Thankfully, not many people are familiar with the condition when you realize that a force majeure situation can happen that you’ve never been in, you have over 350 people on staff, and you’re committed to over 200 clients at a time. Of course, you can curl up in a ball under the burden of responsibility and run away from the world under a blanket. But there’s family, parents, friends, and your goals and dreams.
I have been through two recessions and am now living and now coping with a third. When a recession comes, it requires us to be brave and willing to change. We can’t control external factors but can prepare for them and adapt. I realize that no recession is like the last one, but twice now, the experience and expertise that my team and I have accumulated have helped us overcome this challenge as well.
The time it takes to make decisions in large enterprises can be critical. And this is where we, small and medium-sized businesses, have a competitive advantage: we can make decisions faster and adapt to change better.
One thing is clear, every one of us CEOs strives to get through the recession in the most painless way possible. Preserve what we have and, as a bonus, come out more resilient.
How a recession can affect small and mid-sized business
Small and medium-sized businesses are the first to tremble at the word recession. What I found is that 93 percent of small firms in the United States are concerned about the possibility, with 38 percent already noticing a decrease in customer numbers in summer 2022, as reports Reuters referring to the recent survey conducted by Goldman Sachs. While large corporations typically have a financial cushion and the ability to cut costs to weather an economic downturn, they, too, are not immune to its effects.
In a business world where competition is fierce and uncertainty is an integral part of our reality, SMEs play a critical role in shaping the nature of growth, innovation, and sustainability in the economy. These companies comprise about 90 percent of all businesses and contribute to our overall well-being. They provide about 70 percent of the jobs and complement our regional and global economies, contributing to their diversity and dynamism.
You may lack employees with the necessary skills to withstand
Recession can be a daunting challenge for SMBs, especially if you lack employees with the necessary skills to weather the storm. For instance, falling behind in technological excellence hardens the business’s future-proof and efficiency maximization. A lack of availability of the right skills is a concern for 74 percent of CEOs in times of downturn. Scaling your internal resources to meet changing demands takes time and money, which is not a quick-fix work practice.
Notably, a recent report by Accenture has identified small and medium businesses as a substantial source of untapped growth opportunities. It’s clear that SMBs possess immense potential and should not be overlooked by investors and business leaders alike.
To keep operating costs down in the face of rising sales and inflationary pressures, it makes sense not to go all in with layoffs but to pick the right set of improvements. For example, rethink the supply chain, outsource some work, optimize taxation, tighten the belt on costs, and apply automation to increase productivity. Look for ways to add value to existing products for customers.
Low digital maturity can cause a drop in income
The last recession showed a correlation between the digital transformation maturity revenue growth in companies. Companies with a lower level were inferior to those more technically mature that reached a 45 percent growth during the slump, as founded by Deloitte. As stated by KPMG, 70 percent of leaders acknowledge the pressing need to expedite the transition of their investments toward digital prospects while simultaneously divesting from areas that risk becoming digitally obsolete.
Traditional revenue streams can let down
Your business model will need innovation to identify new markets and sources of growth. I understand that fear of change, especially in a critical environment, is natural. And you are not alone, and neither are the 85 percent of executives surveyed by McKinsey who admit that implementing innovative risk-taking concepts such as Proof-of-Concept or feasibility studies for new technologies is often or constantly hindered by fear in their organizations. But it’s like with a vaccination: you’re more likely to get sick if you don’t get it.
It’s not all bad
Many of surveyed 5,000 U.S. SMBs expressed a sense of optimism regarding their outlook for 2023 and their capacity to weather an economic downturn. I think the experience of previous years of entrepreneurship is the reason for this. After all, if you think back to the decade that followed after 2008, small businesses found themselves in favorable economic conditions that gave them a circle of opportunities to continue growing.
First, care about your staff
For small businesses, their people are worth their weight in gold. I strongly believe that during a recession, having a strong team is critical to the success of a business. I went through this challenge when Aimprosoft was a small firm that’s why I recommend SMBs focus on building a team of talented and motivated employees, providing them with the training and support they need to succeed, and creating a culture that fosters innovation, collaboration, and continuous learning.
The risk of prolonged inflation and economic downturn forced tech giants to lay off staff while the market still experiences the tight tech labor market. These steps look reasonable, but not for SMBs. Laying off tech staff for the latter can result in the loss of valuable talent and knowledge, which can be difficult and expensive to replace when the economy improves. It may also lead to decreased productivity, increased errors, and delays in project completion, while the tech staff is typically the driver of innovation and development within an organization.
Second, find and hire the best talents
During a recession, you may often face reduced competition for top talent as many businesses cut back on hiring or even lay off employees. Half of the executives believe that staff shortages are a bigger problem for business growth than the economic crisis. This provides an opportunity for other companies to attract high-quality talent that may not have been available during periods of economic growth.
Third, optimize internal resources
Indeed the first thing we think about when a crisis comes knocking on our door is, “Who can I lay off to cut costs?”
In a recession, CEOs resort to downsizing and laying off employees, but the demand for labor remains because it will reduce costs and free up resources that can be redirected to more productive uses. My business partner and I always stand up for our staff until the end. But experiences vary.
Managers of small companies successfully practice outsourcing non-core business processes that someone has to do anyway. 60 percent of companies currently outsource at least part of their application development, according to Accelerance. SMBs hire contractors or third-party providers as subcontractors and relieve owners of the overhead costs associated with payroll taxes and expenses such as health insurance and workers’ compensation. That way, for example, a retailer can integrate an e-store, a small clinic implement an EMR, a logistics company can use a system to track shipments and optimize routes, or a 10-person law firm can automate document management without hiring software developers.
Forth, financial diversification
Compared to large businesses, SMEs generally do not have large financial reserves to survive a recession. They may need to manage their cash flow more aggressively, cut costs, and seek external financing. For example, in my experience, I have to say that many businesses may find it difficult to collect payments from customers experiencing financial difficulties. Similarly, supply chain disruptions and production slowdowns can limit a company’s ability to generate revenue and cash flow.
During a recession, revenues from one source can dry up quickly. I advise SMBs to diversify their revenue streams by offering new products or services, entering new markets or partnering with other companies to create new revenue streams, restructuring their operations, or even moving to a new business model.
Fifth, embrace automation
A study by McKinsey found that automation could increase productivity by up to 1.4 percent annually, which could be significant for small and mid-sized firms.
During a recession, companies that are able to innovate and adapt to changing market conditions are more likely to survive and thrive. Focus on innovation is a winning strategy for SMBs, which can help differentiate themselves from competitors by investing in research and development, exploring new business models, and leveraging technology.
Conclusion
As the possibility of a recession continues to loom, businesses are taking proactive measures to remain competitive. SMBs represent the vast majority of the global economy and employment and should focus on bolstering their digital capabilities to weather the storm. Although traditional revenue streams may be less effective during an economic downturn, there are still opportunities for innovative companies willing to take risks. Automation will come front as never before to increase productivity and efficiency and add value to their existing products for customers. Companies that nurture flexibility, awareness, and resiliency are more likely to navigate uncertainty more successfully.
