How to survive a recession
The idea of a recession can be scary, but no matter how good the economic outlook is you will still see companies fail – and no matter how bad the economy is, some people will be making more money than they ever have before.
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The idea of a recession can be scary if you run a business. As a consumer, you have some options when there’s less money coming in. You can make cut-backs, you can have nights in instead of nights out, you can just spend less and buy less stuff to make sure that you don’t run out of money by the end of the month. But as a business, if your customers simply stop spending with you then that can be catastrophic for your company: you’ve still got rent to cover, you’ve still got suppliers to pay and you might have staff that are relying on you for their income.
In the UK, the last great recession we saw was in 2008 and 2009 when we had over a year of negative growth on the back of the banking crisis. It was a tough time for many people and the same downturn was seen in many other countries at the same time including the US. It was a time when we lost a number of banks including Northern Rock, and major UK high-street retailers including Woolworths went bust.
But while some businesses were having a horrid time, 2008 is also when we saw the launch of companies such as UK craft beer company Brew Dog which is now worth more than 2 billion with a customer base around the world. Companies that were offering innovative new ways to find and buy products like Not On The Highstreet found that their userbase surged by a million new customers at the start of the last recession – a pattern that the company saw repeated during the coronavirus pandemic.
And this is the first thing to take notice of: no matter how good the economic outlook is, companies fail; and no matter how bad the economic outlook is, you will see a bunch of people making more money than they ever have before.
A change in consumer behaviour always brings opportunities
A downturn in the economy can genuinely be a scary time for your business, especially if you’ve never traded through a financial downturn before. But it can be a time for real opportunities also. When the economy hits a rough patch people’s spending patterns change. The types of products and services we buy changes. How long it takes us to make buying decisions changes. We re-evaluate our outgoings to decide what is necessary and what is a luxury that we may be able to do without. We consolidate our purchases or start to look around to see if we can get a product that solves the same problem from someone else at a cheaper price.
Although it’s this change in consumer buying behaviour that creates problems for businesses, it’s the same change in behaviour which creates the opportunities too. A hotel chain has a problem when the economy slumps because people cut back on travelling and those that do have to travel are looking to pay less. The hotel chain, however, still has all their infrastructure to maintain at a fixed cost. But for a company like Airbnb, which provides a platform for people to rent out their spare rooms to travellers, every time there’s a slump in the economy their bookings go up because people are looking for cheaper alternatives. In fact, Airbnb launched in a downturn when the founders saw a need for cheaper travel accommodation. And if Airbnb see a period of reduced bookings, then it’s no big problem because they have no hotels they need to maintain – making the company far more resilient.
We saw the same change regarding where people were spending during the coronavirus pandemic. As some companies lost out, others made record profits. Streaming services saw a boom in new subscribers whilst cinemas closed. Those companies that could pivot to provide at-home services, deliveries and experiences saw fast growth, whilst those tied to traditional business models couldn’t adapt.
Protecting your business
Even if you do have a flexible, agile business that is not tied to a traditional business model then you can still expect to be hit by a downturn. Some of the impact will be second-hand as other companies in your supply chain reduce their spending, and other financial pressures may need to be managed whilst you adapt your business model to protect yourself against some of the negative effects.
Downturns force you into running a lean company, and by lean we mean a cost-efficient business that produces a product or delivers a service as efficiently as possible without waste spend. A lot of the time, staff are the biggest cost to a business but laying people off is never an easy process. We have a responsibility to those we employ and, especially in smaller businesses, those around us become our family. So if you are looking to reduce the number of people working in your business first ask yourself this question: do you need to cut down on employees because the company simply can’t justify the number of people you employ or do you just need to reduce wages to get through what you estimate is going to be a relatively short period of time? Recruiting and training staff is expensive and companies that cut their key staff during a recession then struggle to grow coming out of it. So if you believe you are only facing a short-term hardship then consider other options to reduce the payroll on a temporary basis. Can some staff become part-time for a period or can the company itself move to reduced hours or operate a four day work week? Taking this one action alone will reduce your payroll bill by 20%. Some members of your team may even welcome the opportunity of unpaid leave so that they can work on their own projects or go travelling for a period of time knowing they have a job to come back to.
