Since World War II, there have been 12 recessions in the U.S., according to the National Bureau of Economic Research (NBER). That averages out to one recession every six years. Recessions are more common than most people realize, and most business managers will encounter several of them during their careers.
It’s important for business owners and managers to prepare their organizations to survive and possibly even thrive during the next recession. Here are some ideas that have helped protect companies in various industries during past recessions. These strategies may not all be appropriate for any particular business, but selecting the right ones can help to recession-proof any organization.
What Is a Recession-Proof Business?
The National Bureau of Economic Research defines a recession as a significant decline in economic activity that spreads across the economy and lasts more than a few months. This is usually seen as declines in gross domestic product, real income, employment, industrial production, and wholesale-retail sales. Recessions since 1950 have lasted anywhere from two to 18 months, which can be very stressful for business owners since they don’t know how long it will last. A business can quickly lose a lot of money without an end in sight if it isn’t prepared.
Not all companies are equally affected by recessions – while most US companies with 50 million in annual sales saw declines in revenue growth, 14 percent actually accelerated. This is largely due to the fact that customers still need to buy essentials during economic downturns, such as food and utilities. Additionally, certain services – such as healthcare, automotive repairs, and education – are still in demand during a recession. These recession-resistant products and services are sometimes called “recession-proof” or “defensive businesses.”
Here are 27 strategies that businesses can use to avoid or reduce the impact of a recession on their operations. These strategies can help businesses weather a recession, no matter which industry they are in.
Since recessions are a part of the business cycle, it is important to plan for them.
There are some industries which are not affected by recession as these industries are related to customers’ needs which do not change even if the economic conditions are not good.
Making a business more recession-proof requires advanced planning.
The company should focus on preserving revenue, cash flow, and investing in demand generation that is aligned with its strategy.
Technology assists with analysis, measurement, and monitoring, which are essential for success.
27 Strategies to Recession-Proof Your Business
Business owners and managers who are short on time often neglect basic good business practices in favor of more advanced planning, cultivating long-term business strategies, and investing in growth. However, during a recession, these practices have been shown to be essential to a business’s success. To prepare your business for the next recession, choose from among these 27 strategies, which are categorized into four buckets: good hygiene, preplanning, cultivation, and investing.
Create a Cash Flow Plan
Having a lack of cash is a top worry for all business owners, but it is especially crucial during an economic downturn. To begin, stay updated on your current cash balances as well as your monthly sources and uses of cash. Create a cash flow forecast for the next quarter in order to show the management team what is happening and serve as a warning sign for when there are differences.
Assess Workforce Needs
Assess how many employees you have and what skills they have to make sure they fit what your business might need during a recession. Be prepared to make changes so that employees work well and are set up in a way that makes the most of their abilities.
Operate Within Your Budget
The key to good business is operating within your budget so that the company is in the best shape possible in case of a recession. This is good practice at all times, not just when there are early warning signs of an upcoming recession.
Build up Employee Skills
You need to rely on your team to help your business stay flexible, pivot, and think creatively during a recession, so employees must be in prime shape to meet these challenges. Building up skills and cross-training staff can help achieve that end. As a practical matter, investing in employees can help them feel more connected to the business and more willing to go the extra mile when they are called on to do so.
Track Marketing Key Performance Indicators (KPIs)
It is important to keep track of how well your marketing campaigns are doing and to keep an eye on your marketing KPIs. Only the campaigns that are succeeding should be kept going; the ones that are not should be ended.
Beat the Competition
It’s important to be a market leader and have a deep understanding of your customers before a recession hits so you can survive during tough times.
Studies have shown that family businesses weather economic downturns better than most other businesses. This is partially because they have the wisdom and experience of multiple generations to fall back on. This levelheaded crisis management and long-term perspective allows them to be patient, which is further supported by their low debt levels and lack of external shareholder pressure. However, it’s important to remember that patience and complacency are not the same. Patience has prerequisites, and following the advice from this list will help ensure that your business is in a position to weather any storm.
Recession-Resistant Business Models
Here are seventh business models that will probobly do well even when the economy is not doing well. These are based on conversations I have had.
Online Marketing Agencies
While it might seem counterintuitive, marketing is one of the best investments you can make during a recession. Online agencies offer the added benefit of scalability and flexibility, allowing you to adjust your marketing strategy as needed.
