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? ?

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