However, if you do decide that you have no option but to lay off staff then take action quickly and decisively. Don’t agonise for months hoping that the situation will just resolve itself as your company loses more and more money. The worst thing you can have in your business is the threat of redundancies hanging over staff, morale and productivity will drop as people fear for their jobs. So if you do need to make redundancies then cut once and cut deep. Make all the redundancies that you think you’ll need to make in one go so that you can draw a line under it. Once you have had job cuts in your business, your remaining team needs to know that the action was taken to get the business on a secure footing and no more are coming, and that their job is now safe as a result.
No matter how good the economic outlook is companies fail. And no matter how bad the economic outlook is, you will see a bunch of people making more money than they ever have before.
Using a downturn to renegotiate contracts with suppliers
A downturn or recession also gives you the opportunity to renegotiate your contracts with your suppliers. This is a time when companies will be offering their best prices and doing everything they can to retain customers, even if that’s on a lower spend rather than lose them all together. So your business’s landlord may agree to a payment holiday rather than having you go bust and losing a long-term tenant. Or they may even agree to reduce your rent – because that’s preferable to having an empty space generating no income at all at a time when they know they are going to struggle to re-fill it. Suppliers may give you better and longer payment terms to keep you buying from them. For example, if you have a major supplier who you pay on 30 days after you make the purchase, then moving to paying them on 60 days essentially gives you a month free from payments whilst still receiving their goods. And once you are on that improved contract, it’s very hard for suppliers to roll you back to the less-favourable deal further down the line! So downturns are the perfect time to shop around for deals on your phone lines or company vehicles and to take a look at what suppliers and agencies you use to see which are offering the best deals.
Once you’ve done what you can to get your company on a secure financial footing, next take a good look at the products you are making or the services you are offering. Work out what impact a downturn will likely have on them. If a company knows that it is approaching a recession then the business leader will normally start clearing their desk so that they can focus on directing the business through it. So if you are a business owner who is struggling to even take a breath, then this may be the time to start delegating, automating or outsourcing so that you can really concentrate on steering your business through choppy waters.
Flipping your mindset to find new opportunities
Acknowledge how your customers’ spending is changing – not just around your product but in general. For example, if people are cutting back on going out for experiences and entertainment, can you change your product or service so people can have an experience at home instead? During a downturn, people are wanting to increase their skills and employability, so can you switch to teaching people a skill or to re-train? Can you teach your customers how to do what you do? Could you even teach your customers how to make your product themselves, selling them the ingredients to do it as a new income stream? This lets customers have a product at a lower cost and saves you the operational costs of making and shipping the product yourself.
Or maybe you need to switch your market. Just because your country is in recession, other countries may be unaffected or even going through a period of growth. If your home market is going through a tough time then take a look at what’s happening elsewhere in the world – is this the perfect time to introduce your product or service to a different country that desperately needs it? This is exceptionally easy to do if you offer a service or a digital product, and especially if you target other countries who speak the same language that you do, but even physical products can be licenced in other countries. You don’t need to package them up and ship them overseas yourself, you can find someone in that country who can make the product for you and fulfil orders directly to local customers.
If you can flip your mindset then you may find that a downturn is actually the perfect time to grow your business instead of cutting back. Because when companies cut back one of the first things to go is advertising spend, meaning that there will be less marketing activity from your competitors. But it’s been shown over and again that those companies who are aggressive with their marketing during a downturn are the ones who come out of it in the best shape. And again, in terms of paid advertising, the time when everyone else is cutting back on their marketing spend is when you will get the best deals for yours. Magazines will be open to throwing in all sorts of extras and upgrades to get you to advertise with them – agree to a six issue deal with them on the condition that they put you on the cover for one of those issues. Just keep asking what else they will throw in until they exhaust all their possible offers. If your competitors are all putting their marketing on hold, then make sure your adverts keep running and keep running hard!
Also remember that selling more to the people who already buy from you is cheaper than finding new customers. So focus on re-marketing strategies and keeping your current customers engaged. If you’re going to offer deals, offer them first to the people who have already bought from you because they are the ones who will buy again quicker. Get disciplined with your email marketing schedule and make sure you reconnect with old customers who may not have heard from you for a while. Even if they are ex-customers who walked away, they may be easier to bring back on board than someone who’s never heard of you – so give them a re-introduction offer and tell them what’s new since they last bought from you.
