It’s clear that the current pandemic crisis has caused a dramatic slowdown in global economies. Businesses have spent the past few months in crisis survival mode, but now the focus needs to be on how your business can survive over the next few years.
It’s unclear how long this slowdown will last, but there has been some comment in the media comparing the potential slowdown with the great Depression of the 1930’s. I’m a great believer in learning lessons from the past, so I decided to do a bit of research on business strategies during that period (and other recessions).
The key lesson that I’ve taken away from this research is that in order for businesses to survive, or even thrive, the best defence is FLEXIBILITY.
What is a depression?
As part of the research, for context, I looked up the actual definition of ‘Economic depression’ to clarify how bad it might get. In Economics, a depression is commonly defined as:
“An extreme recession that lasts three or more years or which leads to a decline in real gross domestic product (GDP) of at least 10%.”
With the recent GDP figures in the UK, we have already seen a decrease of 10.4% from February to April, this year. Of course, as we start to reopen businesses post lockdown, it can only get better, but nobody really knows, or can accurately forecast the final numbers for 2020, or beyond.
Key commentators are divided on our prospects. For example, Robert Zoellick, former World bank President commented:
“A fumbling fragmentation looks more likely than another Depression The deep economic dive has shocked people. The pace and extent of recovery depends on the discovery and availability of treatments and vaccines. I suspect we will see slow revivals, episodic setbacks and costly adjustments — but not a decade of economic disaster. Many small businesses and some storied brands will not survive, while skillful adaptors and disrupters, especially in the digital economy, will emerge stronger. I will be watching for signals of confidence from consumers, businesses, and societies.
Robert Zoellick
Whereas, Erik Nielsen, Unicredit’s Chief Global Economist is pessimistic:
“Expect Europe’s biggest peacetime recession in nearly 100 years. Attempting to forecast the economic effects of the lockdown is truly a fool’s game. Never before have we seen a man-made recession of this scale, nor have we seen policy responses of this magnitude to cushion the impact on people’s livelihood. On balance, however, I expect the biggest peacetime recession in almost 100 years.
Erik Nielsen
There is a Storm Coming
Whatever the experts predict it is a fair assumption that there is a storm coming and it’s uncertain how long it is going to last.
From previous slowdowns, we know that not all businesses and industries will feel the same pain. In fact, some businesses will benefit as customer needs and means adapt to the slowdown, resulting in a switch to substitute products or competitors.
Businesses that do well during recessions either provide goods and services that increase in demand directly due to recession conditions, offer cheaper alternatives to luxuries or big-ticket purchases, or offer products and services for which demand is relatively inflexible to changes in incomes.
Regardless of sector, it is also clear that any young business, especially ones that need to raise additional finance to grow, may face the biggest impact. Recent data from Beauhurst, a provider of business intelligence on growing businesses in the UK, clearly shows a significant drop in new deal flow, both in volume, down 31% and by value, down 46%. This was a comparison of the first few months of lockdown with the same period in 2019.
As a business owner, the worst thing you can do is ‘Fail to act’.
Looking back over articles that discussed the era of the Great Depression and other major recessions, there are some fascinating stories of how different businesses approached the difficult Economic environment.
Take the Automotive sector – In the Great Depression, General Motors, acted decisively to lower its costs, allowing it to massively slash prices on its top-of-the-range cars. Using the same engines and parts across models, it created flexible capacity and expanded its product range into the lower end of the market. The key to this strategy was the idea of matching its product offering with the reduced disposable income of consumers
As a result, GM grew market share and with higher margins than Ford on similar products, it was more competitive.
Chrysler, took a different approach, focussing more on the upside beyond the depression. It worked on improving efficiency of its production lines and invested in research and development. The Economic New Deal in the USA resulted in a major highway expansion programme across the US. Chrysler foresaw that this would create demand for more powerful cars which, when economic to produce, it could quickly introduce to the market and take market share from its competitors.
By contrast, indecision and inflexibility at Ford meant it lost sales and market share that was to affect it for many years afterwards.
The key lesson from this is that hunkering down to ride out a Depression (or recession) is not a viable option for most businesses.
Learn how your business can survive over the next few years, post pandemic
I look forward each week to the cartoon from Tom Fishburne, the ‘Marketoonist’. This week it showed four clear strategic choices choices for businesses in a recession:
“Freeze, Flex, Fix, or Freak out!”
