In 1988, I approached Louis Matte who was a successful land developer and asked if he would be interested in investing in a medical supply business. He told me that he wanted to start a religious book store, but we could combine them and he would invest if there was an opportunity to add a business that was recession proof.
You see, Louis had just come through the 1981 recession when many of the other land developers in the community had gone bankrupt and his own business was on the brink of disaster as a result of interest rates between 14-18 per cent. He was concerned about the ability of any business he had to get through tough times.
With talk of a world recession coming on as a result of the economic effects of the coronavirus, falling markets, quarantined populations and travel restrictions, businesses looking to the future should be concerned about falling revenues. A recession is typified by a spending reduction and a restriction of available money for purchases. Because the economy tends to lag behind the stock market, leaders of organizations should be making plans now for flat or declining sales in the future. We need to engage our teams to think about recession proofing our businesses and looking for strategies and tactics that will enable us to be successful and even thrive during hard economic times.
So, what do we need to do to get a business to survive and even thrive during an economic downturn? Having successfully survived the recessions of 1993, 2001, 2008 and 2011 in my retail businesses, I realize that the most natural response to a slowdown in sales is to start cutting costs. As business owners, we look at cutting unnecessary expenses, however, we need to be wise in these decisions. A study of 4,700 public companies before and after a recession found that those companies that didn't cut employees more than their competitors and invested in the future through R&D, marketing and asset purchases did better than their competitors.
It's easy for us to cut the jobs of employees to save money as labour is typically the biggest expense of companies, however we need to be thinking longer term and outside of the box if we aren't going to be following them to the unemployment lines. Cuts in employees are often followed by a reduction in service, followed again by a loss of customers. In order to think strategically we need to weigh our options and have a set of criteria for decisions. If you would like an opportunity analyzer please email me email@example.com and I will be happy to send you the worksheet.
There are certain types of businesses that do well in times of recessions including auctions, renovators, thrift and value focused retailers, as well as businesses that focus on hobbies. Organizations that have cash and can buy assets or services at a discount rate usually thrive. Educational facilities are also a big winner during recessions as people believe they need more skills to get ahead. Businesses supporting health, death, or personal addictions, also usually tend to have a fairly good success rate during recessionary times.
However, in order to predict if you are going to be successful yourself you need to think in terms of your customers. How are their needs going to change? What happens when their cash starts to dry up? How can we provide more value for less money? What do we need to do now to be successful in six months, one year, five years? How can we diversify our products or services to ensure that we are successful? Are our inventory levels manageable or do we have excess cash tied up that we will need in the future?
Creating businesses that are healthy during economic downturns starts well before the downturn itself. Having and promoting an entrepreneurial culture within your organization will enable you to be positively optimistic and allow you to survive some tough times that your competitors might not.
In 1988, Louis happened to know a fellow named Joe Borowski who had a health food store in Winnipeg. Joe had told Louis at one point that he thought that health food stores were recession proof. Luckily for me, I had grown up with a mom who believed in the benefits of health food and supplements and so I jumped at the opportunity. The business model we created allowed that business to survive through a number of economic downturns and is still successful to this day.
- Dave Fuller, MBA, is an award-winning business coach and the author of the book Profit Yourself Healthy. Need to recession proof your business and have a question? Email firstname.lastname@example.org