Recession – threat or opportunity?
Written by Dave Collins, SoftwarePromotions Ltd.
Even the most fervent of optimists now have to accept the reality: that irrespective of how precisely to define a recession, we’re either in one or about to be. Here in the UK we’re officially in recession, and there’s even been talk of a depression. The news and media are full of gloomy forecasts and dire predictions, but for once, they are mostly in agreement: The economic situation is bad, and it’s going to get a lot worse before we can even begin hoping for some sort of recovery.
Many individuals and businesses have had their heads in the sand for too long, but even the most firmly in denial have had to come up for air, and what they’re seeing isn’t pretty. Some are in a state of moderate to advanced panic, believing that their businesses, plans, and way of life are finished forever. Others believe that the media’s grasp of reality has taken the concept of exaggeration to previously unimaginable heights. The truth, as is often the case, lies somewhere between the two.
Those hoping that a recession isn’t a serious threat or problem are likely to be disappointed. There are an apparently endless number of analogies being used, but my favourite compares a recession with a violent storm. Those caught up in one will undoubtedly sustain damage, but the extent of their suffering may range from inconvenience to life-changing disaster. It depends on where you are located, how long the storm takes to pass, how vulnerable you are to its effects and how much you have to lose. The analogy is a good one, as aside from planning and basic prevention, it often feels as though there are raging elements that lie beyond your control.
However, it’s not all doom and gloom, and there is much that can be done to not only ride-out the recession, but possibly even gain from it.
In spite of all the obvious negative consequences of a recession, it can also be a good time to expand and develop your business, as many of your competition will probably be doing the complete opposite. In spite of the apparent panicking, consumers and businesses do not completely stop looking for solutions to their problems, but they might begin looking for better value. If your product or service offers that, then this particular recession-fuelled demand could turn into your opportunity.
The same idea might also apply to existing customers and users. A smaller version of what you usually sell could be of interest, as could a cheaper and/or more basic version.
But why limit your outlook only to existing markets? You may have to go looking for them, but other markets are out there. Older people, for example, tend to be less affected by recessions, as their mortgages and debts have usually been paid, and they are not typically dependant on salary for their income. If there’s a way to tap into these users, now would be a good time to do so.
A recession can also offer opportunities for businesses to expand their market share, and those with the courage and foresight to increase their marketing budgets can gain in the long term. When a company’s income shows signs of falling, the knee-jerk reaction is to cut back on spending. And all too often, the marketing budget is one of the first to go. This is undoubtedly a mistake.
When the number of people coming into your shop starts to fall, boarding up the windows and turning out the lights is a really bad idea.
And while we’re thinking positively, let’s not forget that a recession can also give all businesses a shake-up. While this might be painful, it can also produce greater flexibility, better spending habits and improved creativity in the long run.
But let’s be realistic here. If you go to the Doctor for an inoculation and spend three days shivering in bed while your body builds up resistance, you’re going to feel bad for those three days. But remembering that there’s light at the end of the tunnel can help ride out the short-term discomfort.
And don’t overlook the obvious – your business not only generates revenue but spends as well. Many businesses are slashing their prices in a desperate attempt to increase their income, resulting in some very good deals for software, products, hardware, services and more. Don’t make the mistake of stopping all spending as the economic situation worsens. Spend cautiously, choose more wisely and enjoy the savings that are out there.
It’s also a good time to invest in your existing supporters. The importance of retaining their loyalty during these times is paramount, and a little goodwill right now could pay off in the future. You already know that acquiring new customers is more costly than keeping existing users happy, but are you making sufficient efforts to reassure and impress them now, while the going’s still good?
And do not, under any circumstances, abandon plans for new products and services at this time. You might want to put a little recession/savings orientated spin on them, but for many goods and services, new offerings are just as likely to be popular now as a year or two ago. Sales might be slower to come in, but getting the word out and establishing a reputation doesn’t happen overnight.
So enough theory and reassurance. What should you be doing to ensure that you not only survive the recession but possibly even gain from it?
Start from your base – your customers. Now is the time to really understand who they are, where they come from and how they may be affected by the recession. Now is the time to start communicating with them on a regular basis. And now is the time to identify their needs, and start tapping into them. Many small businesses often adopt a fairly lax approach to invoicing their clients. Aside from the fact that this is a bad business practice, this is precisely the sort of problem you want to avoid during these times. If you allow your customer’s inefficiency or inability to pay on time to run rife, your own business could well run into cash flow problems. It’s a problem that can be very difficult to repair, but is easily avoided.
Encouraging customers to pay on time doesn’t need to involve threats or harassment. But invoices should include clear payment terms, and customers should understand that failure to pay on time will result in additional charges. They expect this from most of their other suppliers, so why should you be any different? Bear in mind, however, that there’s no need to be heavy handed. The last thing you want is to drive away a long-term customer. Get the balance right.
The next step should be to consider all and any possible expansion. New products or services, new licensing, different pricing models – but while we’re on the subject of pricing, don’t simply lower prices to try and increase sales volume. It’s far too basic a strategy, and as well as risking a drop in revenue can also cheapen your company’s image and make you look desperate. During a recession, customers need more reassurance, so don’t force prospects to question whether you’ll be around in a few months time.
And despite my constant urges not to slash marketing budgets and not to stop spending, it’s a prudent time to cut back where it makes sense. A little time spent on research can find savings in cheaper phone calls and utilities, for example, and for some companies, cutting down on unnecessary travel could also be a good opportunity to save. All of which should have been done before the financial crisis, but better late than never as the saying goes.
But as the other saying goes, don’t throw the baby out with the bathwater! Saving a few dollars each month by switching to a cheaper internet service provider may prove to be a false economy if your new connection is slow and unreliable. Cut down on unnecessary expenditure, but don’t cut corners.
Cash flow is also of importance. Despite the fact that many small companies think that such ideas only apply to the bigger businesses, cash flow could well prove to be the difference between a business surviving or dying. Tapping into the skills of your accountant or even using software such as QuickBooks make this information instantly available. Keeping an eye on cash flow is quick, easy to plan around and potentially lifesaving.
If you do foresee short-term cash flow problems, don’t be afraid of taking whatever measures are required. Even if your business has been self-supporting from the start, borrowing money to fund necessary expansion makes a lot more sense than not allowing a worthwhile project to get off the ground.
Finally, a note of caution. No-one knows how long the current recession is going to last, nor how our businesses are going to be affected over the coming months. Yet even if your business is doing well or even thriving right now, a lot of change lies ahead. Most new initiatives take time to put together and implement, so now is the time to look around, consider what options are available and start putting ideas into place.
Be seen, be strong, be sold.