Why should you be thinking about creating a recession proof business strategy right now? Because according to the World Trade Organisation, the coronavirus…
- Infographic: 4 Strategies to a Recession Proof Businesses
- How Are Businesses Affected By A Recession?
- How To Win At Business In A Recession or Downturn
- Strategy 1: Raise Your Sales To Meet Increased Demand
- Strategy 2: Hold Steady To Survive
- Strategy 3: Twist Into A New Market Or Service
- Strategy 4: Fold Your Business And Live To Start Again
- How To Start A Business In A Recession
Just to be clear, a recession is defined as…
Hmm. That sounds painful and all too familiar, doesn’t it?
So what are the strategic options for your business in the coming recession?
The following infographic summarises your key options, while the rest of the article goes into more detail.
Infographic: 4 Strategies to a Recession Proof Businesses
In this article, you will find the 4 master strategies that any business can use to survive the recession.
If you are starting a new business during a recession there are some specific things to consider and so there is a section that also covers this.
For each strategy, you will find some examples of business types that are using them already, along with ideas to help you use the strategy for yourself.
Beyond this, you’ll also find ways to think and run your business that will give you the best chances of not only surviving the recession, but also thriving from it.
How Are Businesses Affected By A Recession?
The root cause of the recession can be a big factor into how and when your business will be affected by it.
Some businesses seem to be mostly immune to it.
Historically, the pharmaceuticals industry, banking and many others have remained strong in a recession, although since banking was deregulated it is less safe in a recession.
This article on Business Strategy Hub shows 40 recession proof businesses. It has some interesting inclusions like sweet shops, veterinarians (vets), wedding planners and pizza delivery! It goes to show that a recession proof business doesn’t have to be boring or predictable.
Recessions Affect Different Businesses At Different Times
Looking back at the financial crisis of 2007, the first to be hit were independent mortgage brokers.
As the crisis hit the banks, they withdrew all of their property loans from the market.
With no mortgages available to sell, mortgage brokers were left without any products to sell and many folded, one after another.
But the effects rolled throughout the whole economy. The banks lost so much money that they made it very difficult to borrow money.
Small business loans, in particular, were very hard to obtain. The banks simply shut up shop as they licked their wounds,.
Small businesses were really badly hit.
Since some 50-60% of each major western economy is fuelled by the small business sector, this reduced the spending power of the average consumer.
So it rolled further through. Suddenly there were less consumers buying from businesses that are already struggling for funding.
Fewer new businesses started. More businesses went bump.
And the effects went on for years. Many businesses survived for a few years, before finally succumbing.
The owners clinging onto the hopes that things would change.
What they needed was not a shift in the economy, but a shift in their own business strategy. To build a recession proof business.
How To Win At Business In A Recession or Downturn
The rules of success in business are the same as the rules at anytime.
You need to serve a need in the market, and you need to do it better than your competition.
At the start of the 2007 financial crisis, Tesco was the king of the UK supermarket scene.
But it was not a recession proof business.
Over the next few years, the shine wore off its crown as Lidl and Aldi won customers over with a more relevant offer for the time.
But this shift in grocery costs became permanent. The recession gave the discounters a chance to get a strategic advantage.
The weak economy was an opportunity for discount supermarkets Aldi and Lidl to take market share from established big players of Tesco, Sainsbury’s, Morrisons and ASDA.
When they recession was over, customers who moved, stayed with Aldi and Lidl.
This is important. Recessions don’t just create problems. They create opportunities.
A positive mental attitude is critical to your success. It may sound a bit twee, new-age or woo-woo, but it’s vital you grasp it.
You cannot take action without thinking it first.
Your reaction to the events that occur is what produces the results. The event is merely the trigger.
In every case, creating a recession proof business must start with the right frame of mind.
The same events happen to everybody. Your reactions are uniquely yours. What will you do to come out a winner in the long-term?
Strategy 1: Raise Your Sales To Meet Increased Demand
For some businesses, a recession creates an increase in demand.
That’s the ultimate recession proof business.
If this is you, it’s important to react to the market quickly.
Some people see increased demand as a hassle and just carry on doing what they’ve always done.
They sell the same volume of products and services while working a 9 to 5 day.
Don’t be like them.
They miss an easy opportunity that’s been served on a plate for them.
Instead, scale up your operation to fill the market need.
Just make sure you maintain margins and don’t pile on more base costs.
The challenge is that while sales may increase for a while, they can also go down again at the end.
You need to stay flexible enough to shrink back again if the market disappears.
This means you need to forecast what’s going to happen and plan accordingly.
