The Looming global recession and how to run a recession-proof business for SME's creative entrepreneurs

JPMorgan: "Recession will rock the US and Europe by July."

World Bank: "With the heavy disruption in trade and value chain caused by the coronavirus pandemic, sub-Saharan Africa is set to record $37 billion to $79 billion in output losses this year."

What every small business owner should know about a recession.

For an economy to be in recession, it means there's a decline in growth (measured by GDP) for two successive quarters.  The average recession lasts for a year and a half (17.5months), and every economic zone experiences at least one recession every ten years. Besides the looming recession, the COVID-19 pandemic has disrupted the order of business. After every pandemic or recession, comes a new order that redefines old norms. Luckily for 2020, there would be both a recession and a pandemic in the mix simultaneously.

Medium and small scale businesses are usually the worse hit during any volatile business season. However, it would seem the multibillion-dollar players are always the most prepared. Big companies seize the opportunity to engage in their favorite sports, downsizing, and foul crying.

Medium and small scale businesses often duplicate the big boys' moves or make no specific move. Uber recently laid off over 3,500 employees over a zoom call, and Chevron will be doing the same to over 10% of its staff strength. For Medium scale or small scale businesses, downsizing may be insignificant in the scheme of things and does not likely lead to the necessary change.

 If your business is up to 10 years old, it means you've likely been through a recession; welcome back to another episode, this time with a health crisis in the mix. For new and emerging businesses with no chaotic experience; Hold tight! a global recession is around the corner. "In the Midst of Chaos, there is Opportunity." Sun Tzu from 'The Art of War.' Recessions and pandemics are no exception to Sun Tzu's postulation.

Now is not too late to set up your business to be pandemic adaptive and recession-proof. Once you are complacent enough to wait for doomsday before acting, you would be playing catch up alongside millions of other dying businesses. At that point, it becomes hard to make changes to help your business thrive or even survive.  

What happens to businesses in a recession?

Like the pandemic, everyone is fearful and sensitive. Every dollar is spent more consciously.

  • Tightening credit conditions: No lender is trying to give you credit in good faith. A pandemic-recession is a lousy time for lending since lenders become more stringent if you're looking to expand or create a new product or service. However, if the new asset, product, or service you're trying to work on is in direct response to the situation and critical for business survival, you're better able to be proactive.

 

  • General fear and uncertainty: In itself, a recession does not mean things have gone south, it means brace up, or else things will go south. Over sensitization from the media and traumatizing personal experiences from past episodes are both responsible for the tensed and sensitive economy.
  • Low purchasing power and a decrease in demand; millions of people have already lost their primary source of income from business closure and job loss during this pandemic. The trend of income loss will continue once there's a recession. What this translates to is that if a product or service isn't branded or perceived as essential to survival, patronage plummets
  • The increased cost of production: To stay afloat, a lot of businesses increase their product or service price. The multiplier effect trickles down to every business, leaving entrepreneurs with the choice of increasing the price of their product or suffer a reduction in profit on product per unit.                                                                                                                                                                                    

Past economic recessions, businesses who came out strong, and what they did to stay in business:

Going by IMF's definition of a global recession, we've had four episodes since the second world war, in 1975, 1982,1991, and 2009. Over 8 million houses were foreclosed, and about 9 million people were jobless in the USA alone in 2009, opening opportunities for small businesses in the job and house search niche.

An in-depth look into any of the four global recessions, we'd find a pattern of prepared businesses seizing the moment to create history. For sure, the principles that define the companies that thrive and survive are mostly unchanged. For example, the 1975 recession in retrospect reveals specific patterns;

Short-term is good, long-term is good, gun for both.

For reasons best known to them, a lot of entrepreneurs justify unnecessary business crisis by saying they're gunning for the long-term as though long-term goals are directly proportional to short-term failures. Wrong!

The 1975 recession was about the oil just as 2020 is about sanitation and health. Honda and Toyota understood this opportunity and positioned to take advantage. The government's first mile-per-gallon report was released in 1974 endorsing Honda civic, trailed by Toyota corolla as the most fuel-efficient cars. This endorsement helped them win at the time and to date, as both Civic and Corolla brands remain titans in the automobile industry.

Key Takeaway

Businesses that whip the health and sanitary concerns of consumers will win both in the short and long term.

Economic crisis presents opportunities even for the weakest players.

A 30-second slot for a Super Bowl ad presently costs a little over 5 million dollars, but 30 years ago, the story was different. While Toyota and Honda were busy cashing out on the fuel efficiency sentiment, Chrysler automaker decides to spoil the party.

On Super Bowl Sunday, January 1975, Chrysler decided to run an advert launching a car rebate program. They understood the consumer's reluctance to spend and how sensitive consumers were to ads at the time, so they put the ad on a Super Bowl night and asked consumers to pay less for the value of more.