Time to squeeze out the competition
Moving to more proactive action, a recession is also a great time to go after your competitors. Before we continue with this, let me say that as vegan businesses we view competition differently to other sectors. If someone else is trying to bring about the same change in the world as you are, even if they are selling the same thing as you, then we would rather support each other and work in collaboration as ethical vegan businesses. But you’re not just in competition with other vegan businesses – you’ll be in competition with non-vegan ones too. So if your competitor is being forced to cut back and is already feeling the squeeze, then now is the opportunity to single them out and overtake them. Can you come up with an offer (that you can sustainably maintain) that attacks their core service at a cheaper price to win away their customers? People still need services and products during a downturn, they are just looking to get them for the best price. So can you undercut your competitor whilst still making a profit (or sustain a loss in return for more customers later)? Can you come up with an innovative new way for someone to buy, such as leasing your product instead of buying it outright? If you have a high-value product, can you use invoice finance so that you get paid straight away but a finance company then facilitates a payment plan to the customer? Can you even give away your product for free?
Now, this isn’t as daft an idea as it sounds. Email marketing platform MailChimp didn’t start to see exceptional growth as a platform until it started offering a free tier. It allowed people to use its core service for free in return for putting a badge on the bottom of the email newsletters they sent, giving MailChimp a free advert to everyone who received the email. It’s what we did with Vegan Business Tribe – we launched VBT a month before the pandemic hit and quickly switched to a free service so that we could help as many vegan businesses as possible during those early months. Those people who signed up with us during that time became our most vocal champions and gave us the foundation to then launch a paid tier several months later. And imagine the sheer panic that your competitor will feel when they see you are really going in hard with a deal if they are already feeling the squeeze, or even giving away the product or service they are charging people for free. If a competitor is making cutbacks then that also gives you the opportunity to pinch their best staff too. If someone is fearing for their job then a solid offer from a competitor (in a market they are already familiar with) may mean that they are willing to jump over to your ship without even asking you to beat their current wage.
Of course, a downturn in the economy can be terrifying and it can be the downfall to many businesses who are simply unable to respond to the resulting change in consumer behaviour. But to return to where we started: even during the worse recession lots of businesses find success; and during the most prosperous of times, a lot of businesses go bust. We’re all subject to the same winds, what makes the difference is how you set your sail.
A bullet point recap of what we’ve just covered in this article:
When the economy hits a rough patch, people’s spending patterns change. The types of products and services they buy changes and how long it takes to make a decision changes. People reevaluate their outgoings to decide what is necessary and what is a luxury that they may be able to do without.
Although this change in consumer buying behaviour creates problems for businesses, it also creates opportunities. Hotel chains with all their infrastructure struggle during a downturn, whereas a company like Airbnb (who own no properties themselves) thrive.
Recruiting and training staff is expensive, so look at temporary options to reduce your payroll if you think you are just facing short-term pressure. Offer unpaid leave for people to go travelling or cut back to a four-day workweek to reduce your payroll by 20%.
If you do decide that you have no option but to lay off staff then take action quickly and decisively. Cut once and cut deep – once you have had redundancies in your business, your remaining team needs to know that their job is now safe as a result.
A downturn or recession gives you the opportunity to renegotiate current contracts with suppliers. A landlord may accept a payment holiday or reduce your rent rather than lose a tenant. Ask your suppliers to move to 60 days instead of 30.
During a downturn, people are wanting to increase their skills and employability. Can you switch to teaching people a skill or help them re-train? Could you even teach your customers to do what you do or make what you make and sell them the ingredients to do it?
Just because your country is in recession, other countries might be going through a period of growth. Is this the perfect time to introduce your product or service to a different country that desperately needs it?
Use this time to get great deals on your marketing. Magazines and platforms will be open to throwing in all sorts of extras and upgrades to get you to advertise with them. Just keep asking them what else they will throw in until they exhaust all their possible offers.
A recession is also a great time to put even more pressure on your competitors. Can you come up with an offer that attacks their core service at a cheaper price to win away their customers? Can you come up with an innovative new way for someone to buy, such as leasing your product instead of buying it outright? And if your competitor is panicking and cutting back, then that’s also the perfect time to try and pinch their best staff who are fearing for their jobs!
No matter how good the economic outlook is, you will find that some companies fail. And no matter how bad the economic outlook is, you will find a bunch of people making more money than they ever have before.
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