The previous decade has been challenging for businesses. Every day we see headlines about a company closing down or another big business losing millions of dollars.
It's easy to get discouraged by these stories and think the economy is hopeless. But many successful companies have found ways to drive business success in a down economy.
How are they driving success in a down economy? Here are 15 essential tips that can help your business survive economic downturns.
What is a recession?
A recession is a period of poor economic performance. It is often associated with output drops, unemployment increases, and investment spending decreases.
A recession is said to exist when two or more consecutive quarters of negative growth (i.e., contraction) are recorded.
There are two types of recessions:
Economic Downturns
An economic downturn is a period of economic decline characterized by high unemployment, low consumer spending, high debt levels, and decreased available credit.
During an economic downturn, businesses cannot operate at a level of profitability, leading to layoffs, decreased wages, and decreased consumer spending.
To reduce the impact of an economic downturn, governments may put in place policies designed to stimulate the economy, such as increased government spending, tax cuts, and interest rate reductions.
The downturns vary considerably but typically only last one or two years
Economic Depressions
These occur when the economy experiences a short-term decline in activity and a long-term fall in capacity utilization, high unemployment, large-scale bankruptcies, and substantial loss of wealth. It is usually over several years (at least five).
Economic depressions are usually caused by an event that leads to a decrease in demand for goods and services. Various factors, such as a decrease in investments, a decrease in the money supply, a decrease in exports, or an increase in taxes, can cause this.
Economic depressions can severely affect individuals, businesses, and governments, making them a major focus of economic policymakers.
What are the signs of an oncoming recession?
The economic cycles of boom and bust are as old as capitalism itself. But despite their historical prevalence, predicting economic uncertainty is still far from an exact science.
No single indicator can tell you whether or not the economy is about to tank. Instead, it's a combination of factors that point toward impending trouble.
Here are some indicators to watch for:
Unemployment increases. The unemployment rate represents the proportion of the labor force that is unemployed. The unemployment rate measures those who aren't employed by an employer but are willing and able to work.
When unemployment increases, it indicates that more people are out of work than before and that there may be a recession.
The housing market stalls. A decline in home sales is an additional indicator of an impending recession.
When people don't feel confident in their financial situation, they're less likely to buy or build a new home. That can impact the housing market, including average prices and recent home sales.
The trade deficit widens. The trade deficit is the difference between the value of imported and exported goods and services. When your country imports more than it exports, it runs a trade deficit.
Consumers who cut back on spending during recessions buy fewer foreign products (and thus imports). Businesses are less likely to invest overseas because they still determine how well sales will rise as unemployment rises (and therefore export fewer goods).
This means that imports become relatively more important than exports in helping keep our currency strong against others. Even though buying things from other countries strengthens an economy, when you import more than you export, you're losing money instead of gaining it from these transactions.
Industrial production declines. Industrial production is the total value of goods and services produced by a nation's industries. It's an essential measure of global economic activity that can be affected by consumer demand, interest rates, government policies, etc.
When industrial production drops significantly, it's often a sign that there is less demand for goods or services in that country and globally. This can lead to a recession or depression as businesses are forced to close or lay off employees if they cannot sell their products at competitive prices.
When industrial production declines during an economic upturn (when unemployment rates are low), it indicates a decrease in consumer confidence due to factors such as rising interest rates or political unrest caused by tariffs on imports from other countries.
15 Tips to keep your business successful in a down economy
1) Keep a close eye on the remaining trends
Paying attention to the remaining trends is essential when the economy is down.
Suppose you stay abreast of business trends and understand your rivals' actions. In that case, you can better understand how technology changes how people do things and how you can capitalize on these changes.
For example, you see a trend emerging that people are starting to use mobile devices more than desktops. In that case, you can capitalize on this by developing an app or website that makes it easy for people to access your company's products.
2) Look for more ways to outsource
Outsourcing is among the most impactful ways to cut costs, especially during an economic crisis.
Outsourcing has been around for decades, but it has become more prevalent within the global economy in recent years. Instead of doing tasks and projects yourself, hire someone else to do them for you.
Outsourcing may sometimes mean hiring another company or person to do the work for you. Other times, it will be more like hiring an individual (such as a virtual assistant) who does their own thing from home.