Key Takeaway

Back then, the rebate was the deal-breaker, today, offering free delivery might be your opportunity. Think! Figure out what your prospect and client needs most and give that to them. When you recover, they will remember how much you helped them out.

A bold time to try something New?

Microsoft was started in 1975, People's magazine in 1974, and FedEx in 1973, to mention a few. For each of these companies, thousands tried to do the same thing but failed. Having the audacity to try means there's a chance at success.

Key Takeaway

A new company, a new service, a new product or a change in tactics can be a hit. If it comes crashing, we all know it was a bad idea, but if it weathers the storms of recession, it's likely to soar through good times.

Problems create an opportunity for solutions.

Consumer purchasing power is always profoundly affected during a recession. General foods reeled out some economy-size packages as a response to the low purchasing power of their customers. Price Club (now merged with Costco) employed the resizing of products and reducing prices to thrive.

Key Takeaway

Consumers first begin to test out cheaper brands that are direct substitutes of their favorite and later buy only commodities essential to their survival. It is essential to understand what music the spending class is playing and align your dance steps with their tune. You don't want to be offbeat when the music changes yet again.

4 Exact steps businesses will take to stay afloat

When the going is good, medium-scale and small scale business owners can get away with inadequacies here and there. However, in a period of pandemic already laced with a recession, the small details will hurt.

1.Cash flow:

US bank's study reveals that 82% of businesses fail because of cash flow related issues (https://sba.thehartford.com/finance/managing-profit-cash-flow/). The research shows how vital cash flow is and how little attention is paid to cash flow by business owners. Keep an eye on your income, expenditure, and working capital. Know the numbers that matter to your business and know when these numbers are asking you to pull, push, or halt.

2. Diversify your revenue streams

Regardless of the situation of an economy, it is healthy to have more than one revenue stream for your business, and It is just more imperative in a recession. Adding a new variant of an existing product or service, ad revenue, one-on-one consulting, affiliate marketing, or monthly memberships are possible ways to diversify your business portfolio.

3. Invest more in your process, product, and clients, primarily

Clients are not agitated to buy anything in a recession; at best, they're only willing. Focusing more on the existing paying clients or client acquisition medium is better than investing money to attract new clients.

Also, the relationships involved in your production and process need to be serviced; now is the wrong time to have any destabilization. Staff agitation, an altercation with suppliers of your raw materials, picking a fight with the landlord, among other factors that can directly destabilize your flow, must be avoided.

Generally, happy clients are your biggest ambassadors. They do the lord's work by helping you consciously or subconsciously in customer acquisition. Other people want what you have, so do not undermine your paying clients who already have a history with your business.

4. Run your business like it's up for sale

The energy entrepreneurs expend in getting things in order when they're putting their business for sale is incredible. We all know the exact healthy things to be done and how to do it, but we slip up now and then, understandably so. Look at your business structure and strategy, your documentation and record-keeping, your cash flow and customer database, what will be improved upon or eliminated if you were to sell your business? Does your business have to revolve around you 100%?

 DO IT NOW!

The best time to position your business to thrive or survive in the time ahead is now. If you're wrong to have prepared for the hard times or too early, it helps your business. However, if you're wrong, it's disastrous.

For entrepreneurs in Africa, the need to be proactive is more imperative than in Europe and America. There's the chance of crumbling or soaring and hardly any middle ground. This is because governments in Africa are not prolific for being proactive, and they cannot offer a substantial economic buffer to stimulate the economy if things go south. However, recently, we've seen governments in Ghana, Nigeria, South-Africa, and Kenya propose cuts in budgetary expenditure and adjust their framework in response to the times ahead. For creative entrepreneurs in Africa, acting fast and acting right will offer a great opportunity to soar.

Outline the steps you as an entrepreneur has mapped as a plan that you're convinced will see you through these times and begin to implement the measures immediately.

 Predictions for insulated sectors

The uniqueness of the looming economic crisis is the social distancing mantra. This implies that even in crisis, the economy might not be able to run at full speed. The pharmaceutical industry, grocery stores, eCommerce companies, movie streaming apps, and virtual meeting apps seem to be the biggest winners. What they all share is their compliance with the mantra of social distancing, health, and safety.

Moving your business online or adopting measures responsive to the current mantra will go a long way. If your business is online already with no traction, it's time to put in work. Winter is coming!

Running a business is like driving a car; it's not all about acceleration. You're continually looking at your dashboard to see if there's anything wrong, which is the same as keeping your eyes on your cashflow and key indexes. The knowledge of where you're going (business goals) is also essential, otherwise, where are you driving to?

Navigating through hazards and obstacles (economic recessions), knowing what the traffic lights mean is also required of a driver—knowing basic maintenance and when to get a pro to handle a problem for you.

If you have enjoyed this article, I am sure you would have a question or two for the writer, please let me know in the comments below. Also, I help creative entrepreneurs and SME's become better, and I know you're one of them; let's connect.

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