Elliott Davidson is the owner of Contrast, an eCommerce marketing agency. Since the pandemic began, his business has grown 4 times. He attributes this success to the fact that marketing agencies are relatively low-risk compared to other businesses. This is because they don’t have any physical inventory- their scale comes from the time of their employees.
Alex Panagis from ScaleMath discovered that it is beneficial to have a flexible and versatile team during a time of crisis, like the start of the COVID-19 pandemic. He said that having this type of team in place allowed their company to continue to support other businesses that were struggling during that time.
If a company’s marketing team was not fully equipped, ScaleMath could help fill in the gaps that were left by the recession.
As a new online marketing agency, you can use your agile status to your advantage to attract clients. Ryan Burch, owner of Tobie Group, did just that when the pandemic hit and his business thrived as a result. He says, “Since we offer a more affordable and efficient alternative to the larger ad agencies, businesses in need of marketing turned to us.”
eCommerce Stores With Low-Investment Stock Items
You can’t say that the entire eCommerce industry is resistant to recession, but there are certain models that are more likely to succeed during tough economic times. For example, models that don’t require a lot of up-front investment in inventory are more flexible and can adapt more easily to changing circumstances.
Elliott Davidson owns an eCommerce business called Unsponsored that primarily sells cycling equipment. The company was able to weather the economic downturn caused by the pandemic better than most because it is a small operation with low average order values. This meant that customers were more likely to make a purchase from Unsponsored since they weren’t having to spend a lot of money. Additionally, while other retail businesses were struggling with supply chain issues, Unsponsored was able to work around them and deliver orders more quickly.
Brian Lim, who owns eCommerce clothing businesses such as INTO THE AM, found that having low-investment stock items made it easier to pivot his business. Since Brian’s businesses focus on clothes worn at music festivals, he had to build a new strategy when social distancing measures canceled events. One of the product lines the INTO THE AM team pivoted to was basic tees. These products tapped into the remote work boom, but they would also appeal to customers in any economic period.
“If your business is suffering, you should think about how you can pivot in these uncertain times. The economy won’t stay shut down forever, and pivoting can help you weather the storm and keep your business going until things go back to some sense of normalcy,” Brian advises.
Professional Online Communities and Resource Platforms
An online community or resource platform that helps people looking for a job while making you money from ads and sponsorships is a great way to support people during a recession. These types of platforms have low upfront costs, making them a great option for those looking to start a business on a budget.
Harry started The Rideshare Guy in 2014 as a community and resource platform for the gig economy. He noticed a surge in business during the pandemic downturn. Harry said, “During the pandemic, I noticed a traffic spike as many people were interested in exploring such side hustles to stay afloat during tough financial times.” The boost in community members caused Harry to work harder than ever, but it paid off in unprecedented growth.
Jimmy Daly created Superpath a few months after the pandemic started. The success of Superpath is due to its focus on helping members with their careers. Once the economy stabilized, Jimmy Daly focused on helping businesses find talent through a job board and freelance marketplace.
One thing that Jimmyhas learned is that it is easier to nurture one side of the market when the economic conditions are stable. However, as the environment changes, so does the focus on either supply or demand.
Home Improvement Companies
People tend to spend less money and stay home more when the economy is struggling, resulting in the need for more home improvement projects. Home improvement companies are often stable during tough economic times and make good candidates for small businesses that are not as affected by recessions.
Andrew Powell, the owner of Garden Centre Shopping, has worked in the UK gardening niche for 30 years. He has seen multiple economic downturns and believes that during a recession or pandemic, people spend more time at home and will continue to spend on their outdoor space. He believes that by focusing on customer service and simplifying the sales process, businesses have the opportunity to not only meet their pre-set targets but expand their client base.
James Chapman, the owner of Bella Bathrooms, has had similar experiences to those who have been reported.
James claims that the bathroom industry, especially in the UK, is doing much better than expected. People are trying to improve their homes in case they have to downsize or sell them, and the bathroom is one area where not a lot of money needs to be spent to see an increase in the property value. There was a big jump in bathroom sales during the pandemic because people were spending more time at home.
Skilled Trades Contractors
Although other industries may experience a decrease in demand during a recession, the same is not true for home improvement and skilled trade contractors.
In Ralph Severson’s opinion, his business (Flooring Masters) didn’t struggle during the 2008 recession because people will always need professions such as carpenters, plumbers, and electricians.
“The state of employment in the industry also leads to extra job security,” said Ralph. “For years there has been a shortage of tradespeople. Every colleague I know has as much work as they can handle because of this.”
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