How to prepare your company for a recession
Fears about an impending recession have been increasing for a while now. Unfortunately, this fear isn't off-base. The combination of pressures on the economy, including supply and labour issues, is predicted to bring the global core inflation rate up to 5% in 2023, almost doubling the 5-year average before the pandemic.
What does that mean for businesses? Cost pressures and plummeting revenues mean that many companies will be forced to dissolve or will struggle to recover for years beyond the recession.
However, leaders can take action to avoid this fate. A Harvard Business Review study of recessions found that the difference between those that failed and those that thrived was their commitment and action to growth measures.
How to make adaptability affordable
An automatic reaction many leaders have when faced with economic hardship is to cut costs by letting employees go and cutting any investments in R&D or innovation projects. These decisions reduce the capabilities of a business at a time when agility and innovation are crucial.
Companies that thrive maintain a strong cash flow through boom periods giving them the ability to:
- invest in digital projects that speed up processes and agility; and
- innovate, adapt or re-position their product or service offerings to amplify their appeal.
A recession isn't the time to play it safe. It's time to equip the business to perform at its best.
So, what investments enable a company to adapt and thrive during a recession?
4 investments to grow a business during the recession
Garner direction from data
In times of uncertainty, data can provide the most reliable direction. From understanding customer reactions to predicting future trends, data analytics can be used to propel a business forward in any economic climate. Studies have found that, on average, companies that analysed data effectively saw an 8% increase in revenue and a 10% reduction in costs.
Particularly important when the stakes are higher than usual, analytics helps identify blockages or weaknesses, allowing leaders to rapidly overcome obstacles with minimal disruption.
Innovate and diversify offerings
Customer needs change with the economic climate, and a business's offerings must adapt to keep up. For many companies, financial cutbacks directly impact customer value and experience.
Product and pricing innovation, however, can improve the business' positioning. For example, when tight finances make large-sum payments more intimidating to consumers, a subscription model can be much more tolerable.
One success story is Netflix. Streaming launched in 2007, only a year before the 2008 recession. Despite facing an economic downturn at the outset of its launch, it grew exponentially as its subscription model with zero commitments made it more accessible to its customers.
Create responsive customer communication
Elevating customer experience increases the chance of making sales to new customers. In fact, consumers are 2.6x more likely to purchase from a business after a 5-star customer review. Therefore, a responsive business has a competitive advantage.
There are various ways to invest in efficient customer communication, such as social media autoresponders. However, the key here is minimising customer frustration by carefully balancing automation with human response.
Provide efficient collaboration software
Maintaining a focused and productive workforce is more challenging in uncertain times when employees, too, are struggling with instability and cost pressures.
Technology investments help two-fold.
The immediate, cost-effective impact is to remove the administrative burden while unifying teams; these collaboration tools increase workplace satisfaction by up to 20%.
However, collaboration is especially crucial during recessionary periods as employee-led innovation creates the agility and growth impact needed to thrive. This is where leaders can leverage internal social media platforms, in-person team building or simulations in the metaverse.
Taking the first steps
Leveraging the insights from data analytics, diversifying offerings, and meeting customer and employee needs gives businesses the competitive advantage and adaptability required to survive and grow during a recession.
Leaders cannot hide from the fact that challenging times are ahead. Fortunately, not everything is out of their control. The trick is to not take action from a fearful and reactive mindset but from one focused on growth and the opportunities ahead.