Recessions, financial crises, and economic downturns are part and parcel of the cyclic procession of economic expansion and contraction. An economic downturn sees a dip in national GDP that is either short-term or continues on a course towards an economic depression, whereby the economy slows across the board for a protracted duration.
Recessions can present very trying times for a business. Markers of an economic crisis include increased unemployment, inflation, and a decrease in manufacturing volume, sales, and incomes.
The knock-on effects of reduced incomes and demand can spread far and wide throughout the economy, and in such circumstances, many businesses never recover.
The knee-jerk reaction
Faced with the stress of such severe economic impacts, many retreat in panic in an attempt to mitigate exposure to any negative impacts.
In practice, this retreat translates to showing employees the door, cutting back spending and a general reduction in outlay and output.
Yet, such reactive responses can actually hinder rather than help, as they can usher in prolonged stagnation and the risk of losing ground to market competitors.
Conversely, to look at such crisis situations as a motivation to push towards diversification or reallocation of resources – a positive, tackle it head-on approach – can result in not only survival but growth as well. The reactive approach to an economic downturn is short-sighted, can inhibit competitiveness, and will likely be to the detriment of long-term growth prospects.
The focus should here, therefore, must be on how to not only weather, but push through an economic downturn with renewed ambition.
Surviving an economic downturn
Don’t instinctively bring everything to a halt
Bear in mind that external circumstances won’t necessarily render your area of business obsolete. Don’t assume you have no agency and that the only prudent measure is to batten down the hatches, weather the storm, and hope for the best.
Downturns are proven to be opportune moments to capitalize on the oversights and shortcomings of the competition. A deep understanding of your market and the industry can be leveraged to find creative ways of meeting your customers in the middle and even finding new ways of proposing value.
How are consumers realigning their priorities? In response to the downward shift in the economy, what factors are most prominent in their purchasing decisions? Insight into what consumers are thinking should inform your strategy going forward. Online reviews sites like PissedConsumer.com are valuable resources that collate consumer reviews and hence provide useful data that can be applied practically to help you choose where you should prioritize.
Think long-term: Strengthen the fundamentals
Inflation, resource limitations and supply line issues are all factors that add weight to the suggestion to act now to update, improve or replenish any infrastructure you rely upon for your business. Materially, this could be anything from technology to essential raw materials, in terms of systems, it could be an overhaul of your logistical operations or stock management processes.
This is also the time to take an in-depth look at where it may be possible to cut costs without sacrificing quality or output rates. Are you using costly parts that are overengineered for the job required of them? Can a cheaper component succeed at the same task without any drop in outcomes?
Your supplier contracts come under this point of attention too. Leverage good relationships with your suppliers and the opportunity to renegotiate mutually beneficial long-term contracts that provide surety and security for both parties.
A reassessment of your financing arrangements may also be prudent at this stage. Businesses can be very resilient if access to financial assistance is available.
While the case may be that all these actions are a reaction to an extraneous circumstance, the measures you take can and should be proactive with the long-term development and growth of your business in mind.
Plan, assess, learn, equip, train, and prepare.
Assess every aspect of your business performance with relevant data measures and develop the ability to continuously adapt to disruptive impacts. Never be afraid to implement new systems if others are falling short or having detrimental effects on other areas of the business.
Remember the fundamentals of an adaptable, resilient business:
- Frequently audit the efficiency of your processes.
- Be prepared to shift resources to meet the needs of a changing market.
- Instill a confident and forward-thinking attitude in your staff, and encourage as well as apply constructive feedback from employees and partners.
It’s a fact of life that at some point you will be faced with the impacts of an economic downturn. Yet, if you use such events as an opportunity to strengthen your footing and grow, rather than succumb to fear and shell up, against the odds, your business can prosper.