Recession
The word recession strikes a sense of fear into the most hardened of business hearts, but it shouldn’t as if you have been through one (3 in my case), you learn that they are temporary and there is light at the end of the tunnel.
But how do you survive a recession or economic downturn and even profit through the experience?
It all comes down to:
- Your mindset.
- How prepared you are.
- Learning how to spot and take the right action to create opportunities.
I talk about having the right mindset in this article — “How having the right mindset helps entrepreneurs build thriving companies.”
Having the right mindset is a good place to start as it will set the right scene for everything else and if you have a perfect business message, you will have a keen sense of focus.
My friend Fernando Raymond has a simple message:
“I have a mission to get 100 million people online by providing hosting and educational services through my companies – especially to third-world countries.”
That single message keeps Fernando focused and it doesn’t matter if there is a recession, because he will continue to pursue the goal because his mindset is strong and he also keeps his various international companies lean and agile, which falls into the second aspect of the 3 points above — being prepared.
If you keep your business lean and agile, your costs under control, your spending directly connected to providing a benefit to your customers, you will have a very optimal company and in today’s uncertain and volatile economic climate, many businesses will fail during their first year and many won’t make it past 5 years, so keeping lean and agile is the goal.
Sadly, most companies including my own, get to this state as a result of a recession and by then it can be too late.
Had I have known more before the three recessions I faced, things would have been very different and that’s why I am sharing this information with you, in the hope that you can be better prepared, not just for a recession, but any economic eventuality.
Recessions are a fact of business and economic life because we operate in “boom and bust” cycles and I have been through and survived three of them, so I am going to talk about firstly, learning how to spot them, secondly, what you can do to prepare for, and survive them.
Lastly, I am going to talk about how you can actually thrive during a recession and win more business.
Global markets and your business
I am going into more detail about global markets in the next section where we will look into predicting a downturn or recession.
If you look at the picture you will see an ordinary street market, where there are products and in this case food, from all around the globe.
The prices of these products vary, due to the demand and ability to transport them in order to be sold and my point here is that you cannot control the prices of the goods, but you can learn to predict them.
Many good restaurants, for example, create their menus from “seasonal” produce, because they know that the products will be fresh and right for that time of year, plus they will be available.
In restaurants that sell fresh fish, you will often see the price listed as “seasonal price” or “market price,” because it will vary and that variance can occur daily.
Think of yourself as the owner of a market stall, buying the products you feel will be of interest to your customers and being able to change and adapt to fluctuating prices — there may well be a desire to stock exotic fruit, for example, to be different from all of the other stalls, but are there any buyers for it?
It is also important to understand that the market will always go where it wants to go and don’t fight it.
Think back to televisions as another example and when the first plasma televisions came out and I remember paying a small fortune for one.
Over the years the prices have dropped dramatically and also new rival technologies have emerged, creating more competition.
Now you may have heard some sayings from stock market investors to the tune of “when everyone is selling, then buy and when everyone is buying…sell.”
My advice is to leave that to the professionals because it can be true and also remember that markets are cyclical and think back to the plasma television example — I’m sure you would not have wanted to buy a consignment of televisions at the top of the market price!
Predicting a recession
I am going to take you way back to 1974 and to an article in the New York Times.
If you read through the article, you can see how the global economy is hardwired for recessive times and that is where you can learn about predicting them.
Rather than go through economic theories and turn this into an economics article, you can read about how two business professors have devised their own ingenious method to work out the probability of a financial crisis to get started.
I like to keep things simple and I look at money — what are the values of the leading global currencies and where are they being invested, plus what the predicted returns are from those investments.
But what you must absolutely do, it to keep a keen eye on global economic indicators, because no matter how large or small your company is, there is always a knock-on effect from global and geopolitical events, that affect everyone in some way.
Your aim in business is to think ahead and that means taking a view that is six to twelve months forward.
Hedge funds think is this manner and that is one of the reasons why they can deliver high returns for their clients and also because they can “hedge” against each an every possibility that could occur.
If you want to understand the dynamics of business, start with understanding the dynamics of the commodity that drives it…money.
As I have said, recessions are a fact of economic life and in the world that we live in — they are not going to go away, but also they should not be feared, unless you are totally unprepared, or you want to ignore them out of ignorance.
If you look at something more primal like boxing for example — a good boxer will have a good defense as well as a good defensive strategy, but will still be looking to knock out his opponent.
