegotiate the terms of supplier contracts or change the way you ship orders.
Hard as it is, you have to look at the occupation. Perhaps streamlining and simplifying processes not only saves the money you would spend on more employees, but also creates a better customer experience. A McKinsey survey found that 60% of consumers prefer self-service options, so jumping on the automation bandwagon to reduce overhead costs can accomplish two goals.
Invest the spoils of your cost-cutting efforts in interest-bearing financial vehicles. Make sure you can access those cash reserves quickly and without penalty should you need them later. The more you can shake up your financial buffer, the more likely you are to land safely, even if the economy plummets.
Build resilient teams
Remember you are not alone. The people who work for you also have a stake in your success. Make sure you surround yourself with employees who are just as committed to your business as you are.
Start with your leadership team. These individuals should be people you trust and whose input you respect and value. Your leaders must remain optimistic in the face of uncertainty, adhere to core company values, view failures as learning opportunities, and bring empathy into their work every day, no matter what.
The company should provide them with a safe place so that they know how to create the same culture for their teams. Economic uncertainty can be like a huge brainstorming session. No idea is too big, everyone contributes and no one feels judged. You never know which new concept can keep your company afloat.
No company can be resilient in uncertain times if its people are not. If you have people in leadership roles who don’t fit the updated job description, replace them with others who do. You and your company need unstoppable – but reasonable – optimism in a turbulent economy.
Always have a plan B
Always have a backup for any strategy you develop. Plan Bs are the net below you when you enter the economic high wire. It’s okay to fall, and you probably will from time to time, especially if you’re trying something new.
Consider that retail example again. You are taking a risk by adding new products to your inventory at a time when consumers are cutting back. These items are things that customers want but also provide some level of utility, so ideally they can justify the purchase. However, if the products don’t sell well, what’s the plan to get that stock out of your inventory? Are you going to offer more discounts, market to a different audience segment or what? As General Eisenhower famously said, “Plans are nothing; planning is everything.”
Take each part of Plan A and figure out what to do if things don’t go the way you hoped. If plan A includes cost-cutting measures, what will you do if you don’t meet your goals? If your customers’ experience is declining because you’re understaffed, how are you going to make it great for them again?
You probably won’t need to start this from scratch if your business survived the disruptions at the height of the pandemic. Put the best parts of your pandemic contingency plan back to work as backup. After all, these solutions have been tested to the limit.
Worth the risk
Crouching down while the economy throws everything at you is one way to deal with the onslaught. But perhaps fighting back is the risk that can lead your company to a much greater reward. You won’t know until you try.