Will your business survive a recession?

Move fast

Large companies have more options than SME’s (e.g., moving manufacturing and customer services overseas. Smaller companies are more agile and can make and action decisions quickly, meaning that you can get yourself into a winning position before a recession starts to bite. Big or small, organisations that react quickly to a downturn perform better.

Increase your market share

As the market size will decrease, you will need to find a way to grow market share just to tread water. Easier said than done, but some organisations manage to do this. Your sales will probably dip before they go up again, but when they do go up, it is possible to grow to pre-recession levels. Do this by taking advantage of your competitors’ inertia and the bad decisions that most will make. As long as you hold your nerve and always make sure you are ready for when the economy inevitably dives, you will do well. Get yourself ready by following the steps below:

Keep your customers happy

This may seem an obvious one, but so often, companies panic and make redundancies as soon as a recession hits. Unless you have employees sitting around twiddling their thumbs, if you let people go something will have to give, and ultimately, it is always the customer that suffers. You cannot afford to lose them to your competitors right now. In particular, your sales and marketing teams should be busier than ever, as bringing in new business has to be a priority. Even if work slows and you think you need less staff before long sales should grow and if you have lost people you will find that you are understaffed (and facing high recruitment and training costs). And all that is on top of having fork out redundancy pay when cash flow is going to be key. Consider reducing working hours where you have overcapacity instead.

Offer something different

Standing out from the competition is more important than ever in a recession if you are going to take market share from them. Customers will want to cut costs, but you are not going to want to reduce your margin. You need to find other ways to provide extra value (you may already be doing so – make sure that you communicate it!). It might be a case of improving your product range, adding complementary services, or just keeping in contact with customers more regularly. Whatever it is, make sure that it is something that customers value, carry out market research if necessary.

Maintain your presence

As a marketing consultant, I’m biased here, but research backs me up on this one – it is a really bad idea to cut your marketing communications budget! My own experience illustrates this well; I have been made redundant three times – the first to go when times were tough. None of those three companies exist today; one went bust, one is now a sole trader, and the parent company shut the other. The business that kept my colleagues and me on during the 2009 recession and through several restructures is doing better than ever!

If you are going to win business from your competitors, you need to be as visible as possible. Understandably businesses look to cut costs during a recession, but the marketing communications budget is NOT a “nice to have,” yet in so many cases, it is the first to be cut. In fact, research shows that when advertising budgets are cut, businesses see an average of a 20-30% fall in revenue. The good news is, if you hold your nerve, you will find advertising space costs fall due to less demand. You will also stand out from the competition if they make that common mistake of cutting marketing costs.

The same is true for sales. You cannot afford to cut their budget as they will have to work harder just to bring in the same level of revenue. Do everything you can to keep your team happy as they are going to be under pressure.

Change the message

You will need to reassess your customers’ drivers. If your message has always been about quality or green credentials, you may need to rewrite the message to concentrate on how you save your customers’ money. For example, reduction in replacement costs for products that last longer or saving on energy bills.

Target recession-resistant markets

Another reason you need to keep your marketing team is that you need them to assess your target segments and your ideal mix of customers. Some industries remain relatively unscathed during a recession and others are hit hard. For example, residential construction is the first to be hit in a downturn, whereas the grocery food market is resistant as people still need to eat. In fact, in the last recession, the prepared food market actually grew because people were eating out less but still didn’t want to cook every night.

Look at your target markets, if you think that they are all particularly susceptible to an economic downturn – consider other industries now!

Stay focussed on your customers’ needs

Do you know what customer needs you are meeting? Too often, companies focus on their direct competitors offering the same products and services - rather than looking at other ways of meeting their customers’ needs. This is called “Marketing Myopia,” a term coined by Theodore Levitt in a Harvard Business Review article in 1960. He cited examples of obsolete technologies and the companies that provided them that are no longer around today. For example - companies that disappeared because they saw themselves as kerosene lamp manufacturers - not companies that provide light.

A more recent example is Blockbusters. They saw themselves as a DVD rental company, not an entertainment content provider. Even when Netflix and LOVEFiLM (now Amazon Prime Video) came on the scene, they didn’t see the danger -  as a result, they no longer exist. Marketing Myopia kills businesses throughout the economic cycle, but it is often a recession that pushes them over the edge. If there is a better technology that better serves your customers’ needs – use it!

Concentrate on the right customers

As well as targeting customers in the right industries, you need to think about the behaviour types. If you do a cost to serve analysis, you may find that some customers give you minus profit or are slow payers and cause cash flow issues. You don’t necessarily have to drop them all, but make sure that you charge them accordingly or set some boundaries. For example, if their use of technical support is excessive, consider limiting their access, start charging them, or redirect them to technical information on your website. You may still find that there are some customers not worth doing business with, and you really cannot afford this when margins are under pressure.

On the other hand, your cost to serve analysis may also reveal particularly profitable segments  – make sure that you target them!

Look at what you are spending

This is an obvious one, but if making redundancies and cutting the marketing and sales budget are bad ideas, what can you do? There are big things like negotiating a better deal on the leases for your premises and getting better deals on loans, but what else? Research shows manufacturing efficiencies are a good way to find cost savings in a recession. As is improving cash flow by reducing spare capacity and using “Just In Time” production.

You should also review the small costs. Look at phone and broadband deals, insurance, business banking costs, energy deals, IT services, company car leases etc. etc. “every little helps” as they say.

Be careful, though; it is very easy to cut costs while increasing spending if you focus on cost over value. Base your purchasing staff’s bonuses on longer-term costs, not on buying the cheapest widget that costs you more in the long run. Also, try not to cut things that motivate staff; you will need them more focussed and motivated than ever. Above all, make sure no cost-cutting impacts your customers!

Don’t over-stretch

Unsurprisingly, research shows that companies with high levels of debt are more likely to go bust during a recession. It is difficult to run a business with no debt and virtually impossible to grow without investment, but don’t take it too far. Unfortunately, there is no magic formula that says how much debt you should take on. Just bear in mind that repayments will be an ongoing cost even when sales are down. Do worst-case scenario tests to see if you can still make those repayments if the worst should happen.

If you already have high obligations, consider overpaying now. You probably saw the headline news last year that John Lewis’s profits dropped by 90%, which the press blamed on the general decline of the high street. What you might not have seen was that a lot of the drop was due to investment in the stores to improve the customer experience and paying off a lot of debt. The drop in profit was to secure the department store’s future if a recession were to happen. There are limits to this as you also need to make sure that you have cash reserves in case your sales dip.

Don’t wait until it happens!

Most of the actions I have listed above will improve your profits and growth no matter what the economy is doing. If you are constantly keeping on top of them, you will be in an excellent position when a recession inevitably comes along.

If you would like any help with your B2B marketing, including market research and assessing your target segments, contact me at samantha@labrakita.co.uk or on 07791 521439

Author: Samantha Tonge, Marketing Consultant, Labrakita Marketing