What goes up inevitably comes down and so it goes with the economy as well. As Forbes put it, “Recessions are considered an unavoidable part of the business cycle—or the regular cadence of expansion and contraction that occurs in a nation’s economy.” Exactly when a recession will actually hit depends on who you choose to believe, but most economists believe that we are headed for one in the near future.
With that in mind, we decided to look at what helped businesses survive, and even thrive, during the Great Recession of 2009. These lessons held true then, through the pandemic, and are still relevant today.
Preparation pays off
According to Bain, companies that prepare well for a recession pull ahead during and after it. They found that well-prepared companies are positioned to take advantage of recessionary turmoil and gain market share. In a study of 3500 companies, Bain found that both winning and losing businesses experienced double-digit growth prior to the recession ending in 2009. But once the recession began, the well-prepared companies continued to grow while unprepared businesses stalled, and the performance gap continued expanding post-recession. So, with the inevitability of an eventual recession, be it now or later, there’s no time like the present to start preparing.
Customer experience is a highly profitable strategy
Investing in customer experience during a downturn has proven to be valuable. McKinsey found that businesses that prioritized customer experience during the great recession were three times more profitable.
Developing an effective key account management (KAM) team and system, like Kapta’s KAM process, helps you efficiently provide a superior customer experience while minimizing churn from your top accounts.
Since key accounts represent up to 80% of your revenue, what better way to shore up your business than by providing these clients with exceptional value now. Then they’ll choose to stick with you throughout an economic downturn because you’re a trusted advisor instead of just another vendor.
Reduce debt
A study revealed that businesses with the highest level of debt at the start of a recession were the ones most likely to go bankrupt or be forced out of business. The researchers, from MIT’s Sloan School of Management, explained that having more debt increases the amount of cash needed to make interest and principal payments. Then a recession leads to reduced cashflow due to decreased demand for products or services, increasing the risk of businesses defaulting. These companies often end up making aggressive cost-cutting measures, including layoffs, that reduces their productivity and their ability to fund new opportunities. So don’t hamstring your business. Work on reducing debts now so you can survive a recession and come out of it stronger.
Don’t run out of money
In addition to reducing debt, increasing the amount of cash a business has on hand before a recession is also essential. McKinsey found that businesses that grew during the 2007-2009 recession had 20 percent more excess cash than their peers before the economic downturn began. This makes sense since a recession typically means reduced sales and less cash to fund operations. Having excess cash enables a business to absorb losses better and gives them the ability to expand during or after the recession.
Look beyond layoffs to cut costs
It’s common place for businesses to cut staff to reduce costs during an economic downturn. But it’s important to consider the long-term ramifications. Research shows that staffing reductions rarely help companies achieve their goals, only to producing short-term gain. Plus, they lead to bad publicity, loss of knowledge, poor morale, and more voluntary staff turnover.
Using temporary furloughs or proactively optimizing your staff before a recession ensures your business is operating efficiently. And optimization or furloughs instead of layoffs eliminates the added recruiting costs while giving the business the flexibility to take advantage of growth opportunities.
Adopt digital technologies
One way to optimize operations and increase efficiency is by adopting digital technologies. Even if a recession strikes tomorrow, it’s still not too late to implement new technology. According to Katy George of McKinsey, digital transformation should be prioritized ahead of or during an economic downturn to:
- Improve analytics and insights for better decision making
- Help cut costs
- Increase agility
Follow these time-tested recommendations to successfully survive the economic downturn whenever it arrives. And your business will come out of the recession stronger as a result.
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