Recession Proofing Your Business

History tells us that an economic downturn is an inevitable and relatively unavoidable event. Recessions are part of the natural cycle of things. (See “Not So Fun Facts” below.) While we can't be sure of exactly when, how bad, and for how long, what we do know for sure is that it’s not permanent and that not all companies are impacted the same.

While recessions often bring troubled times for most businesses, they don’t need to. Companies can and have come out unscathed—IF they are prepared. A recession’s impact on a business can be mitigated, or even leveraged to help the business grow. (Yes, I said grow.)

What exactly is a recession?

Let’s clarify exactly what we’re talking about here. First, a recession is defined as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters or more.”

Even before a recession is officially declared by the powers that be, there are typically many signals that it’s coming. Things like interest rate hikes, retail sales decline, rise in unemployment, rising consumer price index, falling consumer sentiment—as well as several months of overall economic decline. During this time, most manufacturers will see slower sales, higher inventory levels and falling prices. While you can’t control what the government will do to address it, you can control what actions your business can take.

Not So Fun Facts on Recessions

  • On average, recessions happen every six and a half years and last about 11 months
  • There have been 13 recessions in the 20th century alone, with three in the 21st century so far
  • The Great Depression (1929-1939) comprised two of the nation's worst recessions back-to-back
  • The Great Recession (2007-2008) was the next worst recession and sparked the most severe financial crisis (started by uncontrolled housing loans) in the U.S. and then around the world
  • The shortest recession (2020) lasted just three months

Benchmarking recession-proof categories

So, what can you do to help your company weather the downturn? First, we can learn from categories that historically have thrived in a recession. There are certain businesses or categories that are typically unscathed during an economic crisis—usually those that supply basic needs or demonstrate particularly strong relevance to consumers.

The key to great branding in normal times is the same key on how brands can make it unscathed through economic downturns: a brand must demonstrate “relevance” in what consumers are going through at that point in their lives.

Take Disney, for example. The company was actually founded around the time of the Great Depression. In a time of deep despondency, the Disney brothers knew America needed to be cheered up. By recognizing an important consumer need and addressing it (and then evolving to stay relevant over time) they were able to establish and grow one of the most successful brands of all time.

The following are the top recession-proof categories, all aligned to being relevant to the consumer.

#1 Food: Profits earned in groceries, food chains, and stores remain fairly steady during a recession as the eating habits of consumers in times of crisis are triggered and increased — particularly with sweets and alcohol. At times it can also drive more economical choices on what to put on the table. (Interesting facts: Snickers and Mars chocolate bars came into existence during the Great Depression and McDonald’s sales soared in the 2008 Great Recession.)

#2 Finance–Tax & Accounting Firms/Financial Planners: We’d all love to skip preparing and paying our taxes, but like death, it’s an inevitable annual thing. And when money is short, many look to financial professionals for help to minimize the damage or look for opportunities to invest.

#3 Communications & Technology: When times are bad, we look for extra connection with those around us. We want to commiserate with others. We need to lend an ear—or advice—to a friend or family member. We spend more time online searching for deals on things we need, or predictions on what’s to come. And we look to escape reality through streaming TV, movies and online. As we saw during the COVID-19 lockdown, when times get shaky, communications and technology businesses thrived.

That’s great for these business categories, but what if your industry isn’t so lucky? What can you do for your business?

5 Ways to Recession Proof Your Business

1. Have A Plan

You and your leadership team should always have a detailed contingency plan in your pocket for a major swing in business. I typically say prepare for a minimum of a 20% swing, both down and up. Did you have a plan when COVID hit and orders plummeted? And did you have a plan when COVID drove home improvement sales through the roof?

Note: Most companies didn’t have a contingency plan and paid the price whether they knew they did or not. For example, if your business is primarily R&R, you may have been excited you grew 10 percent over the last year, but that market actually grew 24 percent, so you actually lost share and momentum. Don’t let organic growth mask your lack of preparedness or performance.

2. Intense Customer Focus

Business always starts with the customer in mind – they should always be your filter for decisions. Only when you deeply understand your customer can you deliver a relevant product and customer experience (CX). Prioritizing your customers is about providing what the customers want and when they want it (remember this is always evolving so your research needs to be more frequent). If you can maintain and deliver an extraordinary CX, you’ll retain existing customers, pull more profit from them, and gain new customers.

3. Invest in Relevance (not Reactiveness)

When you reduce investments and merely react to what the industry is doing and stop proactively engaging, you will only follow the market down. Find your position in consumers’ lives to be relevant and then invest in those unique initiatives to help create confidence in current customers and acquire new ones. If your marketing/engagement goes dark, so will your sales board.

4. Leverage Core Competencies & Team

Lean on what you do best and where you have the most competitive advantage. But look beyond just your product to uncover areas where you can create a better customer experience. Part of your core competencies is your team. Keep your best talent by challenging and rewarding them for uncovering new approaches on how to stay relevant.

5. Innovate & Improve Your Portfolio Mix

Successful companies never stop innovating (in alignment with the CX learnings). When consumers trust your products and services, they feel comfortable choosing you, no matter the new product you may introduce. This also helps you diversify the portfolio or product, manufacturing assets, and cash holdings you have which aids in rebalancing your business.

Existing businesses can thrive in an economic downturn when they find their relevant proposition with their current and new customers. And numerous new businesses are typically created during recession. Why? because they are not encumbered with the past or handcuffed by tribal knowledge. Successful companies are innovative and are quick to adapt to the changes in the economy and provide something of value. Those companies that can be agile in their actions and relevant to customers’ needs will likely have the best business performance in a downturn.

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