A reckless boxer will simply try to knock his opponent out at all costs and will end up being knocked out himself.
Just apply the principle to business and this is the first thing to look at in business and it is good practice to go through the next step regardless of whether there is a recession or not.
Keeping your business lean and agile.
Some businesses are recession-proof as you can read more about here in an article in Forbes.
But let’s say that you are not fortunate enough to be an accountant or in the healthcare profession — what can you do to keep your business lean, agile and able to withstand tough market conditions.
It centers around cash and credit management as a starting point and going through the following exercise to see exactly how your business is performing and also to look at how optimally it is running.
You should be producing monthly accounts for your business and you also need to have a thirteen-week rolling cash flow.
This is a very powerful management tool and it will give you a forecast of where your cash should be at the end of each period and because it is “rolling” in nature, you are always predicting what is to come.
Many companies have static or even no cash flow projections, simply relying on their bank balances and this is a disaster waiting to happen.
You must get into the habit of “predictability” and that means not just your own cash and profit forecasting, but also to predict the needs of your customers, so you can meet them before they arise.
So many salespeople bang on about having a Unique Selling Point (USP), but the best one is to be able to meet your customer’s needs before they arise.
How powerful is that?
But let’s get back to internal forecasting.
Remember that it is a forecast and the first few week’s figures will be more accurate than the last few weeks, but you are going to be improving as you do it and the predictions will be far more accurate.
Some golden rules
Here are some rules you should pay close attention to before we get into the meat of the subject:
- Avoid giving personal guarantees at all costs — these can come back to haunt you if things go wrong and a guarantee is a guarantee, even one from the company that is not supported by you personally.
- Make sure that any property you rent or lease has a break clause in it — you don’t want to be in a situation where you have a major long term lease that you cannot get out of.
- Make sure you have a good employment lawyer to draft employee contracts — you must make sure you strike a fair balance between offering a good contract and having one that has a long notice period for example.
- Review all of your supplier contracts — make sure you know exactly what you have signed up for.
- Review all customer contracts — make sure you can deliver what you have signed up to deliver, that you understand any penalty clauses should you fail to deliver and also that you understand any liability clauses fully.
- Review all of your insurances including personal director’s liability.
Business cost control
Now it is time to go through a little exercise and this is where you will literally work through each and every cost in the business.
You need to be brutal here and I had to do this in the tech recession — my target was to take one million of costs out of the business only to find out that when I did, then bank demanded another 300K!
The bank had installed their own person to make sure our costs were being cut and controlled and I remember looking at this person in disbelief when we had to take a further 300K out.
I was told and in a very nice way, that it can be done and it’s just a matter of doing it, which is correct, but you go through so many emotions when this happens as well as fears and in my case, I couldn’t imagine the business continuing after so much cost-cutting.
This is why it’s a good idea to do this when you are not under pressure and I have done it for many clients ever since and most are amazed at the outcome and see that there are simply too many costs in their companies.
Go through your costs line by line and look at everything that is non-payroll related.
Reduce and cut everything that is not essential to run the business — you want to think like you are in a deep recession and go into a severe cost-cutting mode and remember that you are doing this as an exercise and it is much better to do this in normal economic conditions, than having to do it as I did, because I was forced to.
Now we come back to payroll and here you must make sure that you are receiving the best performance from your team, in relation to what you are paying them.
Employee perks and benefits should also be reviewed and whilst they are a great incentive for your workers, you must make sure that you can secure their jobs as a priority.
Now I want you to go to the extreme here and be brutal — question deeply each item of expenditure and every person you are paying, including yourself as the business owner and ask the question:
“Would you hire that person again for the same job, or would you have them doing something different, or would you not hire them again at all?”
Work out how lean you could make the company if you really had to.
Once this is done, you should have a totally different company — now I am not suggesting that you run the model as it has been produced as a result of an exercises, but it is important to at least have it and get your mindset around the fact that you could make that model work if you had to.
There is a fine line between cost-cutting and making sure your business can deliver in line with it’s commitments to customers and also take advantage of any opportunities.
You also have to take morale into account — both your own and staff.
I was forced to take action and losing half of your global workforce is no fun for anyone…but if I had the time to prepare and do it properly the outcome would have been very different.
Back to cash control
You should be on top of your cash flow daily as a matter of routine and one thing you can do over time, is to build a “war chest” of capital that you can hold in reserve, should your industry or the global industry goes into a downturn.
