Promote Business Growth During a Recession with These Strategies
Adapting to economic uncertainty is one of the key challenges businesses face. Any company that's been operating long enough has probably experienced a slowdown that's forced them to adjust their approach. Due to the COVID-19 pandemic, the US economy has entered another uncertain phase, leaving many companies wondering how to shift their strategies to meet the moment.
Sustainable business growth during a recession is possible. Companies can use effective, adaptable techniques to scale and increase their market presence while positioning themselves for greater rewards beyond the period of downturn.
Successfully weathering economic storms means improving the customer experience and more effectively managing company finances. The key is to develop a plan to keep your business on track for growth even as economic conditions change.
Economic downturns are inherent parts of the economic cycle. During a downturn gross domestic product, or GDP, contracts for at least two quarters. While an economic depression is generally defined as a severe downturn that lasts for years, a recession is a downturn that lasts for several months. In a typical recession, GDP growth will slow down across several quarters before becoming negative.
Four other critical economic indicators can signal a recession before GDP becomes negative. Economists look for downward trends in:
- Real income, or personal income adjusted for inflation
- Wholesale retail sales
Recessions can be turbulent times for people and businesses. When the unemployment rate rises and income falls or stagnates, consumer demand may decline. As conditions persist or worsen, other parts of the economy are impacted. Businesses that experience a drop in revenue can experience cash flow crunches and even go bankrupt.
The Great Recession, which lasted from late 2007 to late 2009, was one of the most impactful and longest-lasting financial crises in the US. Triggered by the subprime mortgage and derivatives markets, the financial impacts spread to virtually all corners of the economy.
Other notable recessions of the last century include:
- The 2001 recession, which started in March of that year after the fallout from September 11, 2001 attacks
- The 1973–75 recession, believed to have been sparked by several factors such as OPEC oil embargo and federal policies to abandon the gold-standard while implementing wage floors
- The Great Depression, which began as a recession and lasted from 1929 until 1938, is on record as the biggest economic crisis in US history, with unemployment climbing as high as 25% in 1933
Adopting a growth mindset
Many companies' first instinct is to try to cost-cut their way through a downturn. Business growth during a recession calls for not merely working with less but rather working smarter to remain competitive. While belt-tightening can sometimes be helpful, cost-cutting alone isn't enough for survival. Cutting too much or in the wrong areas can hurt the company's chances for growth in the long term.
Cost transformation focuses on efficiency and strategy instead of cuts. The goal is to optimize costs, using timely data to drive spending and cutbacks while maximizing the potential for long-term profitability. To this end, companies can implement data collection, analysis and automation across all areas of business, including marketing, production and financial management. Agile, data-driven decisions can propel companies beyond the recession into a future of growth.
Investing in the customer experience
Focus your strategy on the customer. For companies, economic downturns make it especially important for companies to respond promptly to changes in customer buying habits. Any way you differentiate yourself from competitors will serve you well in the future.
Many individuals and businesses may face risks during a recession that compel them to make different purchasing choices to fill their needs. For instance, during a recession, home sales may slow down, but people may still buy supplies and materials to keep their current place of residence safe and comfortable. Manufacturers may not construct new factories but may still need equipment, technology and materials to keep existing plants running and up to code.
Timely insights about your customer base can reveal strategies to meet demand challenges and uncover opportunities for business growth during a recession.
To pivot with economic changes, businesses may find it more practical to reach out to more customers across the base. Other companies may find that honing in a more specific niche market can bring more revenue during a recession. Either of these choices can benefit from personalized marketing.
Personalization leverages marketing dollars by using data-driven insights about the customer to enhance the customer experience. Companies can use personalization to:
- Pinpoint the best channels for engaging existing and new customers
- Adapt recession-friendly pricing strategies to prospects
- Increase retention and brand loyalty by providing a frictionless customer experience
These strategies can boost revenue and the customer base during a recession, ultimately increasing the customer's lifetime value.
Long-standing recession tactics, such as pairing down inventory and staff to a bare minimum across the board, may reduce expenses and free up precious cash flow. However, these types of cuts can negatively impact customer experience in the long run. Companies can use technology to explore other options for shoring up the bottom line. For example, automation can improve production to reduce work-in-progress inventory levels, freeing up precious cash for other uses.
Also, predictive analytics might reveal that instead of reducing finished inventory, it could make better business sense to limit the number of product variations and maintain a robust stock of high-demand items. Of course, companies using this tactic may face the risk of having too much inventory on hand. However, this could offer an opportunity to stand out when competitors run low on these items. Frustrated customers may come to rely on the well-stocked company's ability to quickly meet their demand for essential goods.
Smart, strategic planning and careful management of finances are crucial to weathering periods of economic uncertainty. Harness technology to help you collect the information you need and automate these activities where possible. Consider setting up a financial dashboard that shows key performance indicators to help you keep a watchful eye on your business's financial health.
During a recession, business leaders may tend to focus on profit and loss, but the balance sheet merits even more attention. Look for ways to manage cash, working capital and capital expenditures, or CAPEX, more efficiently to build resilience against demand volatility. Recessions don't last forever. Once you have a good handle on cash flow and other financial indicators, you can start planning for brighter days ahead.
Recessions have a reputation for mitigating inflation. That means these periods may be a good time to acquire the ingredients for sustainable growth at a great value. In-demand talent and skilled labor can be easier to recruit and train during a recession. New product lines, customer segments or capabilities may also be available at lower prices.
And of course, don't forget capital. When interest rates are low, capital for expansion when the economy begins to recover can be easier to obtain from financing institutions. Companies can lock in long-term financing and transform their CAPEX strategies. In addition to dampening inflation, recession can bring about the opportunity for lowered taxes as politicians create policies to wake up the economy. Consider diverting the freed-up cash to longer-term investing and growth strategies.
As you take in the big picture, remember the best time to seek out financing options is before a cash crunch emerges. No matter the timing, look for packages that are customized to the needs of your business. Map out your growth strategy and financial plans, and don't hesitate to seek help as needed. Businesses can get external expertise as needed in a variety of ways, such as hiring consultants, networking, setting up advisory boards and working with a trusted banking partner.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.