We may not be in a recession yet, but it’s looking more likely that we will be. A couple of reasons for this outlook:
- Inflation is at a 40-year high.
- Since January 2022, 14% of the global wealth has been lost.
A number of factors are causing our current struggles, including negative consumer sentiment, rising interest rates, which are limiting access to capital; and a struggling stock market.
Think of these as dominoes, each of which causes the next one to fall. As the access to capital declines, business growth slows. This affects the ability of companies to hire workers and expand. The stock market then reacts because job numbers indicate whether the economy is expanding or contracting. As these dominoes fall, so does consumer sentiment, and the cycle perpetuates.
However, that doesn’t mean the forecast is gloomy. Business activity traditionally follows an economic cycle that is analogous to the transition from one season to the next.
With the country trying to find its footing financially, it is time to plan for the economic winter. In this article, we’ll show you how to succeed through these challenging times and thrive as a business.
Get On the Right Side of the 90/10 Rule
Before we get into the practical advice, it helps to have some perspective and know that you’re not alone in the midst of our current moment. Only 10% of businesses thrive during each season of the business cycle. Meanwhile, 90% of businesses lose their growth momentum, take a hit financially, or go out of business.
How can you make sure you’re one of the companies that do well? Here are three steps for ending up on the 10% side of the rule: preparing, adapting, and innovating.
A related strategy describes the approach Elon Musk takes to keep his companies strong in the face of a recession: predict, prepare, persevere.
- Predict. You don’t need a crystal ball to see the signs of opportunity and danger. As we shared above, you can see the signs of a recession if you know what to look for, like higher interest rates.
- Prepare. Being prepared includes understanding the economic cycle and taking action that puts you in a strong position to face the coming season. Some steps include:
- Pause risky ventures
- Reduce spending and overhead
- Avoid high-interest debt
- Persevere. Surviving in tough economic times is possible by sticking to a strategy that mitigates risks and running your business as if the recession were already here.
Three Tips for Surviving an Economic Downturn
Some people make things happen; others watch them happen, and another group wonders what happened. Then there are those who anticipate what is happening and take action to weather the storm.
Here are three steps you can take to make sure you make it through the economic winter with the strength to keep growing:
1. Protect your downside
- Determine the value prop for your business and industry during trying times. This will help you focus on the buyers that are struggling and need what you do.
- Think about how can you optimize for contribution margin, profitability, and cash flow.
- Watch your debt. Do not overleverage so that a bank can call you on a loan and potentially put you out of business.
- Stack your cash. You want to be able to buy valuable assets at low prices.
2. Stand out in the marketplace
- When everyone else is contracting; you need to expand. Be greedy when others are fearful, as this is your opportunity to shine.
3. Do not cut back on marketing and the training and development of your team
- Double your advertising to stand out when everyone else is running for cover.
- Pain = Money. Now is the time to be valuable to clients with pain points that you can address and solve for them.
- Training and development
- A highly skilled workforce allows you to do more with less. This allows you to build a culture of growth and performance. Invest in your people with skills and leadership training, and you can do more at much higher margins. You’ll also be better prepared to withstand whatever the economic winter sends your way.
What to Do During Each Business Season
Think of your to-do list in the same way that farmers think of theirs. They have to take the same steps according to the season in order to maintain their income and have a viable farm. This includes knowing when to plant, reap, and sell and buy the materials that keep the cycle going.
In the same way, businesses can take actions that prepare them for the next economic season.
- Economic summer. A time of economic growth and prosperity.
- High profits, company growth, and rising stock prices are all attributes of this fertile time. However, smart business leaders know they have to take action to prepare them for the economic fall and winter. This includes harvesting profits, buying and stockpiling resources, and increasing their cash on hand.
- Economic fall. The stock market dips and unemployment rises.
- During the economic fall, it is time to look at cutting back and preparing for the winter. Take action by saving money, reducing your expenses, and innovating by finding more efficient ways of working.
- Economic winter. Time to hunker down and survive.
- Spending trends change significantly. Change your product and service line-ups to meet consumer needs as they seek to spend less. Consumers are buying smaller and cheaper. They’re looking out for necessities and the best deals (like Black Friday/Cyber Monday deals).
- Keep your eyes open for investment opportunities as stock values fall.
- Prepare for the economic summer by buying infrastructure for your company while prices are low.
Work with ActionCOACH Tampa Bay
As a part of ActionCOACH Tampa Bay’s commitment to our clients, we want to see your business succeed at whatever stage of growth your business is in.
By using our Business Coaching service, we will help you:
- Assess your company’s current business and financial status
- Determine your company’s strengths and opportunities
- Help you create profitability, financial measures, and forecasting
These are just a few of the many benefits you’ll enjoy when working with us. We will help you prepare for each economic season by making a plan that empowers you to persevere.