Business team having meeting
Things are tough out there for many businesses right now, and they may be getting tougher. The “R word” is on everyone’s lips, although many are reluctant to speak it. Not the World Bank, though: It started 2023 with the dire prediction that a global recession is at hand.
It doesn’t matter whether you occupy a B2B, B2C, DTC, or any other business category. When consumers pull back on spending, companies are forced to do so as well. There’s a tendency to draw inward during hard times with the hope that you can simply ride them out.
Yet history has shown that the intrepid can not only survive uncertain economic times, but thrive. Instead of tucking themselves away, they tuck and roll. Think Airbnb and Warby Parker.
Just trying to survive isn’t good enough. Neither is forging ahead with a strategic plan developed when the economy was growing at a fast clip and global pandemics were events you read about in history books.
Companies that hit the sweet spot between the two extremes may surprise themselves with their performance. Here are a few ways you can be a risk-taker in a hunker-down economy.
Understand the Risks and Get Ahead of Them
No one knows exactly what the economy is going to do and how that will affect business. Nonetheless, a little knowledge of history and a smattering of common sense will help you anticipate the future to some degree.
Be your own actuary. Suss out possible risk scenarios and figure out how to insure your company’s future against them. Don’t forget to focus on how your industry will be particularly affected. Hospitality, retail, manufacturing, real estate and construction are less recession-proof than others.
Take retail, for example. When consumer spending drops, retailers can find themselves carrying a lot of stagnating inventory. They need to find different ways to move old and new products from their shelves. Instead of tightening the marketing budget, they may need to loosen their belt to persuade wary customers that now is a good time to buy.
Plan now for what may happen in the next month rather than the next year. And don’t be afraid to try some innovative approaches to everything from product lines to brand messaging and positioning. Informed predictions in the short term means the only thing languishing on the shelf is that long-term strategic plan.
Fluff the Financial Cushion
Businesses should apply the same financial principles to their companies as consumers do to their household budgets during economic uncertainty. You’re familiar with them: Sock money away, reduce debt, spend wisely and stick to a budget.
If you don’t have a comprehensive view of where every company dollar is being spent, start there. Then look for places you can cut back on spending without gutting the business. For example, maybe it’s time to renegotiate the terms of supplier contracts or change how you’re shipping orders.
As difficult as it is, you have to look at staffing. Maybe streamlining and simplifying processes will not only save the money you’d spend on more employees, but create a better customer experience as well. A McKinsey survey found that 60% of consumers would rather use self-service options, so jumping on the automation bandwagon to reduce overhead could accomplish two goals.
Invest the spoils of your expense-reduction efforts in interest-bearing financial vehicles. Just make sure you can access those cash reserves quickly and without penalty should you need them down the road. The more you can fluff your financial cushion, the more likely you’ll land safely even if the economy plummets.
Build Resilient Teams
Remember that you aren’t in this alone. The people who work for you also have a stake in your success. Make sure you surround yourself with employees as invested in 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 should remain upbeat in the face of uncertainty, adhere to the core values of the company, view failures as learning opportunities and bring empathy to their jobs every day, no matter what.
The company needs to provide a safe space for them so they know how to recreate the same culture for their teams. Economic uncertainty can be like a huge brainstorming session. No idea is too out there, everyone contributes and no one feels judged. You never know what novel concept could keep your business afloat.
No company can be resilient in insecure times if its people aren’t. If you have individuals in leadership roles who don’t fit the updated job description, replace them with others who do. You and your company need irrepressible — yet reasonable — optimism in a turbulent economy.
Always Have a Plan B
For every strategy you develop, always have a backup. Plan Bs are the net below you when you’re treading the economic high wire. It’s OK to fall, and likely you will from time to time, especially when you’re trying something new.
Consider that retail example again. You take a risk by adding new products to your inventory at a time when consumers are cutting back on spending. These items are things customers want but that also offer some degree of utility, so ideally they can justify the purchase. However, if the products end up not selling well, what’s the plan for getting that stock out of your inventory? Will you offer more discounts, market to another audience segment or what? As Gen. Eisenhower famously said, “Plans are nothing; planning is everything.”
Take every element in Plan A and figure out what you can do if things don’t work out as you hoped. If Plan A has cost-saving measures, what will you do if you don’t hit your targets? If your customers’ experience declines because you’re short-staffed, how do you plan on making it great for them again?
You probably don’t have to start any of 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, those solutions have been put to the ultimate test.
Worth the Risk
Hunkering down when the economy is throwing everything possible at you is one way to deal with the assault. But maybe fighting back is the risk that might lead your company to far greater reward. You won’t know until you try.