How to Prepare Your Business for a Recession (And Growth)

How to Prepare Your Business for a Recession (And Growth)
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Success lessons from the last recession
Take care of #1: the customer
Get a handle on your cash flow
Adjust offerings to satisfy an unfilled need
Be willing to adapt how you do business
Success is possible during difficult times

The U.S. is in the early stages of a COVID-19 induced recession. Some economists say the recession will resemble a sharp V-shaped trajectory where we’ll experience a steep decline in gross domestic product followed by a fast recovery. Other economists predict we’ll have a much slower recovery. While the experts debate over how sharp the V will be, here’s how businesses can fortify themselves to survive and potentially grow your business during an economic downturn.

If you’re looking for more specific strategies, try our article on how to triage your business continuity strategy with independent talent, as more companies shift to doing business in a post-pandemic world.

Success lessons from the last recession

History demonstrates that humans are amazingly creative, resilient, and resourceful. With a willingness to ask tough questions and the courage to make necessary changes, business owners can take strategic steps for strengthening a company to withstand what lies ahead. Below are four ways to prepare your business for a recession.

1. Take care of #1: the customer

Groupon, a group buying site offering discounts on local goods and services, launched in 2008 when the country was plunged deeply in the recession. Yet by 2010, it was estimated Groupon generated $760 million in revenue—up from $33 million the year before. You may be thinking their hockey stick-like rise was because they pioneered the discount marketplace, but as the next example shows, you can still succeed during tough times in a highly-competitive market.

MOD Pizza opened in 2008 with several local pizza restaurants and large chains competing for stomach space, and when people were cutting back on eating out. Despite that, MOD Pizza grew so quickly that it expanded to new locations within a year and sustained rapid growth. By 2019, it had 442 restaurants nationwide.

Why did these two businesses thrive during such an unlikely time? Because the company didn’t benefit until the customer did first. Groupon serves two customers: the business and consumer. Groupon provided small businesses an efficient way to gain mass exposure and bring in new customers at a time when marketing budgets were shrinking and consumers were cutting back on spending. Groupon also offered consumers an affordable way to try new products or services at up to 70% discounts, which stretched their discretionary spending dollars and increased consumer confidence.

MOD Pizza offered people an affordable way to eat quality food, fast. For a flat $8, customers could walk down a line and create a custom pizza or salad with up to 30 different toppings. This flat rate not only made it affordable for an entire family to eat out, but the number of topping choices also gave customers a feeling of control and freedom to indulge in excess. Those were two feelings that many people lacked and craved at the time.

2. Get a handle on your cash flow

Cash flow is the lifeblood of your business, and cash flow issues are the cause behind 82% of businesses failures. Anything can affect your cash flow, from a pandemic to the weather, but it’s often affected by not truly knowing the numbers.You always want to know your numbers so that you know what to push ahead and pull back on, and how to shift your business strategy to remain profitable during good and lean times.

Years before the last recession, LEGO was close to bankruptcy as it continued bleeding money but couldn’t identify why. The company implemented better financial analysis and dove into financial triage which included setting up short-term financial targets, improving processes, and cutting the number of product components by nearly 60%.

These and other changes got LEGO back on stable ground and propelled it to become the fastest-growing toy company in the world. By managing the business for growth instead of sales, they remained resilient and continued growing during the worst years of the recession. In fact, from 2007 through 2011, LEGO grew pre-tax profits by four times.

3. Adjust offerings to satisfy an unfilled need

In 2007, Netflix offered a streaming service as an option to their DVD subscription. By 2009, trends indicated people preferred watching movies online and on their own schedule, rather than on a network. Netflix jumped on the opportunity by offering unlimited streaming of movies and TV shows for $7.99 per month. The result: its customer base grew by 3 million. That’s at a time when the economy was dragging bottom.

Although film studios and TV networks also saw the streaming trend coming, they didn’t respond fast enough. So while developing their own streaming services, they kept eyeballs on their content by licensing shows to Netflix. This may have seemed like a smart short-term move, but it gave Netflix an opportunity to leverage their core competencies and use their competitor’s content to turn their viewers into Netflix customers.

The takeaway here is that Netflix figured out a way to give customers a cost-efficient alternative to what they want. At a time when customers were cutting back on movie tickets and cable TV subscriptions, Netflix offered an entire family unlimited entertainment for less than eight dollars a month.

Netflix demonstrated that success requires more than having an ear to the ground for what customers want, as a business must also operate with agility to meet that need quickly. Before the Great Recession, Target had years of enviable sales and profit growth by offering stylish, low-priced home and apparel items. But in 2008, sales dropped sharply as consumers felt even an inexpensive shirt was too pricey when that money could be spent on necessities like food.

Target responded with innovative inventory management by doubling their stores’ floor space for food and expanding items in its Market Pantry and Archer Farms food brands. Then it launched a massive media campaign to remind consumers of its brand promise “Expect more, pay less.” To build customer loyalty, it rolled out a program offering Target credit/debit card holders a 5% discount. By 2008 Market Pantry’s sales increased by 30% and Archer Farms’ by 13%.

4. Be willing to adapt how you do business

From restaurants delivering groceries to car manufacturers making ventilators, businesses today are quickly reconfiguring themselves to better serve their customers and keep revenue flowing in. Now’s the time to look hard at every opportunity and not be shy about doing things a little (or a lot) differently.

During an economic downturn, it’s more difficult to justify clinging onto what doesn’t work and more reason to try something new, even if it means reinventing yourself. In 2009, Domino’s Pizza sales were hitting all time lows. Executives knew their food tasted terrible as customers complained for years that the “crust tastes like cardboard” and “the sauce tastes like ketchup.”

Domino’s had to make a huge change, so the company took a risk by drastically changing their nearly 50-year old recipe and launching a humorous self-mocking marketing campaign around the new taste. The new recipe was a success and sales increased, but Domino’s didn’t rest on their heels. In 2015, they invested in more technology, including updating their ordering system to appeal to younger generation customers. This included offering new ways to order from smartTVs, Apple Watches, to Twitter. By 2017, the new recipe and added technology helped increase the company’s share prices by 60x.

Success is possible during difficult times

These companies demonstrate that when business leaders are willing to embrace innovation and change what doesn’t work, they will find ways to survive, and even thrive, during tough times. You can read about how business owners are adapting to leading a distributed organization, or how employers are shifting to a remote working strategy. These examples illustrate that what helps businesses succeed during good times is especially relevant during difficult times. That is: Focus on your customers’s needs first then profits will follow.

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Author Spotlight

How to Prepare Your Business for a Recession (And Growth)
Brenda Do
Copywriter

Brenda Do is a direct-response copywriter who loves to create content that helps businesses engage their target audience—whether that’s through enticing packaging copy to a painstakingly researched thought leadership piece. Brenda is the author of "It's Okay Not to Know"—a book helping kids grow up confident and compassionate.

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