Your Business Strategy In The Recession Cycle

In light of tightening economic conditions, we talk about how businesses can survive and thrive in a recession and how individuals can safeguard and rebuild their professional careers over such […]

November 20, 2022

In light of tightening economic conditions, we talk about how businesses can survive and thrive in a recession and how individuals can safeguard and rebuild their professional careers over such challenging times.

Arguably we are already in a recession or on the brink of a recession, with US GDP growth numbers printing -1.6 and -0.6 per cent in Q1 and Q2 this year, 2022. Business leaders usually see recessions as temporary deviations from the company’s long-term success and forsake strategic goals to focus on short-term goals to survive, reduce damage and get back to business after. However, what happens during a crisis disproportionately affects long-term success, and we will discuss it here.

Companies Business Strategy

The usual intuition that all companies need to prepare for lower performance in a crisis is a self-fulfilling prophecy. HBR research has shown that one in seven companies increases top-line and bottom-line performance over the economic downturn.

A significant share of companies do well in every sector during a crisis. Even those considered highly cyclical. Being pigeonholed in a sector does not determine your company’s fate.

A usual crisis strategy focuses on operational discipline and cost management beyond other concerns. This is valid as cash-flow viability is the critical condition for survival. Competitive gains of crisis performance occur in gains and expectations of future growth.

Business managers must design businesses for unpredictable shifts in the business environments and to adapt and reinvent offerings and business models. These imperatives help build resilience to challenging events and encourage bold action to capitalise on new opportunities when a crisis comes.

Reaccessing growth opportunities

Companies should systematically understand changing habits, map behaviour trends, and identify what products and business opportunities will grow or contract.

Be a differentiator, not a cost leader, in a recession cycle.

Pure differentiators are more likely that pure cost leads to suffering from reduced revenues. Don’t outcast a cost leader. Lower expenses as quickly to gather up resources for a long fight back. Don’t just wait to reduce costs. You can focus on your entrepreneurial strengths and then reflect on what makes your product or services worth more than what the cost leaders apply.

What prevents companies from performing in a recession?

The best companies play offence and defence, investing in growth opportunities, including new businesses, cutting costs, and finding operational efficiencies in response to external shifts. Why do leaders not reallocate resources to new opportunities? Research shows leaders’ feat threads to their status and power and is attached to existing businesses and budgets. They have a sunk cost in people and focus and do not want to divert energy away from the core.

Business leaders can set the framework for reallocation decisions by focusing people on a positive future vision to foster more alignment for future reallocation of resources. Shutting down business units can expand margins and return cash to shareholders.

Business leaders shouldn’t invest money in the same old way in a crisis. Business leaders should be ready to respond and innovate in a crisis.

Managing Sales Channels In A Downturn

Undercapitalised channels partners may not survive and cannot get customers’ products and services. Suppliers should rethink channel strategies and programs to drive short- and long-term success over the recovery period.

Can you change your channel mix and responsibilities? Evolving customer needs call for a time to rethink channel mix and responsibilities. Some call for selling direct to customers, while others call for an increased role for channel partners. Direct selling is changing gradually in the B2B sectors as customers seek to reduce crisis-induced supply chain disruptions by cutting out the middleman. Suppliers can expand selling directly to larger indirect customers. Suppliers can also take back channel responsibilities like product promotion and logistics.

Some suppliers might do just the opposite and leverage indirect channels. The choice of channel strategy requires understanding customer value, accessing partner capabilities and channel economics.

Invest in the right channel partners

Yesterday’s winners can be tomorrow’s stragglers. We need to reaccess who can be our optimal partners for our next leg, positioned for future success. Sometimes, it might be wise to help smaller up-and-coming partners as more significant partners may gain leverage in price negotiations, leading to margin compression.

Joint ventures and partnerships in a downturn

Companies need every tool in their toolbox to survive downturns and to drive up business. Joint ventures and partnerships are a vehicle to share costs and reduce capital needs during a critical position for growth once it ends.

Joint ventures and partnerships are critical for sharing risks, building capabilities and innovating., Use of JVs tend to be more common during a downturn and accelerates during recovery as companies can get off to a quicker start than organic growth and are less risky than M&A. JVs are hard to structure usually, because of different owner-company agendas, politicised processes and general inertia.

Joint ventures can raise capital in unconventional ways.

Joint ventures can secure low-interest rate loans from cash-rich owners with solid balance sheets. In exchange, the owner may have additional interest in the venture, preferred returns or increased control. JVs can also bring in new owners like PE firms, pension funds, financial institutions and strategic industry partners to free up cash and improve liquidity. Investors like PE can bring in capabilities that boost the venture, a better understanding of value creation, focus on cost reduction and talent management, governance discipline, M&A experience and an ecosystem portfolio of customers, suppliers and partners.

Reducing costs through synergies and new operating models

More significant cost savings can come from consolidating and optimising activities and assets with owners. Ventures and owners can integrate supply chains and combine infrastructure, logistics and operating assets. Insourcing certain functions like legal, HR, IT, and Finance might be cheaper than using administrative services from the owner.

