Depending on who you ask about recession history, there have been anywhere from 30 to 50 in the United States since the 1800s. On average, the recessions lasted about 11 months.
Since then, much has changed in regards to technology, which industries are popular, and how we conduct business today.
What hasn’t changed is the feeling that each recession is ‘the worst ever’. There’s also uncertainty around which companies will fail, which ones will make it out alive, which will emerge stronger than ever, and what new innovative companies will be created because of the recession instead of in spite of it.
WHO’S MOST AT RISK DURING A RECESSION?
Some 200,000 small businesses closed their doors during the Great Recession of ‘08. Since small businesses generally have less access to credit and are more sensitive to diminished consumer demand this makes sense.
At an even greater risk are “micro-businesses” – those with less than 10 workers – as well as startups.
When you’re an early-stage company trying to scale, you need a flurry of economic activity, especially if you’re not yet profitable or need funding to stay afloat. Recessions are known to put a halt to this activity.
In addition, if you have tiny profit margins or a lot of debt, you’re a sitting duck when it comes to a recession or, as is the case in 2020, a pandemic that pumped the brakes on commerce worldwide.
But then there’s the flip side of the coin. For some businesses, recessions actually give them a start or a significant boost. How is this possible?
HOW THE MOST SUCCESSFUL BUSINESSES SURVIVE (AND THRIVE) DURING A RECESSION
Every business is different, with different customers, goals, and marketing challenges. That said, there are proven tactics that have not only kept successful companies in business, but allowed them to rise from the recession ashes stronger than ever.
Here’s what we can learn from those survivors and thrivers:
1. Reduce Spend, Churn & Burn
Let’s start with the most obvious thing first. To survive a recession you have to watch what and where you’re spending, why you’re losing customers or team members, and what is eating away at your profit or margins.
They often say hindsight is 20/20. If you’re trying to bail water out of your currently sinking “business” ship you may not be able to heed this advice but you can learn from it. For example:
- Do you regularly keep up with changing economic conditions and pivot accordingly?
- Have you prepared financial/cash-flow projections or financial modeling plans for your business?
- Do you know your company NPS (net promoter) and CSAT (customer satisfaction) scores to get an indication of your customer loyalty and advocacy health?
- Do you have an optimized CCC (cash conversion cycle)?
- Do you know your key financial ratios, including your debt-to-income, net- and gross-profit margin ratios, and whether they’re doing well or poorly?
- Have you negotiated more favorable contracts with your vendors or lenders to help improve your financial ratios?
- Have you done an audit of your current expenditures to see if you’re getting the most competitive pricing for the services you use?
If you’re nodding your head, yes, you’re on the right track. If you’re nodding your head, no, or if you have no idea what half of the items in the list are it’s not too late to educate yourself and level-up your business’s financial foundation.
Old Elk Distillery makes whiskey. The company was founded by Curt Richardson, who’s also Chief Visionary Officer for Otter Products, LLC.
In March of 2020 the COVID-19 pandemic forced the world into shutdown mode. By May of 2020, Old Elk had already produced more than 400 gallons of hand sanitizer. While they don’t sell it, instead they donate it, they also started making at-home craft cocktail kits for customers.
The pandemic forced a lot of businesses to completely change the way they do business. Those who couldn’t assimilate to things like remote work, online purchase options, and new product offerings, took a hard hit.
So, what does pivoting look like?
How about a bakery pivoting to making, selling, delivering, and shipping sourdough bread starters after home baking started trending. Or photographers pivoting to social distancing and front porch sessions. Or dance studios and gyms pivoting to online video classes.
A great pivot involves using your current products or services in different, sometimes polar opposite, ways. To do this well, think about what you can upsell to existing customers or what areas of your business you can add, remove, retool, or who you can partner with to capitalize on the newest or biggest pain points of your current customer or potential new customers.
3. Pick up the Competition’s Slack
While we generally don’t advise hyper-focusing on the competition, this is a bit different. It goes without saying, even if you do everything right you’re going to lose customers. This goes for both you and your competitors.
However, sometimes, the competition either isn’t built to weather a recession storm or they fail to implement best practices to hold onto their customers, their staff, their vendors – you name it. This presents opportunities for you. What are your competitors’ business and marketing strategy weaknesses? What are their customers or employees complaining about or asking for that you can provide?
On average, it costs 5 times more to acquire a brand new customer than to retain a current one. It also costs less to acquire a customer or onboard staff who are already familiar with what you do but are unhappy with their current options.
In this way, you can use your competition to build a pre-established new client base. Bonus points if you can straight up buy your competition out, effectively reducing the amount of competitors in your space. When the market begins recovering, you’ll already have a head start.
Which brings us to number 4…
4. Don’t Stop Marketing
When times get tough, a lot of businesses strike their marketing budget first. This can be a costly mistake. More than likely your customers are researching more than before, looking for the best option to meet their current needs and budget.
Instead of cutting back completely on marketing, prioritize marketing channels that produce the highest return on investment (ROI). Revisit channels you previously ignored in favor of more budget-heavy options. Also, look for channels that have dried up as other businesses stop advertising.
For example, even though email marketing can be extremely inexpensive with a relatively high ROI a lot of businesses ghost their customers and stop lead-generation efforts during a recession for fear of seeming insensitive.
Look, if you’re delivering true value – whether that be life-saving, entertainment, or guilty-pleasure – then keep sharing what you do and what your company has to offer. Those who want what you offer are still searching for it. Make sure your company is discoverable.
We Didn’t Say It Was Easy…
These guidelines aren’t meant to suggest that surviving a recession is easy. In fact, coming out of a recession stronger than you were when it started can be both complicated and confusing.
That’s where we can help.
In fact, helping leaders and entrepreneurs create profitable, purposeful, well-run businesses is what we do.