Some kind of cash flow forecasting is critical in times of uncertainty. Try to put some extra cash away, if you can, so that you can fall back on 3-6 months of operating expenses if things get tougher.
The secret when growing a business in a downturn is to keep it lean.
Having a recession proof business does not make you invincible.
Don’t make major investments in full-time staff, new capital investments in equipment, long-term property leases or other big costs until you’re confident you can sustain the growth.
Strategy 2: Hold Steady To Survive
This is the most common scenario for the majority of businesses.
Accepting the truth that you don’t have a recession proof business.
But also acknowledging that it doesn’t have to kill you, either.
Instead, the recession causes an impact that’s bearable.
It might be a huge impact that means laying off half your team.
Or it might just be a few percentage points off.
But the key is that you’re unable to grow your core sales, or your sales have fallen specifically due to circumstances beyond your control.
Or in the case of the COVID19/Coronavirus pandemic, if your business can survive lockdowns no matter how unpleasant.
It can then reasonably expect to bounce back. It may not be a recession proof business, but it may be at least recession resilient.
In this case, minimise your costs while locked down. Take advantage of government funding and look after your staff.
The secret here is really business as usual as far as you can manage.
Keep on keeping on, as they say.
Don’t do anything dramatic or stupid.
Running a recession proof business is about holding in there sometimes when others fall apart.
Look for opportunities to grow sales where you can.
Be the business that new customers will choose, while your competitors have their heads down.
The essence of the strategy is this to HOLD steady until you can grow again…
Run your not quite recession proof business at sustainable levels.
If that means furloughing 18 out of 20 staff so you’re operating a skeleton crew during lockdowns, accept that.
Prepare your marketing for the bounce back. And keep it running while it’s useful to win new sales.
Get your website up to date if you have a bit more time on your hands.
Position your business to charge out of the gates and win once the lockdown or slowdown is over.
Strategy 3: Twist Into A New Market Or Service
What do you do if the impact from the recession is not sustainable?
In Silicon Valley, a lot of tech startups change direction several times as they try to find the right market.
They call it a pivot.
YouTube started out as a dating site.
Nokia made rubber boots.
Twitter, meanwhile, was called Odeo and was designed to help people find and share podcasts, until Apple stole their market with iTunes.
The pivot is about having the brass balls to re-invent your strategy anda recession proof business from the business you already have, no matter how different that is.
This. is critical if the recession is set to kill your business off without change.
Or if your business cannot survive the recession.
And you absolutely refuse. togive up without a fight…
Then TWIST. Pivot into a new market or a new service.
Like the pub that was forced to close during lockdown. So it re-opened as a farm shop.
Strategy 4: Fold Your Business And Live To Start Again
Maybe you just don’t have a recession proof business or one that can be made recession proof.
Colonel Sanders started Kentucky Fried Chicken in his 60’s.
Ray Kroc bought McDonald’s off the McDonald brothers after discovering it as he struggled to make a living as a travelling salesman in his 50’s.
James Dyson made 5,126 different designs before the Dyson DC01 that made him. It took 15 years of failing.
Which is all a long way of saying.
Maybe this business is not meant to be.
Maybe the recession is a sign to tell you it’s not meant to be your magnum opus. Maybe it’s not your “great work”, as Steve Jobs calls your best effort.
Perhaps a different and more recession proof business is what you are destined to build.
People succeed at very different times and often in very different ways to what they first expected or planned.
Many fail for a long time before they succeed.
And it’s never too late to succeed.
But the real wisdom here is to fail fast, not slow…
Don’t hang on if it’s going to go down.
Let the ship sink without you.
Keep your money in reserve.
Let it end cheaply, quickly.
It just may not be geared up to become a recession proof business after all – and that’s ok.
If you let it linger, it will cost you more.
Accept fate. Move on. Create space for your next success.
How To Start A Business In A Recession
The number of new businesses started in a recession drops because funds are in shorter supply.
At the same time, the number of business failures during a recession rises.
So the secret to starting a recession proof business successfully during a poor economy is…
- Sufficient funds to live off while you’re getting things going. Be prepared to live off savings for 6 months or more
- A clear target audience who are ‘hungry’ for what your new business sells
- Service and product that your customers want and will keep coming back for again and again
- Great marketing to find new customers
- A willingness and energy to drive your success
If you enjoyed this article about creating a recession proof business, you may also like 3 Essential Marketing Strategies for Rapid Sales Growth, Business Strategy, How To Increase Profit; 7 Simple Strategies and Business Strategy: Is Your Business Dying?