As I’ve already said, the Freeze option is the worst thing to do, although probably marginally better than Freaking Out.
To understand how your business can survive over the next few years, you need to choose Fix, or Flex, or probably a mixture of both options.
It’s important for every business to triage their operations now and make adjustments were necessary. Key priorities should be:
- Managing cashflow carefully
- Negotiating with suppliers to optimise payment terms.
Most businesses will have already done this over the past few months.
When appropriate there might be a good opportunity to reinvest in the business, but this should only be done if the cash position of a company is stable.
Cost control is pivotal to this. Wage cuts should be favoured over lay-offs, but if you choose to reduce headcount, then focus on retaining talent over numbers. Once costs are reduced, prices should be brought down to match consumer expectations.
Take advantage of market conditions
There may be opportunity in the broader market, depending on your business cash position. For example, in the recession in the 1970’s McDonalds decided to invest in growth and increased new restaurant openings in the US. At the same time, competitor Burger King was reducing new openings under new management. This resulted an ongoing competitive advantage for McDonald’s as the recession eased (but I still prefer a Bacon Double Cheeseburger to a Big Mac!)
Time and again I have read about businesses that survived and thrived because they were flexible and adaptable to change. The idea that everyone needs to be able to wear several hats in a business has always been key in start-ups but is often forgotten as a business grows into a more mature company.
A key survival strategy could be to explore new opportunities either by Sector or by Geography. Different regions and sectors may be affected at a different pace of complexity to your existing markets, so consider expanding to new territory.
Another key theme from the past is the recognition that there can be new opportunities by focussing on helping those in need. As was demonstrated by General Motors, lower prices or new product or opportunities can both help customers to make it through the downturn, keep your business going and of course continue to employ your workforce.
Don’t be afraid to reinvent your business, flexibility and adaptation are key to survival.
Dave Mutton
If your core customer base is suffering, adapt your products or offers or find a new audience.
In a recession, people will make hard choices about what to cut out of their lives. If you can give them a more cost-efficient alternative to what they’re cutting out, you’ll stand to win big.
Being Flexible Doesn’t End
So, you’ve done all the tweaking and adapting you can do, now what?
Well, it never ends, especially in a dynamic situation like the one we are in now. Consequently, another key factor in long-term survival is PREPAREDNESS.
The key to longevity, they say, is to have the right attitude. Think through the possible options and decide:
What are the best options for you and your business going forward?
Having a Plan B & C etc. can allow you to pivot quickly if required.
Adapt to what you think is the best plan possible, but be prepared to fail fast, make that pivot and adapt as we are in a very dynamic situation.
Time to Change?
If you are very worried about how your business can survive at all, then on an individual level, it’s interesting to see how some people can completely pivot their life, stop what they are doing and try something new.
There are some amazing lessons I read about when researching this article. The following lesson is a reminder of how adversity can stimulate creativity and success:
E.Y. “Yip” Harburg said that after his business went bankrupt all he had left was a pencil. His friend, Ira Gershwin, told him to get the pencil and a rhyming dictionary and start writing songs. Harburg eventually wrote the Depression classic, “Brother, Can You Spare a Dime,” and the lyrics to songs in the “Wizard of Oz.”
I was relieved when the Crash came. I was released. Being in business was something I detested. When I found that I could sell a song or a poem, I became me. I became alive. Other people didn’t see it that way. They were throwing themselves out of windows. When I lost my possessions, I found my creativity. I felt like I was being born for the first time. So for me the world became beautiful.
E.Y. “Yip” Harburg
The Great Depression directly led to the Economic New Deal in the US and a long period of sustained recovery. We have a difficult road ahead, but undoubtedly, things will get better.
Hope is Infectious Too
Somewhat surprisingly, the politicians and economists seem to agree that in good times and in hard times, expectations can make or break a plan.
Recovery is a complex and painful process that requires the participation of many, not directives from a few. Ultimately, we’re all in this together.
If you would like help thinking through your options and reviewing your business, then I can help. I have more than thirty years of business experience having worked in a wide variety of companies and sectors.
I offer a free 30-minute call to discuss, your challenges and together work out how we might collaborate to benefit your business.
If I think I can help you, I will tell you how, why and we can take it from there.
Please get in touch via phone, email, or connect on LinkedIn.
Or if you want to schedule a time to talk, you can use the link below to book a free 30 minute Zoom call. using my online calendar
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