In my regular business coaching, I often see companies who are not on top of their cash flow and that will lead to problems down the line — I also see companies who are too lax with their credit management and this is something I have been guilty of in the past.
It took a sharp credit controller to tell me that my credit management was running awry and it came down to one very simple thing — our credit controllers were communicating mostly by email and failing to build a rapport with their customer contacts.
It is vital to make sure that solid relationships are built with customers at all levels and not just from a “sales” perspective.
Even if your payments are made through an automated system, remember that people sit behind those systems and it is a good idea to communicate with them, it may be very beneficial to your bank balance!
It is also vital credit check your customers regularly and to look out for alerts that could indicate potential trouble.
Take a look at this article and how you can look for warning signs that trouble may be ahead.
Don’t become a bank
In the late 90s, the global technology boom came to an abrupt end and my company, like many others, suffered badly and it was not surprising when you look back as all of the global indicators were there, but I simply refused to see them, as did many of my competitors.
We let our hearts rule our heads and we were at the heart of the very technology that was powering global communications, by providing specialist engineers to the mobile telecom industry and we couldn’t see the reality that was right under our noses if we bothered to look deep enough.
The realization came when companies started to stop paying us on time and I remember my companies cash flow being out by over £1m in the sense that the money was outside of our maximum credit terms of ninety days — I was effectively a bank.
On top of that, I had debts mounting up with clients who were withing terms, but exposed in the market due to their trading performance.
It was an absolute nightmare, to say the least.
Over the coming months, the whole industry went into a nosedive and one of my customers who was a huge global concern had told all suppliers that no payments would be made for six-months!
Hiring was not an option at this time and instead, companies were culling their staff to around fifty percent of their workforce and unfortunately, we had to do the same.
If you don’t try to win, you cannot lose — first learn how to survive because through survival comes opportunity and opportunity is the gateway to success!
Learn to survive in business
Most people, including myself at one time, go all out to win as much business as possible and it’s logical right?
With so many startup companies failing and even huge corporations and “household” names, something must be wrong.
In the cases of the latter, it is largely because those companies have failed to adapt to changing economic times and in some because they have ignored the power and reach of the Internet.
With startups and younger businesses, it is down to many factors from having the wrong business message and model, to simply not keeping on top of financials.
I learned all about the importance of survival when my passion for martial arts took me to Moscow, Russia.
Russian martial arts are extremely effective and are taught to Russian Special Forces personnel, so they have to be!
Our teachers were talking about how in the West, everyone is obsessed with winning and when there comes a time for losing, which is experienced by everyone at some stage, for some people, they cannot handle the result.
“Losing” is taken off the table with their martial arts and they teach people to survive — knife attacks, sticks, and even guns, simply because you need to stay alive to continue on your mission, whatever that may be.
It is by no way a “passive” sense of survival, but very active and that is where you are constantly looking for opportunities, which in the case of this type of survival, means to take advantage of a mistake that your opponent has made to overpower them.
I have simply applied this to the world of business and it gave me a totally different perspective.
Survival in Russian martial arts is about being able to build a solid defense, but not at the expense of not being able to attack.
Let me explain:
If you are a boxer who steps into a ring and from the first bell, you cover up passively, then you will not be in a position to capitalize on any mistake your opponent makes.
Instead, you need to take defensive measures, but to be active and even aggressive when looking for opportunities and it is exactly the same in business.
You want to have a company that can pivot in a heartbeat — if something in the world changes, your market starts to slow down, or your competitors start a price war, you need to be able to react and go with the market…and not go into panic mode.
Get your business as lean as you can and make sure you are agile enough to keep moving in line with your customer’s dynamics and that will mean staying ahead of the curve, as I explained with the Hedge Fund analogy.
Then you have to keep the cash flowing and make sure your credit is being properly managed and look to build a war chest, for any eventuality and now it is time for the creative part and that means looking out for and hunting down those opportunities, which you should be doing as a matter of course, but they are much more important in times of a recession.
Profit through opportunity
What I am going to talk about here, you should be doing in any event, regardless of whether there is a recession or not and simply because it is good business practice and it will keep you ahead of the game.
It is time to really drill down deep into the products and/or services you provide and make sure they really focus on helping your customers reduce their costs, improve their profits or better still…both.
Start with your business message to make sure that it tells your customers exactly what you do and what’s in it for them as a result of what you do.