Regearing financial ratios

Joint venture boards can compel management to increase borrowing if underleveraged or issue dividends to give owners more cash to capitalise on other parts of the business.

Refine marketing spending and mix for the recession instead of cutting it

R&D and product launches

There are fewer new product launches in a recession and fewer to compete with. The best time to launch a product is after the recession midpoint when consumers start to think about non-necessities. Maintaining R&D spending means companies can emerge from the recession with a more robust pipeline.

Prices and promotions

With declining sales volume, business managers may increase prices in a recession to maintain revenues and margins. However, a recession makes consumers more price sensitive, and business managers may resort to promotions to reverse the effect, but this backfires, and the business loses market share.

Communication

Advertising during a recession should reflect consumers’ challenges to show solidarity and help the consumer. Consumers’ behaviour changes reflected changes in circumstances and needs. Marketing messages should company consumers on a new and different journey.

Businesses that maintain marketing spending while reallocating it to suit the new recession usually fare better than businesses that cut marketing investments.

It is optional to always pivot in a crisis.

Take the time to confirm the basic thesis of your business. Slowing down allows business managers to see that their view of the future product is valid. Trim fat, not muscle. It is okay to trim the margins, like renegotiating rental leases and supplier contracts but not the core muscles that power your business.

Watch data closely. See the worst-case scenario from other markets that can be applied to your market, the explosive change in trends and spending, and tweak your business messaging in response.

If you shall decide to pivot, do it decisively and with commitment. Still, not pivoting can pay off; stay in the right direction with minor adjustments. Sometimes it pays to resist known jerk reactions when a crisis hits ad ask what works best for the company.

How to launch a startup post-crisis?

The crisis is an opportune moment for new ideas, innovations and systems. What makes now in terms of product and proposition? Does the offering need to be updated based on the new reality? Are there changes or adaptions to be made to the product and offerings for what you are targeting? A crisis will change market needs.

Think like a camel, not a unicorn—a camel is built for survival in the most demanding environments. During a crisis, everyone is cash sensitive, has a lean organisation, and has a realistic operational budget. Don’t make any long-term financial commitments and be able to cut expenses when needed.

You can build a solid advisory board with experienced people who can help run and grow the venture. You would want veteran businesspeople to guide and assist you when needed. The advisory board can use their network to make introductions and open doors at a time when opportunities are limited.

Be ready for post-crisis growth when things get back to normal.

How can you find an excellent job in a downturn?

We shift from business to your professional career. Most good jobs are attained through something other than direct application or formal means but through personal contacts who recommend someone for a role inside the organisation. I would like to know which of your contacts will be most beneficial. From research, you are more likely to get jobs from personal contact who are not close to you, speak to you infrequently and work in different occupations. This is the strength of weak ties. Diverse personal networks are the best way to find a new job.

Come up with a list of 100 weak ties before making any contact. Rank them to the attractiveness of the possibilities they can offer and their willingness to help you. Make first contact with the person, and be candid about your reason and the type of role you are looking forward to. People who had a positive experience working with you will want to help you and need to be aware of your needs and aspirations. Follow up on good conversations.

Follow all regular job-seeking advice, refresh your resume and interview preparation questions.

Personal growth after crisis trauma

Negative experiences can lead to positive changes, recognition of personal strength, exploration of new possibilities, and better relationships.

We learn from tough times. We imagine how we operate and innovate in new circumstances. We need to be in the right frame of mind to manage negative emotions such as anxiety, guilt and anger. Instead of focusing on losses, focus on successes and think about what we could have done. Physical exercise and meditative practices help. Acknowledge difficult circumstances and show poise.

You can discard and talk about what has happened, and what is happening. This helps make sense of the trauma and turn debilitating thoughts into productive reelections. It is best to focus on what the impact feels to someone and their concerns. You can start by openly about your struggles and how you are managing them, and then invite others to tell their stories and listen carefully.

Demonstrate posttraumatic growth and narrative development. Shape the narrative of the year’s trauma and decide how it has caused you to recalibrate your priorities and paths.

People cope better with trauma by helping others in their community and finding work that benefits them. Focus on how you can help reflect on the crisis, express gratitude, and show compassion and empathy to others.

Benefits of growing from trauma

People are surprised at how well they have handled their trauma. They are in a better position to deal with future challenges. Groups come with a better understanding of their collective knowledge, skills, resilience and growth potential.

There will be new business possibilities to be embraced. Trauma helps people forge new relationships and be grateful for what they already have.

Negative experiences can come forth greater personal strength, the exploration of new possibilities, better relationships with others, greater appreciation for life and spiritual growth.

Conclusion

We will inevitably hit a tough spot for our businesses or professional careers over economic downturns. The short answer is to avoid knee-jerk hasty decisions but to reaccess, the thesis of our businesses, make calculated changes to adapt to the new reality, find opportunities to trim down financial fats and be ready to deploy redeploy resources in the uphill swing of the cycle.

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