Last year, when fears of an impending recession were apparent in some circles and weighing heavily on the minds of employees, I wrote an article on The Best Companies to Work For In A Recession.
More often than not, even the best economists are usually blindsided by a recession. With the current Coronavirus pandemic and the resulting shutdown of major sectors of the economy, many countries around the globe are facing an economic slowdown and almost guaranteed recession either now or in the near future.
The pain of the dot com bubble in 2000 or the Great Financial Recession in 2008 might be things of the past, but the reality of this economic slowdown is apparent. Concerns are valid as layoffs continue to be announced across the globe, businesses clamor for whatever subsidies their governments are able to offer, and a clear solution that balances health and economic prudence remains uncertain.
In this article, I’m going to challenge you to think critically about the future of your business in a less than predictable economy. While we can hope for the best in terms of a quick turnaround of conditions or adequate government incentives, we should always plan for the worst.
More specifically, businesses need to strive to become operationally self reliant. When financial stability starts to erode with economic belt-tightening, what steps could impacted businesses take safeguard their continuity.
The answer to that question is straightforward: pivot. As we’ll see, businesses with a flexible approach to their business model are less likely to collapse in a downturn.
In fact, these businesses are more likely to withstand a recession than their peers. From my work with business owners on reinventing their business models for continuity, here are 5 considerations that impacted businesses could take to survive a recession:
1. Flee to the Base
In times of uncertainly, humans tend to ensure that their basic survival and security needs are covered before indulging in discretionary items. Businesses that provide these essential products or services tend to operate towards the bottom of the pyramid of human needs put forward by psychologist, Andrew Maslow in his famous Hierarchy of Needs. I call this migration to the bottom of Maslow’s pyramid during times of uncertainty, a “Flight to the Base”.
To increase the odds of survival, businesses should seek to get to the base of the proverbial pyramid by providing goods or services related to basic survival and safety, or by finding ways to support businesses that provide goods or services in these areas.
2. Change Delivery Model
Businesses, even those already operating at the base of the pyramid, may need to rethink how they get their goods or services to consumers. With government restrictions in place on social interaction, preference is given to businesses that could deliver their goods or services to consumers instead of consumers finding a way to get to the business. Consequently, demand for home delivery and consumption is prioritized.
Consider either introducing a direct to consumer approach or partnering with complementary businesses that may already be delivering to consumers at home. No-contact service oriented businesses may consider moving from in-person to online service models.
3. Communicate Appropriately
In my work with companies on their continuity, I have found that many companies without business continuity plans in place lose the advantage of respond appropriately to unplanned changes. Instead of using their energy and resources to respond to the disruption at hand and chart a go-forward strategy, they instead run around frantically figuring out workarounds for core operational tasks. In the chaos, communication is often neglected.
Communication is key in any change initiative. Communicate early, clearly, frequently and relevantly to key stakeholders – employees, customers, suppliers, creditors, etc. In an environment of crisis fatigue and cognitive overload, take the time to consider the communication approach, anticipate the response and adjust if necessary. Unplanned reactions that are hastily assembled and that go against stated company values or public expectations may end up doing more harm to the company than good. The public backlash from the recent slate of poorly handled employee layoffs could serve as a cautionary tale.
4. Adapt Commercial Strategy
Businesses that endured previous crises often attribute their massive post-crisis success to their ability to hang on longer than their competitors. A recent McKinsey study stated that 30-40% of customers are trying new products or services because of lack of availability of the products or services that they normally purchase. 12% of these shoppers will not switch back.
Customer acquisition in any business is one of the most difficult tasks. Remaining top of mind and reducing customer churn should therefore be a business priority. With an eye on cost management, consider adapting the commercial strategy and reallocating spends to keep customers engaged. For businesses operating towards the top of the pyramid, review product offerings and pricing along with promotion tactics in order to remain relevant.
5. Make Bold Changes
Any change within a business presents a shock to the operations. The fewer negative shocks that a business has to endure, the more resources could be dedicated to its growth. Times of disruption are often the best to implement bold changes in an organization.
Most organizations are often aware of improvements that need to be made but these changes are frequently de-prioritized to minimize the impact on operations. Some then use the opportunity of a major disruption to combine a series of incremental initiatives into a bigger cohesive change effort. These include changes related to culture, values and ways of working.
Times of uncertainty are also the time to keep an eye on competitors who may be capitalizing on the upheaval to make bold moves and better position themselves for the future by advancing their ways of working or by introducing new innovations.
As we’ve seen, weathering an economic downturn when the core business may be losing money and those around may be suffering from crisis fatigue, requires thoughtful and swift action.
With some preparation and foresight, companies with executable business continuity plans in place are usually better positioned to dedicate the resources required to quickly implement a strategic response to a disruption by pivoting or reinventing their business model.
Arguably, this approach may fundamentally change the organization’s way of working and will require clear communication and management. That said, if you’re concerned about keeping your company self-reliant during this economic downturn, I’d advise a strong preference—all other things being equal—for adopting a bold approach to reinventing your operations.