Seven Business Strategies for an Economic Downturn

It’s almost impos­si­ble to pre­dict what’s going to hap­pen in the future – at work or in life.

And it might not be as much fun if we could pre­dict every­thing, anyway.

With many things hap­pen­ing around us, now – infla­tion, inter­est rates and sup­ply chain chal­lenges – peo­ple have more ques­tions than usu­al, about the future, which means it’s good sense to be pre­pared for the down­side or worst-case scenario.

It’s smart think­ing to always be pre­pared and put all your ener­gy to push for­ward – to lead peo­ple towards the best out­comes you want.

“Be fear­ful when oth­ers are greedy, and greedy when oth­ers are fearful.”

War­ren Buffett

This quote reminds me of when ama­teurs start giv­ing hot stock tips and things like Bit­coin, the mar­ket could be over­heat­ed. Con­sid­er the source and do your homework.

The upside of downturns

Over the last 30 years after expe­ri­enc­ing many eco­nom­ic booms and down­turns in dif­fer­ent economies around the world, I’ve come to real­ly love and appre­ci­ate eco­nom­ic down­turns. When the mar­ket gets a good shake, dis­ci­plined com­pa­nies – like the ones that we work with – tend to thrive, devel­op greater strengths and grow. Weak­er, undis­ci­plined play­ers tend to fall behind.

Here are sev­en busi­ness strate­gies for an eco­nom­ic down­turn that you can put into place now:

1. Plan for the best and look for the biggest opportunities.

As the mar­ket changes, there is always oppor­tu­ni­ty. Cus­tomers’ needs and buy­ing behav­iours shift. Such as from con­ve­nience and price to reli­a­bil­i­ty, or from reli­a­bil­i­ty to con­ve­nience and price. Ser­vice become more impor­tant than price and convenience.

2. Plan for the worst-case scenario.

The key is to plan then move for­ward. Don’t spend end­less hours ago­niz­ing over the worst-case sce­nario. If you become too pes­simistic and wor­ried, you’re like­ly to slow down or hurt your­self and the business.

I’m a big believ­er in look­ing at dif­fer­ent sce­nar­ios and how the num­bers of the busi­ness could play out. Like if the cost of cap­i­tal goes up 2%, 3% or 4% and if demand decreas­es 5% or 10%.

Recent­ly, we worked with a com­pa­ny to cre­ate a three-year mod­el with ten dif­fer­ent vari­ables. We picked what we believed was the best-case and worst-case sce­nar­ios and then mod­elled finan­cials and cash, based on those. The goal was to make sure we could live with what­ev­er hap­pened, and have the resources required to push ahead and build the com­pa­ny we want.

3. Cash is king.

No mat­ter what your mod­el­ling tells you, in terms of prof­itabil­i­ty, you need to trans­late it through to cash. Con­sid­er and adjust all your invest­ments to make the mod­el work, and cre­ate plans to:

Antic­i­pate cus­tomer needs. What is your best guess of how cus­tomers’ needs could change? Like dur­ing COVID, masks and tests became high demand items – as did tram­po­lines, recre­ation­al vehi­cles and home delivery.

When you have a hypoth­e­sis about a new cus­tomer need, talk to them and ask if it would be valu­able. Like Jim Collins’ prin­ci­ple of bul­lets and can­non­balls: test before you com­plete­ly piv­ot your business.

Man­age cash. As I said, cash is king, and one of the most impor­tant busi­ness strate­gies for an eco­nom­ic down­turn. Start watch­ing for bad-pay­ing cus­tomers. One very suc­cess­ful entre­pre­neur I work with gets very aggres­sive on accounts receiv­ables, when­ev­er the mar­ket changes – not extend­ing cred­it (unless the com­pa­nies were incred­i­bly strong) and putting addi­tion­al peo­ple in that depart­ment to stay tight. As he remind­ed me with a smile, it only counts as real rev­enue if you get paid for the sale.

Fill your war chest. Focus on build­ing notable cash reserves or access to invest­ments that can be con­vert­ed to cash in 30 or 60 days. A war chest enables you to take advan­tage of the big oppor­tu­ni­ties and han­dle rough patches.

4. Plan to attract new A Play­er tal­ent, and to keep the ones you have.

In tough times, high and low per­form­ers can get uncom­fort­able or spooked and need addi­tion­al sup­port to stay engaged – espe­cial­ly if this is the first time they’ve gone through a big eco­nom­ic change.

Dou­ble down on dis­ci­plines you should already have in place. Make sure you take care of your best peo­ple and then man­age out the weak ones. There can be amaz­ing oppor­tu­ni­ties to recruit top tal­ent in eco­nom­ic down­turns – not because they get laid off and they’re in the mar­ket­place (those are nor­mal­ly low per­form­ers) – but because they may lose trust and faith in the com­pa­ny they work for, if changes haven’t been han­dled well. These high per­form­ers may be more will­ing to move to ​“high­er ground” with a stronger, bet­ter-oper­at­ing company.

5. Make sure your core dis­ci­plines are tight.

Dur­ing boom­ing times like we’ve expe­ri­enced recent­ly, busi­ness­es often per­form very well and lose their dis­ci­pline costs and process­es, etc. Dur­ing quick growth, some costs – as a per­cent­age of sales or gross mar­gin – increase notably but no one pays atten­tion because the rest of the busi­ness is so strong. So, go back to the bor­ing dis­ci­plined basics that real­ly make a dif­fer­ence in your busi­ness and make sure you con­sis­tent­ly do great work for customers.

6. When the worst-case sce­nario hap­pens, make the tough deci­sions early.

It’s nev­er fun and nobody real­ly wants to have to do it, but you must make nec­es­sary changes ear­ly, based on your val­ues and in a way that makes sense for you.

If you wait too long to make any changes or cut costs, you’ll be forced to be more aggres­sive, and that’s hard­er on the com­pa­ny and the peo­ple involved.

When one com­pa­ny went through a rapid down­turn, we made a list of all the things we could to keep the com­pa­ny finan­cial­ly strong. Of the six points on the page, lay­ing off peo­ple was the last, which only con­firmed they were tru­ly liv­ing by their val­ues and cared for their peo­ple. Most telling? They were will­ing to adjust exec­u­tive com­pen­sa­tion, before they let go of val­ued, front­line team members.

The Chal­lenge

• What can you do now to make sure you and your team are more pre­pared to imple­ment effec­tive busi­ness strate­gies for an eco­nom­ic downturn? ?

Addi­tion­al Podcasts:

• For more about this, Episode 115 of The Growth Whisperers
• Mak­ing Dif­fi­cult Decisions
• Prof­it = Intel­li­gence + Discipline
• Is Your Cor­po­rate Cul­ture Real­ly Aligned with Your Values?

Addi­tion­al Articles:

• Cash Reserves: Too Much, Not Enough or Not Sure?
• Teach­ing Your Chil­dren Men­tal Resilience
• Is Men­tal Health a Pri­or­i­ty in Your Boardroom?
• Chang­ing Your Mind­set from Woe to Wow
• Tack­le Dif­fi­cult Decisions

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