Remember one thing — a recession is a temporary condition and that means there is going to be an end.
The longest recession in modern history, the Great Depression which started in the USA lasted around ten years, even though technically, it was over after around 4!
Now ten years is a long time and it would have taken a lot of resolves and financial capability to survive such a recession and thankfully, it was one of a kind.
Could it happen again — of course, because anything is possible, but you cannot live in the fear of it happening and you must keep your business lean and agile.
There is always light at the end of the tunnel and it is just about staying in business in order to get there, but remember what I said about not being “passive” in your attempts to survive!
Now I will go back to my business for a minute and tell you how I missed a trick or two when we suffered as the technology bubble burst in the late 90s.
Instead of going into a blind panic, which was the result of not being able to see or accept the signs of a looming recession, I should have taken stock of the situation and moved my sales efforts into delivering services that would help my customers get through the period and as I was in technology staffing, I should now have focussed on giving them short-term expertise in helping the customers streamline their operations and providing more profitable outcomes.
Now for me, had I have thought about it properly, would have led to finding specialist people who could command higher fees, because their value was much higher.
And as a result, I could have charged higher fees because my customers were interested in not only lowering their operating costs but also to come out of the recession in better shape.
One of my largest customers actually went through a total change of executive leadership during the recession and this definitely came with huge costs — both in hiring new blood and letting go of the existing team.
But to stay in the game, there was no choice — tough decisions had to be made and money had to be invested.
In essence, one person would have been worth at least two, so there was a cost-saving and of course, they would also have been on much shorter-term contracts without the added cost of full employment benefits.
Looking back today, it was a “no-brainer” as our American cousins would say.
Hindsight is, of course, an exact science, but I have learned from this and two very specific things:
- Always focus your services financially and spell out the opportunities to improve profits and reduce costs…or both if you can.
- Focus the selling or your products and/or services at the highest levels and make sure that there is a financial person involved in the process.
I was consulting with a company recently, where there were teams of salespeople who were working out in the field in the engineering industry.
The company was concerned that sales were not coming in fast enough and the sales cycle was becoming longer.
Looking at how the salespeople were working, it was not surprising and they were sending a lot of time driving around, attending appointments and then waiting for the outcomes with the usual follow-ups that you would expect from a sales force.
The problem was that each and every deal, needed to be signed off by the Chief Financial Officer (CFO) and this was taking the time.
The solution was simple and of course, it meant getting in front of the CFOs of the relevant companies to make sure you were dealing at the right level…but there was a deep sense of fear from most of the salespeople of working at that level as they were far more comfortable dealing at a lower, managerial level.
The problem is that the company was carrying a huge cost to run salespeople who were struggling to sell and those costs add up.
Recession or not, this company was working inefficiently and the solution was to cut the number of salespeople, re-focus the remaining ones into a much more finance-orientated sale and teach them how to deal with CFOs.
The result was a leaner, more focussed sales organization that was engaged at the top with regard to their customer interactions.
Also, when you are working at this level, you get to understand the thinking of the most important person outside of the Chief Executive Officer, (CEO).
And finally, should there be a market downturn or full-blown recession, you are plugged into and connected at the top, so you can work with your customers and through the period.
Summary
If your business is lean, agile and your costs are under control, then you should not fear a recession and in fact, you may well be able to profit from it.
Understand that global markets will go where they want to go and don’t fight them.
Make sure you keep your eyes on the state of the global economy and geopolitical issues — you can make sure you are ahead of the game and see signs of a recession before it occurs.
Preparation is the key.
Learn to survive in business, but in a positive and not passive way — being able to survive any market conditions is the key and through survival comes opportunity.
Go through an exercise of extreme cost-cutting as it is good to see how far you can really push your business if you had to and in many cases where I have helped clients do this, they have created completely new business models.
Look at your product and/or service offerings to your customers and make sure they are financially driven and dedicated to lowering costs and/or improving profits.
Finally, make sure you are engaged at the right level with your customers — the executive leadership level as you want to be connected at the top with the people who not only make decisions but to build strong relationships that you can leverage in tough times if they occur.
If you want to discuss any of these points with me further, or you need help with anything business or career-related, then get in touch with me:
Author Profile
- Neil Franklin is an award-wining entrepreneur. He provides coaching and mentoring for startups and entrepreneurs who need guidance to build thriving businesses.
