All you need to know about Recession-Proofing your business!
Photo Credit - thestreet.com and The Washington Post
One of the biggest challenges about formulating a recession strategy for your business is to get people to talk about it. Conversations about the economic downturn are usually met with “hopefully, it will not come to that, for us”. The invulnerability that business leaders feel is driven both by denial and arrogance. However, given the current market predictions, it should be a discussion in every board room. This is amplified by the fact that recession has not left the Kingdom of Bahrain. In our experience, the expected downturn possesses an interesting set of challenges that can and should be managed. This is because we at Falak believe in Robin Sharma’s quote – “Recession is opportunity in wolf’s clothing”.
It is important to understand macroeconomic signals that aid in predicting and preparing for recessionary periods. There are a number of lagging macroeconomics indicators that economists check such as unemployment rates, consumer price index, etc. All of these, however, come too late and do not allow businesses enough time to strategize. Thus, one needs to start tracking certain leading indicators that can help predict major changes and provide enough time for businesses to pivot when required.
One such indicator is the YEILD CURVE. The curve can help in assessing potential economic outcomes that can have a direct impact on profitability. Technically, an inverted yield curve is a strong indicator of an upcoming recession. If you study historic recessions, you will see that the inverted yield curve provides you with about 7 to 8 months of lead time before the recession hits. This indicator, along with a study of few others like consumer spending trends, PE ratios, etc. can be used to understand the direction to take when deciding on your strategy.
So, the best time to formulate a recession strategy is before the yield curve inverts. This will give you enough time to come up with a solid game plan and to put some measures in place before the need arises. It is worth mentioning here, that a recession strategy is not just a back-up plan for when revenue targets are not met. It is a detailed framework that is established and reliable against negative economic conditions. It is a comprehensive and proactive analysis of the two most important aspects of your business: your customer and your employees. This growth strategy approach is known as ‘storyvesting’. One of the biggest components of this framework is empathy. It provides you with humanized data and predictive consumer psychology to be able to formulate a fool proof growth strategy. It helps you understand the shifts that need to happen and opportunities that need to be capitalized upon.
Based on our experience, below are few things that help in ensuring companies move in the right direction:
Focus heavily on people, processes and platforms and what they mean to you: Focus on perfecting how the three of them work together for your business. Let’s have a closer look at each of them:
People: a lot of businesses believe that the best thing to do in a recession is downsizing. This unfortunately, is not true, downsizing leads to lower morale and ultimately effects productivity. During the 2008 recession, Costco announced it would not fire employees by saying “Our employees… deserve our loyalty”. Their sale numbers in the subsequent years proved that this was a wise investment decision. The wisest thing to do at the time of recession is to upskill your employees in a meaningful way. Focus on their personal progress and encourage them to provide deeper insight into your situation.
Platforms: These refer to the technology base of your company. Study what works and check whether you are using the best platform to reach your customers and communicate with your employees. Can these platforms be enhanced? Is this the best experience for your customers and employees?
Processes: During recession, your processes might need to shift. A good example is what Ford managed to do during the 2008 recession. They studied their processes and eliminated bottle necks, worked on reducing the number of recalls, cut high cost models from production line, etc.
Forget about product or service innovation and focus on customer experience: We whole heartedly agree that customer experience is at the centre of any brand. During the recession, focus on customer acquisition and retention by providing exactly what the customer needs and the manner in which they need it. Build a journey for the customer that is convenient, timely and with as little friction as possible.
The key is to understand that in the quest for a recession-proof strategy, building short term tactics or knee jerk reactions can create more harm than good. Adopting a people centric approach which includes both employees and customers at its core, and has empathy as a guiding principle, will take you further than any other strategy.
Lastly, just because we see a recession looming in the horizon, it doesn’t mean that everything is doomed. As Walt Disney said – “I’ve heard there is going to be a recession, I’ve decided not to participate”. Choose to not be part of the recession by planning ahead with the right steps.