In the face of economic uncertainty and potential downturns, businesses must take action to protect themselves and remain financially stable. It means developing and implementing strategies to help recession-proof a company, ensuring it can weather even the most challenging economic storms.
From an executive recruitment perspective, it is imperative that businesses understand how to stay afloat during these uncertain times while continuing to attract and retain top talent. Understanding various strategies that companies can utilise to recession-proof their business operations, particularly unpacking these techniques, businesses can build a solid foundation to withstand economic downturns and attract top-level talent to cultivate their future growth.
Definitions of a recession
- Global Recession
A period of significant decline in global economic activity. Typically recognised as negative GDP (Gross Domestic Product) growth for two consecutive quarters or more. The severe global recession is known as the “Long Freeze”.
- Technical Recession
It can be defined as two straight quarters of negative GDP growth.
What are the current global factors to take into account?
- Global Political Instability and Sanctions: International trade activities may be severely hampered. Recession leads to a significant decrease in worldwide consumer and business spending.
- Trade Reduction and Demand Drop: International trade and industrial activity are reduced drastically. International trade activities may be severely hampered, impacting export-oriented businesses. Recession leads to a significant decrease in worldwide consumer and business spending.
- Supply Chain Disruptions: Cross-border supply chains can be significantly disrupted, affecting production and distribution, i.e. fresh produce exports. A global recession disrupts import/export activities.
- Currency Fluctuations: Exchange rates may become unstable, affecting international business transactions.
- Market Volatility: Global recessions often trigger instability in financial markets.
What are the exacerbating factors in South Africa?
- Energy Crises
- Political Instability
- Infrastructure Crumbling
- Crime and Corruption
- Labour Issues and Education Crisis
- Reduced Consumer Spending and High Inflation Rate
Establish Companies’ Recession Proof Grid – Low Recession Categories
- Psychological and Basic Needs Category: These businesses cater to essential human needs, both physical (food, shelter, healthcare) and psychological (well-being, mental health services).
- Financial Services Category: This category comprises businesses that provide financial services to individuals and other businesses.
- Home Improvement Category: Businesses in this category, like hardware stores or remodelling contractors, might resist recessions as people might choose to improve their existing homes rather than purchase new ones during economic downturns.
- Automotive Repair Category: This category includes businesses that provide vehicle maintenance and repair services.
Establish Companies’ Recession Proof Grid – High Recession Categories
- Self-esteem Beauty: The beauty industry has often shown resistance to economic downturns, which is a phenomenon sometimes referred to as the “lipstick effect”.
- Construction: The construction industry is usually susceptible to economic conditions.
- Tourism: The tourism sector is also typically quite vulnerable to a recession.
Recession Proof Grid
– Establish where your products and services fit and plan accordingly
- Essentials (for survival)
- Treats (Indulgences)
- Postponables (needed but can be postponed)
- Expendables (unnecessary if unjustifiable)
– Financial Analysis
- Typical Business Reactions: Cut costs indiscriminately; reduce prices; postpone new investments; cut marketing expenditure.
- Establish Financial Priorities: Watch data for warning signals. Where to cut spending, i.e. R&D (Research and Development). Hold spending steady, prioritising where to increase spending.
- Assess Opportunities: Where is the pocket of opportunities? Be bold and take advantage of volatilities. Look out for strategic Mergers and Acquisitions, take advantage of M&As (Merger and Acquisitions) and consider these opportunities.
– Business Processes
- Review all business processes, closing loopholes.
- Crime and pilfering increase, beefing up security infrastructure.
- Pay special attention to inventory control, procedures and purchasing.
- Review working capital to free up money (Cash is KING)
– Marketing and Sales: Consumer Behaviour and Customer Segmentation
Put customer needs under the microscope and remember that new customer segments emerge in a recession. Determine in which segment your core customers are. For instance, brand-value customers could move to slam-on-the-brakes customers.
Customer segmentation examples:
- Slam-on-the-breaks segment: most vulnerable or hardest hit.
- Pained-but-patient: more resilient and less confident about recovery.
- Comfortably-well-off: secure in their ability to ride it out.
- Live-for-the-day: Unconverted about saving – but would delay in making major purchases.
BOTTOM LINE – KNOW YOUR CUSTOMER BASE
Recession Proof Grid
– Marketing and Sales: Consider Pivoting
- Pivot Marketing Strategy: A pivot strategy is a change in the approach or model a business uses to address the market better.
- Meaning of Pivot: When a business pivots, it means changing some aspects of its core products or services to meet customer demands better, shifting their target audience to boost sales or some combination of both.
– Marketing and Sales: Companies Approach to Recessions
- Pragmatic companies: combine defensive and offensive moves.
- Progressive companies: deploy the optimal combination of defence and offence.
- Prevention-focused companies: make primarily defensive moves and are more concerned than their rivals with avoiding losses and minimising downside risks.
- Promotion-focused companies: invest more in offensive moves that provide upside benefits than their peers do.
– Marketing and Sales: Build Your Brand Aggressively
Steps to consider
- Determine target audience
- Define brand mission
- Research competition
- Determine brand guidelines
- Market your brand, during good or bad times
Do not alter brand fundamentals; increase marketing resources to reinforce your core brand.
– Marketing and Sales: Digital Penetration and Webpage Relevance
- Improve Digital Presence: Ensure the brand’s online presence is visible throughout the online journey, i.e. Search, Google and Social Media.
- Update the Company Webpage Regularly: Choose relevant content and trending topics. Become a thought leader in your industry so your customers remain in the know and develop brand loyalty by sharing knowledge.
- Articulate Competitive Advantage: Understand your customers so well that you know what they need and prefer from you as their preferred supplier or service deliverer. Accentuate this in your online communications.
- Do SEO (Search Engine Optimisation): Ensure all content is correctly tagged so that Google Bots can understand your offering.
- Choose social media wisely: The core business should align with the social media platform. For instance, if your target market is other businesses – LinkedIn is for you, TikTok is not.
– Human resources
- Keep in mind: Your workforce is your most crucial asset, regardless of economic conditions.
- Revise the relevance of performance appraisals and KPAs (Key Performance Areas).
- Cut loose poor performers.
- Determine skills shortages and determine gaps.
- Invest in upskilling, reskilling.
- Develop skills for the upturn. Nurture and reward loyal experienced employees.
Franklin D Roosevelt reminded us that “a smooth sea never made a skilled sailor.”
In conclusion, avoid the classic staff and customer mistakes to drive and push your staff and customers harder. Instead, enhance staff and customer nurturing.
It sounds straightforward and logical, but we know it is all in the implementation!