Outsourcing can be an excellent way to save money on labor costs and allow employees to focus on higher-value tasks that only they can perform well.
Looking to outsource? Download the Complete Guide to Successful Outsourcing
3) Choose practical over elaborate
During an economic downturn, you want to focus on what is practical and sustainable. You don't need the latest and greatest innovations because they are not affordable. And most importantly, practical could be more reliable and easy to use.
You must prioritize functionality over style for your organization to succeed during a recession. Focus on what matters most in completing tasks: dependability, efficiency, affordability, and usability.
4) Become a partner, not just a vendor/supplier
You have to stop thinking of your customers as just sales opportunities and start seeing them as partners in the success of their business. Get creative with how you can help them succeed and work together with them on mutually beneficial projects.
Offer training, coaching, or mentoring services. For example, offer training sessions for new hires or provide customized coaching and mentoring services to help senior employees get up-to-speed on new initiatives at the company.
Help clients improve their business processes by providing consulting services such as process mapping, workflow analysis, and performance benchmarking where appropriate for specific industries like healthcare providers.
Offering value adds new services to your repertoire, will help sustain their business, and might even provide you with new business.
5) Market as if your life depends on it
Perhaps you've heard that marketing is the first thing to go during a recession. That should never be the case. You can only survive in a down economy with marketing. This is because you need to bring the right customers to your business, and they will only come if they know about you.
Marketing is an investment in your future, but it's also an investment in your customers' futures. The more people who know about what you do and how great it is, the more likely they are to buy from you. And that means more revenue for your business.
Focusing on marketing during a recession makes it harder for people who want some of what you have (your services or products) but have little money.
These individuals may be unable to afford items from other companies because their budgets are limited or nonexistent due to unemployment or underemployment issues.
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6) Diversify your customer base
If you've ever thought your business would fair well in a complementary niche, now is the time to test that theory.
Diversification is integral to any business, especially in a down economy. A company not expanding its customer base and product offerings may struggle to make ends meet.
Reach out to new customers. Increase your marketing efforts by targeting markets you have yet to consider. If your business focuses on selling products or services to one type of client, it might be time to start thinking outside the box.
If you're selling coffee tables, consider selling dog beds too. If you've been marketing fitness equipment exclusively at gyms, try advertising in pet stores or veterinary clinics.
Whether or not your company has successfully branched out into new markets, now is a great time for experimentation with new products and markets as long as they don't take away from existing operations.
By experimenting with different kinds of businesses and clients, companies can help stay afloat through these tough economic times by increasing revenue streams while maintaining their core competencies.
7) Cut costs where you can
In a down economy, finding ways to cut costs is essential. Look for ways to automate processes so that you don't have to pay employees repeatedly for the same job.
For example:
- If your company has a call center, try automating some of its processes with an interactive voice response (IVR) system or platform.
- Consider outsourcing repetitive tasks to specialists in other parts of the world who can do them much more efficiently than your workers could ever hope to accomplish and at a lower cost.
This is also an excellent time for businesses looking into robotics and automation because these technologies are becoming more affordable.
8) Know when to walk away from bad partnerships
You might have a great business idea, but it will go nowhere if you need to learn how to execute it. This is where partnerships come in.
Partnerships can be fruitful when done right and with the right people. The critical thing is knowing when and how to walk away from partnerships that no longer work.
The best way to know if a partnership is working is by measuring your results. If you are not achieving the desired results, it could be time to end the relationship.
You can also ask yourself these questions:
- Are you both getting what you want?
- Are there other ways to accomplish your goals without a partnership?
- Can this partnership be improved by bringing in a third party?
9) Work on cash flow management
Managing your cash flow is of the utmost importance, as it is the lifeblood of your business.
Here's what you need to know:
Cash flow management ensures you have enough customer money to meet your expenses. If not, your company will go belly-up.
Your cash flow needs are unique to your company and industry, so there's no one-size-fits-all solution. How much cash should be flowing into your account each month? How much should be going out?
That depends on how many employees you have, what kinds of products or services they're selling, how many big projects are underway, etc.
It's hard work keeping up with this stuff all day long and even more challenging when there's no money. This brings us back to our first point: You need to start thinking about cash flow management now if your company still needs to do so.
