Recession is a phenomenon that has been around for business. Once you go through it again, you still can't get used to it. But if you can't change something, you can prepare for it.
Enterprises need to catch up in the speed of decision-making. It takes a long time before a proposal reaches the top, then comes down for implementation. In this case, medium and small businesses have a competitive advantage: decisions are made faster, and adaptability to change is better. Of course, startups pivot even faster because they are the most flexible layer of the business environment. But they are also vulnerable in their dependence on investors, who have the final say. One thing is true: each of these CEOs wants to go through the recession as painlessly as possible.
How a recession can affect your business
Small and medium-sized businesses may be feeling apprehensive about an impending recession. To me, SMBs are the unique layer of the global economy, comprising a staggering 90% of all businesses across the globe. Think about it: these enterprises are responsible for generating approximately 70% of total employment and are projected to contribute up to 70% of the global GDP. And yet they are incredibly vulnerable to economic downturns, entailing the undermining of the entire economy.
Lack of expertise can throw them off track, low digital maturity harms revenue growth, and traditional revenue models may not work.
During a recession, there is fear and uncertainty in the market. I have experienced this three times in my life. But fear can be your strength and create opportunities for those willing to take risks.
How to increase the state of alert anticipating a recession
I've found that during the Great Recession, 1.8 million small businesses went under in the United States. In the following decade after 2008, small businesses found themselves in favorable economic conditions, which have returned to the circle of opportunities for further development.
Significant opportunities can hide behind panic from bad news, hasty and disjointed actions, and the pressure of missed opportunities (which may not yet be missed at all). Let's see what can become your foothold.
In the following decade after 2008, small businesses found themselves in favorable economic conditions, which have returned to the circle of opportunities for further development. Here's what's worth looking at.
Staff is your secret power
Retain your staff by all means. Laying off tech staff for SMBs means the loss of valuable talent and knowledge, which can be difficult and expensive to replace when the economy improves. At Aimprosoft, the staff is our greatest asset. People are the main thing, always have been and always will be, in our type of business. We can change the tools we use, but the point is that we don't value any particular Java developer; we value specifically Mykola, Andriy, and Kateryna, whom we love, and with whom we've worked and gone through these crises.
Grab the best talents in the market. To me, it wasn't a surprise that for 50% of CEOs surveyed by Mercer, a talent shortage is a barrier to growth, not a recession. The recession period allows other companies to attract high-quality talent that may have yet to be available during periods of economic growth.
Automation is the king
Automate everything you can. 65% of businesses already implementing automation could adapt more quickly to the pandemic. The importance of automation also confirms my colleague in the field, Alex Medovoi, President & CEO of AltexSoft, seeing it as one of the measures for well-done planning and anti-crisis business updates:
"In a normal situation, it is enough to review the results on a monthly basis. In a crisis, it should be done at least once a week."
Embrace innovation, be adaptive. I found that in 2008, small businesses turned to cloud-based accounting like PayCycle. This allowed them to save time and reduce costs.
As shared by Serhiy Skurikhin, CEO of a mid-sized business ZONE3000, during the last crisis caused by war, his team developed an automated bot to check the location of their specialists daily to ensure they are in a safe place. That helps be updated and prevents delivery delays, and as a result, improves competitiveness.
Distribute all finances smartly
Focus on the best revenue stream. SMBs, as usual, have not diversified revenue streams and business lines, which could help them offset losses in one area with gains in another. As shared by Francois-Marie Neycensas, CMO of Reservoir, when they launched the company in 2017, they focused on both physical and digital distribution channels, prioritizing the latter.
"Since COVID came, the physical slowed down or almost stopped, and we had a part of our intended purchase that switched from physical to digital."
Ivan Nedelchev, an owner of DNA PROTECTED, said that the ratio of physical and digital product sales was 50/50 through Amazon and online stores in 2020. Market conditions forced to change in favor of 90% software and 10% physical products.
Invest in self-development. Would you say it's not the time for that? Evaluating everything well, you'll get over yourself and start spending money on self-development, although it is not an easy situation when you have to save money. But in this case, investing money in self-development will help you come out of the crisis better than you went into it. After all, you're probably not going to give up on everything, are you?
Agility: renew, adapt, succeed
Creating agility and adaptability is critical. Revising your strategic and economic assumptions presupposes that you remain flexible and willing to pivot after pivot permanently until the situation reaches a favorable change. For example, the leaders of DNA PROTECTED created the daughter company for the European market only, changed their strategy completely, and focused more on the software side during the pandemic crisis, which helped them to prosper today.
Take yours from the market share redistribution. Remember Airbnb, Uber, and Slack, which emerged in the aftermath of the 2008-2009 financial crisis. Today is the best time to take advantage of an open field. When your less-lucky competitors are weeded out, you have vast opportunities to fumble new markets.
Adapt to shifts in consumer behavior. During an economic downturn, recessionary behavior is characterized by people dining out at cheaper establishments, buying fewer durable goods, and taking fewer vacations. But people do not stop purchasing. The focus is shifting to the value of the purchase rather than the amount spent. Entrepreneurs may consider it a chance to be the ones who can also get loyalty during tough times.
Security: turning concerns into strength
As my industry colleague, Valery Krasovsky, CEO/Co-founder of Sigma Software Group, points out:
“The entire infrastructure and security system should be transformed in such a way as to be independent of local risks of various kinds. You have to review all these risks in advance, consider the worst-case scenarios, take into account all the factors, try to predict and think ahead about the course of events and adapt your work to new realities accordingly.”
By adapting to emergencies related to war, the adapted infrastructure and new solutions enabled everyone in his business to work effectively from different parts of the world without overloading the infrastructure and being protected from cyberattacks. On average, investing in preventive measures to enhance cybersecurity can save $200,000 for one data breach.
Operation: keep running
Despite all odds, since the last recession in 2010, over 5 million new small and medium-sized businesses have emerged in the US. Why did they live for a decade?
Operational efficiency with software. According to recent surveys, the majority of SMBs have expressed their intention to uphold or boost their expenditure on various technology solutions in 2023. This includes allocating funds for collaboration tools and connectivity services, among other aspects of their tech stack.
Strengthen customer relationships. SMBs typically have closer relationships with their customers compared to large enterprises, which I particularly like. During a recession, customers become more cost-conscious and are more likely to switch to cheaper alternatives but still appreciate excellent customer service. Good time to offer value-added services to retain your customers.
Outsourcing as smart saving
Terminating the employment of personnel alleviates the financial obligation of their wages and generates additional liquidity for the business in times of crisis. But the need for staffing goes nowhere. Clutch findings show that 83% of small businesses are expected to maintain or boost their expenditure on outsourced business services in 2023, while half regularly use a professional firm or agency when outsourcing.
“I think through this type of crisis, you as well learn to focus on your core activity and not spend too much time on things that you are not basically mastering in some of the competencies,” says Francois-Marie Neycensas.
Conclusion
Looking back, in 2008/2020, I had it like this: I came out of high school and thought that, finally, everything was over with my education on my graduation day. But the older I get, the more I realize I should have invested in my growth and development during that crisis and between emergencies. I mean not just in myself, but in the company, in people, so that I could better solve the problems that arise.
SMBs represent the vast majority of the global economy and employment and should focus on bolstering their digital capabilities to weather the storm. Automation will come front as never before to increase productivity and efficiency and add value to their existing products for customers. I strongly believe that companies that nurture flexibility, awareness, and resiliency are more likely to navigate uncertainty more successfully.