As markets continue to fluctuate in response to the COVID-19 pandemic, leaders at businesses of all sizes might be wondering whether a recession is on the horizon. And despite a generally bullish picture painted by analysts at Goldman Sachs and other money managers at the start of 2020, many models now portray an extended downturn as a foregone conclusion, noting that “a lot needs to go right” for overall growth to pick back up in the latter part of this year.
While some geographic areas of the U.S. might be better equipped to ride out a recession than others — those with lots of jobs in less risky industries like manufacturing or agriculture, according to the Brookings Institution — nearly every organization would likely feel some effect. But that doesn’t mean it’s impossible for a company to survive, or even thrive, amid an economic slowdown.
So what can business leaders do to soften the blow of an economic downturn? These three steps are vital to a recession-proofing strategy:
Adopt a customer-centric approach.
Firms that take truly customer-first approaches tend to be more resilient when the economy takes a hit because they’ve already adapted their operations to reflect customer behavior. They’re more in tune with changes in consumer demand and generally better equipped to anticipate customer needs and adjust operations accordingly.
Chen Amit, CEO of accounts payable automation platform Tipalti, cautions executives who might be tempted to wait for a return to the status quo. “Adapt your offering and message to current times,” he says. “What does the ‘new normal’ look like, and what can you do to help your customers and prospects weather the storm?”
While business strategy often revolves around longer-term goals, a recession requires flexibility and a heightened focus on present challenges. Amit believes the most adaptable firms can uncover significant short-term opportunities. “Reassess your target market and refocus your team on businesses that can benefit from your product now,” he says. “Discover what you can do for your customers and prospects. Everyone needs a hand these days — find a way to lend one.”
Consider spending some of your cash reserves.
In 2002, McKinsey & Co. consultants noted that some companies emerged from the recession of the early ’90s stronger. Among the challengers that became category leaders once the recession had subsided, a common theme arose: an appetite for spending.
While their peers largely halted mergers and acquisitions, these companies made more and larger transactions, ultimately allowing them to close the gap within their industries. Of course, following in their footsteps and going on a spending spree when everyone else is clinging to cash is possible only for companies with some built-up reserves.
That said, you don’t necessarily have to be flush with cash to spend wisely during a recession. As spending slows and demand dries up, certain assets will be cheaper but perhaps no less valuable to your business. Sometimes, they might be even more valuable than extra cash.
Explore geographic expansion opportunities.
As competitors fold, markets that might have been oversaturated can quickly become underserved. Similarly, underserved markets might be appealing enough to warrant relocation — digital or physical — or a foray into the development of new products and services.
Before business leaders move forward with product or company expansion, it’s critical that they evaluate the needs of their current customers and the market at large. Moreover, they’ll need to understand the workforce requirements that expansion often entails. In a recession, businesses might be more likely to downsize than hire, after all.
Fortunately, technology can sometimes pick up the slack when it’s simply not viable to bring on new employees. Ultimately, the decision to pivot or leap into a new market will come with a price. Business leaders should do their research to determine whether the financial and time requirements of an expansion are worth that price. And if the price is right, they shouldn’t hesitate to make the move.
Thrive Amid Uncertainty
Any hit the national or global economy takes is accompanied by heightened uncertainty about what the future holds for organizations everywhere. The same is true in our current state, one dominated by what’s known as a “black swan” event that can easily shift uncertainty into fear.
While the future may indeed be unpredictable, savvy business leaders need not panic. Instead, by adopting a customer-centric approach, dipping into their rainy day funds, and considering digital or physical expansion opportunities, they can take proactive approaches in the here and now. Those that do will find that business growth opportunities abound.