10) Have contingency plans in place
A contingency plan is a set of instructions for what you will do in an emergency.
A business needs to have contingency plans in place so that when unexpected events occur, like a recession or economic downturn, they're ready with ideas about how to adapt.
If you're a business owner, consider making contingency plans for various scenarios that might occur.
For example, your business relies heavily on customers who live in another part of the country or world. What will happen if an event (like an earthquake or hurricane) impacts them? You should plan how to deal with this type of situation before it happens to minimize the impact on your bottom line.
11) Watch out for internal fraud and theft
Another area to watch out for is internal fraud and theft. You may have a well-trained, trustworthy employee who has worked at the company for years, but that doesn't mean they're not tempted by opportunities to steal from you.
Ensure your employees understand what is expected of them during this time in the economy, and remind them that honesty is always the best policy for dealing with money issues.
If people come into your business regularly or are just casual visitors, make sure they know what areas of your business are off-limits and who needs to be present before giving out sensitive information about finances or other critical aspects of running your business.
12) Take care of your team members
You can only expect your team to be loyal if you're loyal to them. The best way to inspire loyalty is with communication and training that makes them feel like they have a voice in the company's decision-making process.
By giving your team members a chance to be heard, you'll give them an opportunity for growth, which means their jobs will be more fulfilling and meaningful.
Training is another critical part of building loyalty. It lets employees know what's expected from them at work so that there aren't any surprises along the way.
Training should include both technical and soft skills so that new hires will know how to interact with customers or clients in ways that create positive experiences for everyone involved.
Finally, remember that recognition doesn't just mean handing out bonuses now and then. Recognize every employee's contribution by providing an environment where people feel valued for their contributions, no matter how small those may seem on paper.
13) Use a flexible business model
Competing with established players in your industry during a recession is one of the most challenging aspects of starting a business. Clients are less likely to try out the “new kid on the block” and are more risk-averse during a recession.
As a result, you must comprehend the thinking of your potential customers and develop a business plan that can adapt to their needs.
When you are a new player in a market, you are in a better position to recognize the structural problems. You can base your marketing strategy on these issues to convince customers that you are the right choice for them.
Being adaptable in your business practices could lead to a paradigm shift in the sector and give you the ability to withstand a market downturn.
14) Undercut your competitor's pricing
During a recession, people's top concerns are how to save money and how to avoid overspending. It's crucial to realize that most potential clients prioritize their bottom line. Make yourself less expensive than your industry rivals to capitalize on this mentality.
While being less expensive initially results in lower profits, you can win over clients and boost your reputation. You'll be able to develop a solid and long-lasting customer base over time.
This means you will have to be very careful with your profits. Make every penny you pay count, and watch that you don't spend more than you have.
15) Place yourself in a strategic position
During this uncertain time, everyone is having difficulties. Budgets will shrink, businesses will fail, and the near future may seem dreadful. But as a business owner, you should see this as a “leveling of the playing field” as firms from various industries lose market share.
Try to be upbeat and see the glass half-full because this is a great chance to discover the ideal industry niche to expand your business.
Entrepreneurs should watch for industry cracks as they start to form. What businesses are most likely to fail and why? Where in the market will there be openings? And how do you fit your business into that gap?
If you play your cards correctly, you can emerge victorious from the downturn. This is an exciting time full of industry reshuffling.
Bonus Tip: Keep True to Yourself
Being true to yourself in business during an economic downturn is critical. It's easy to get caught up in trying to do what everyone else is doing to stay afloat, but it's important to remember to hold onto your core values and stay true to yourself.
Staying true to yourself and your business idea through tough times can help you remain resilient and creative during challenging times. It can also help you spot opportunities where others may not, enabling you to make the most of a downturn.
Keeping your vision alive and focusing on solutions that align with your values and goals can help you stay afloat and come out of a downturn in a better position than you entered.
Business Success in a Down Economy Wrap-up
If you're in a down economy, the key is to stay positive and think of ways to keep your business moving forward. You can accomplish this by focusing on what works best for your organization and avoiding the hype surrounding new trends or ideas that may not align with your core values.
The best businesses understand how to weather the storm when a recession hits and know what they should do to preserve their business during a recession. Others know how to take advantage of new opportunities. Which type of business owner will you be?
