Intro: Recession is looming - now what?
Today, recession is on everyone’s mind. As food and petrol get more expensive, and big companies let large numbers of staff go, business owners are understandably starting to worry. Many might be kept awake at night, wondering: Will my businesses survive a recession?
A time of economic downturn is difficult for everyone. Everyone finds themselves focused more on making their money stretch and ends meet. For business owners, this can be an especially difficult time. As their employees become more reliant on their paychecks, bosses have to make hard decisions on how to navigate through a time of shrinking budgets.
However, recession doesn't have to be a death sentence. As Winston Churchill once famously said: ‘Never let a good water crisis go to waste.’ With ambitious planning, thoughtful innovation and by staying ahead of the curve, businesses can use a time of crisis to uncover new markets, innovate mindfully and pivot their offering to meet new challenges.
What is recession?
Before finding solutions to weathering the storm of recession - we need to define what it is.
Investopedia defines recession as: “A significant, widespread, and prolonged downturn in economic activity.” More specifically scholars often talk about recession as two consecutive quarters of decline in gross domestic product (GDP).
Recession often comes with declines in economic output, consumer demand, and employment.
The last global recession was the 2008 financial crash.
Recession: Who’s making it through?
In order to get a better understanding of what businesses successfully navigate through economic downturn - we need to look at past recessions.
If we look at the most recents financial crash, which took place in 2008, we can see a few key industries who fared well. The industries which seem least affected by the economic downturn are unsurprising.
- Basic day-to-day needs: Unsurprisingly, data shows that people continue spending on must-have items such as: food and beverages, health and pharma, and utilities. While people may choose to spend less in some areas of their life - day to day needs still need to be met.
- Discount goods: Again, as one would predict, discount retailers usually see more business during times of recession. People may continue to treat themselves to goods outside of day-to-day basics but they will more likely turn to products on sale.
- Indispensable needs: Consumers continue to spend and refuse to cut costs on essential services, which are important to their loved ones or bear great significance. This is why funeral services, pet grooming and daycares are often less affected by recession than other businesses.
- Repairs and maintenance: During recession, people are less likely to treat themselves to a new, high-cost item, such as a car or household appliance. That is why maintenance and repair businesses often see a boost in their businesses during economic downturn.
- Small Luxuries: While people may cut back on making big treat purchases, this often leads to an increasing spend on smaller, more affordable day-to-day items they may see as a treat such as fast food, sweets and alcoholic beverages.
- The ‘Hawks’: One of the biggest problems people face during an economic downturn is simply not having enough money to make ends meet. This is where debt collectors, creditors, accountants and lawyers will often see an increase in business.
Recession Prep: Clients and In-house
Thinking about recession and economic downturn is stressful for everyone. The idea of having less money, fewer customers and more pressure to pay bills is challenging for any businesses or individual.
However, it's not all doom and gloom. By learning from the successes of businesses in previous recessions and creating a game plan, you can pivot your business to become more resilient and even find new success during recession.
Below you can find a few ideas of how to keep your business afloat, both from a client perspective and based on simple internal changes.
Economic Downturn and Clients
Identify Sectors of Success
If you are a business who works with clients in a wide variety of sectors, this is a great time to start thinking about the sectors which offer the most stability during recession periods. A great place to start with identifying new potential clients is to see which area your company has an existing expertise in, and try to reach out to the other businesses within that area.
You can also use the list of ‘recession-proof’ businesses listed above as a starting point.
Recession Proof USP
During a time of economic downturn everyone is focused on getting the most bang for their buck. That is why choosing to pivot your messaging or offering to appeal to a more money conscious audience is a great way to prepare for recession.
Think about what your business can offer to businesses who might be seeing budget cuts, and looking for a way to steady their businesses. Is there some way you can offer discounter services or a lower barrier to entry? Is there a way you can give quality assurance or increased flexibility so clients only pay for what they need?
Thinking about the future and potential clients needs, is important when planning ahead!
Innovate!
Ken Chenault, the CEO of American Express suggests that “difficult periods require you to be more innovative.” While this is often the opposite of what we expect to see from businesses during recessions, economic pressure can lead businesses to cut-costs more effectively and manage risk in a smarter way.
According to Harvard Business Review, there are 3 key areas where recession can provide opportunities for innovators. These are:
- Game-Changing Offerings: Recession can create new and unique needs for customers, which savvy businesses can meet. For example, Airbnb used the 2008 financial crisis to create a unique offering for thrifty, young travelers, looking for cheap hotel options.
- Simple, Affordable Solutions: Downturns can be a great time to introduce new, more affordable offerings, for people choosing to be more frugal during uncertainty.
- Bold Strategic Moves: Downturns can help established companies to make dramatic changes. For example, Adobe used the 2008 financial crash to test changing their offering from a software delivered model, to a software-as-a-service offering. In 2009, the company pivoted to the fully SaaS based model.
Invest in Tech During Recession
When examining the COVID-19 pandemic, and which businesses saw success during its time of uncertainty, we see a few key front runners.
Among them are:
- Zoom: who were at the forefront of giving people access to video calls, and become almost synonymous with connecting people online.
- Shopify: Who became a clear choice for many retail-only businesses needing to move their offering online.
- Amazon: Who used their already existing, robust eCommerce site to help people get the goods they needed, when leaving their house wasn’t an option.
Now, it might be easy to say that all of these businesses happened to just be in the right place at the right time. However, if you look at how they approached the sudden increase in customers, they all continued to innovate and invest in tech.
Take for example Zoom, who continuously created new features throughout the pandemic, which made their platform more secure for schools and workplaces around the world.
Businesses looking to stay ahead of the curve during recession, need to make strategic investments into tech, with a good understanding of where the market is heading and how they will be able to meet the needs of future customers.
Investing in tech may seem like splurging to some, but creating tech to support your business during and after a crisis, can help you survive.
Find flexibility through freelancers
For businesses looking to invest in tech or effectively continue their day to day operations while also cutting costs, freelancers and more engagement with a flexible workforce is a great option.
Working with third party contractors means you can get access to the skills you need without having to hire a full time member of staff. They can also be a great way to get access to experts during times of talent shortages. This is especially helpful for people looking to invest in tech during a recession without wanting to hire a full time dev team.
This flexibility provided by third party talent helps cut costs. With most freelancers working on an hourly fee - businesses can make sure they are only paying for the work they need, and nothing more.
New, innovative companies, such as Deazy, also provide a unique and exciting opportunity for businesses looking to hire flexible talent, without the hassle of vetting them. At Deazy, our curated ecosystem of delivery partners, gives you access to vetted talent, who have been thoroughly screened by our team. We also offer delivery assurance, meaning if a developer doesn’t fit your requirements, we will replace them for free.
With innovative new markets for flexible talent that provide quality, assured developers - businesses now more than ever have the opportunity to save on hiring costs by engaging with flexible talent.
Plan ahead to stay ahead
If there is one learning that businesses owners can take away from past recession it would be to plan ahead!
During times of turbulence it can be easy to panic. However, if you are a businesses owner looking to weather this recession with tact, you need to make sure you are strategic and through about each of your decisions.
The earlier you start planning how you can safe-guard in-house and client-facing operations, the better equipped you will be.
