Market corrections and the ups and downs of the U.S. economy are nothing new. Booms and busts are simply an economic fact of life. But most modern recessions were triggered by largely unanticipated issues and have been relatively short. The 2020 COVID recession was caused by a global pandemic. The sub-prime mortgage crisis resulted in the Great Recession of 2008. The 2001 recession was triggered by the dot.com bubble bursting and aggravated by 9/11.
But today’s recession fears are different. Leading economists watching U.S. policy shifts and newly minted tariffs are raising expectations of a recession. A Bureau of Economic Analysis (BEA) Q1 U.S. GDP advanced report issued on April 30 showed the GDP contracted by 0.3% Remember, a recession is defined as two consecutive negative GDP contractions. We have already seen one.
Unlike recent recessions, which surprised us quickly as an underlying problem reared its ugly head, this is more like watching a train wreck in slow motion. Plummeting consumer confidence, predictions of rising unemployment and daily stomach-churning stock market rides all indicate the coming turmoil. The question is what should business leaders do to deal with coming hardships and challenges?
Recessions are a normal part of economic cycles, so there is no shortage of advice on surviving and even thriving in tough times. But there are five strategies most experts agree will help contend with a recession.
Watch Your Pennies
The first order of business is making sure your financial house is in order. Cash flow becomes critical. Managing accounts receivable is a must. Executives and managers alike must become budget zealots reviewing expenses with a fine-toothed comb and minimizing unnecessary costs. This does not mean haphazardly slashing all spending, but rather to spend money smartly.
For operations managers, this means diligently focusing on maximizing productivity and looking for new ways to boost efficiency. Prioritizing employee communications and morale can help here. Being transparent about challenges, explaining how the company will deal with them and defining what employees must do to help will build trust and can even improve productivity.
Fortify Existing Customer Relationships
Just like you, customers will be assessing their expenses to improve their financial picture. Be proactive in reminding them of your value. Reinforce the benefits your products and services bring to their business. Make certain they recall the reason you are their trusted partner. Now is the time to look for creative ways to increase customer loyalty. Think about ways you can help them lower their overall costs by consolidating purchases with your organization. If you are a service provider that negotiates contracts and pricing for customers, take the lead and reach out to renegotiate with suppliers. Those suppliers fear losing business during the recession, too. This makes for a good opportunity to negotiate more customer benefits.
Customers are an asset at any time. But they become even more important during a recession when everyone is looking to cut expenses. Take action to keep customers and increase their loyalty by demonstrating your value during the hard times.
Diversify Revenue Streams
Seeking new revenue streams requires being innovative and thinking outside the box. Challenge your team to look for new ways to make money. Maybe they will find a new industry or application for your products and services. Or discover a way to make your scrap materials generate new funds.
Invest in Cost-Effective Marketing
Nervous people often slash marketing budgets during a recession. This is sacrificing future gains for cash flow today. Many studies spanning decades have found organizations who maintain or increase marketing spend during recessions recover faster and outperform competitors. Conversely, those cutting or eliminating marketing investments struggle after the recession.
In the 2020 COVID recession, Coca-Cola pulled over $2 billion from its communications budget. Pepsi, on the other hand, simply maintained their marketing investments. The result – Coke revenues dropped a staggering 11% while Pepsi grew 5%.
History shows those choosing to make thoughtful and wise marketing investments tend to keep current customers, grow share and close new prospects making them even stronger competitors when the economy inevitably stabilizes.
Seek Strategic Partnerships
People need friends to deal with rough patches. Businesses are no different. Companies are trying to do even more with even fewer resources during recessions. Strategic partnership can help overcome some challenges by sharing resources, expertise and costs while expanding opportunities with one another’s customers. These partnerships can also make both organizations more innovative by bringing diverse ideas.
Building a partnership requires work. The new partnership must make sense for both parties and make each more competitive. Goals must be clearly defined and agreed upon with measurable performance indicators in place. But it also must be the right cultural fit.
Finding a strategic partner can help both companies not only deal with a recession, but also redefine their marketplace for future growth. However, this is probably one of the most challenging strategies, as it requires a commitment of time, transparency and understanding from both parties to succeed.
Now Is the Time for Action
American businesses are already frantically looking at options to deal with new tariffs and a trade war. This new world is sure to mean short-term instability and perhaps some sustained uncertainty. Now is the time to fortify your organization for the rough seas ahead. Prepare today to weather the storm.
