Strategies For Businesses To Survive An Economic Downturn
In this article, we cover some strategies entrepreneurs, owners, and operators can use to manage their business during an economic downturn.
In times of crisis, continuity plans, pivots, and strategies for survival become essential for business leaders to have in place and execute well.
Perhaps your business has survived a market contraction, recession, or depression before, which would hopefully ensure a certain level of preparedness, but if it’s your first time experiencing a downturn, your business may be in a more precarious situation.
Businesses that have relied heavily on debt financing, venture capital, and other forms of leverage, will find it difficult to service their loans and could be forced to raise more money on distressed terms or sell assets to pay back investors who aren't confident in the business’ survival.
In this article, we cover some strategies entrepreneurs, owners, and operators can use to manage their business during an economic downturn.
Business Expenses to Reduce or Eliminate
What happens when demand dries up and supply chains are disrupted but your expenses maintain pace if not accelerate? Even the healthiest of balance sheets will quickly experience vertigo, hypothetically speaking.
You must react quickly but diligently to salvage all revenues possible while maintaining morale within your team.
Have you used the quarantine periods to test your team’s ability to work from home? If so, it might be time to reconsider expensive headquarters and office space around the world.
Many businesses are realizing office space is no longer an essential part of business operations. In fact, companies like Twitter, Shopify, Facebook, and others have started to implement widespread WFH policies.
If your business relies heavily on in-person collaboration, you can still consider allowing a percentage of employees to work remotely, while others are in office. “Hot desks,” where two or more employees share a single desk, can help reduce office space expenses while still maintaining those opportunities for face-to-face collaboration.
Pivot For Protection
When consumers are fearful of the macro-economic climate, they start saving more and spending less. This can hurt many businesses that sell discretionary, luxury, or otherwise niche products and services.
Businesses that experience a rapid reduction in demand must act quickly to find areas they can offer value to customers. During the Covid19 outbreak, for example, many businesses pivoted to maintain any semblance of their former revenues. Restaurants, for example, pivoted to take-out, curbside pickup, and delivery, while gyms went as far as to rent their equipment.
Origin, a 3D printing company, realized their business was in trouble when the market uncertainty dried up demand for their business and, instead of folding up shop and laying off their staff, they pivoted to manufacture and sell Covid19 testing swabs. This is a prime example of how business leaders must move quickly and execute.
Layoffs of last resort
For many businesses, labour costs are the bulk of their balance sheet’s liabilities. The impulse for many is to quickly make cuts across the board, indiscriminately laying off a large percentage of employees.
This strategy can be detrimental to morale and the livelihood of your business. One strategy to avoid layoffs is to re-negotiate the terms of compensation for employees, for example, you could reduce base salary with a higher commission structure. This could actually stand to benefit your top performers, and naturally sift out the underperformers.
If you must layoff employees, understand how these employees have contributed to where your business is today and that how you handle layoffs will never be forgotten. As a business leader in times of crisis, you must maintain a regular cadence of communication with employees and if you must layoff employees, do so respectfully.
Brian Chesky, co-founder and CEO of Airbnb, recently had to lay off 25 percent of the team. In a public announcement, Chesky adequately communicated their plans and parachute packages for those that will be laid off.
As a leader, you must be a good written and verbal communicator and must use all tools available to enhance those abilities. Chesky’s message is clear, well written, and discusses the opportunity for a company-wide video-conference where he will answer all questions. Use a grammar checker tool, video conferencing software, HR software, and even look for areas to create tools to help your team. Airbnb, for example, created a portal where those affected by layoffs and those still within the company, can connect and share resources for potential job opportunities.
Business As Usual
Or should we say, business as unusual?
The global pandemic is sure to send long-lasting shockwaves through the economy and all businesses that participate. As a business leader, now is the time to truly shine as you plan and execute during times of economic distress.
Whether you are looking for more business expenses to reduce or strategies for generating additional channels of revenue, your actions today could create a better business tomorrow.