While your business might be riding high on today’s economy, every entrepreneur needs to be prepared for what might come next. More than 75 percent of economists agree that a recession is coming by next year. Few companies, however, have a strategy in place to deal with the fallout.
Most companies try to save cash and pad their client list to protect themselves against economic downturns. While more money never hurts a business, short-term fixes only plug the hole temporarily. If you want to survive what comes next, you need a more sustainable plan.
Even with a recession potentially around the corner, there are plenty of safeguards you can implement. Here are five strategies for thriving during the next bear market:
1. Change your procurement strategy.
One of a business’s biggest expenses is procurement — getting the goods you need to operate. Even if you currently have a solid procurement strategy, the financial strain of a recession could seriously hinder your options when it comes to purchasing.
While you should constantly be on the lookout for better deals, joining a group purchasing organization is a long-term option for keeping costs low. Group purchasing organizations, or GPOs, leverage the power of their large buying networks to secure the best possible prices for members. Getting involved with a GPO can allow you to create a procurement strategy now that won’t require time-intensive re-evaluation if the market takes a dive.
2. Go with consistency over revenue.
When scouting for new clients, it can be tempting to shoot for the largest accounts with the highest payoffs. There’s nothing wrong with seeking more revenue. But recession-proofing your business means picking the kinds of clients who will provide your business with a steady income stream.
Before taking on a new client, examine the business and its likelihood of long-term success. While it’s now common knowledge that up to 70 percent of tech startups end up shutting their doors, that number can be even higher for other sectors. Ninety-seven percent of consumer hardware startups, for example, fail to become viable businesses. When building your client portfolio, make sure to fill it with businesses that will be able to stick it out, no matter what comes next.
3. Disrupt the root of the problem.
What do Procter & Gamble, IBM, and GE have in common? In addition to being some of the world’s most valuable companies, they were all founded during an economic slump. Recessions may be serious setbacks for some businesses, but they can represent invaluable opportunities for others.
When a recession strikes, look for a way to make the most of it. Wal-Mart stock, for example, hit record highs in 2008 as more consumers turned to the superstore for a cheaper alternative. Brainstorm what products or services your business could provide that might be in particularly high demand during the coming recession — it could pay off big in the long run.
4. Enter new sectors.
When the economy enters a recession, different parts are affected differently. In 2008, for example, home furnishing companies reported a 5.8 percent decline, while nail polish companies actually grew by 5.9 percent.
That doesn’t mean your business needs to corner the nail polish market, but it does mean that you need to consider covering your risk by entering more diverse sectors. It’s almost impossible to predict exactly what’s going to be hit in the next recession, so it’s best to expand into several sectors to ensure that at least part of your business remains profitable when times get tough.
5. Boost your marketing.
In the wake of the 2008 recession, ad spending in the United States dropped by 13 percent, and it’s easy to see why. Even in good times, marketing budgets are often the first to get slashed — but it’s during a recession that marketing deserves the most attention.
When the economy turns south, people are desperate for alternatives. By boosting your marketing during the toughest times, you can tap into consumer restlessness by offering an alternative. A recession may tighten your budget, so use that as an opportunity to get creative with your marketing. Focus on user-generated content, word of mouth, or other low-cost campaigns that bring in new customers without breaking the bank.
A recession is a scary prospect for any business, but it’s always better to face one with a strategy in place. By planning beforehand, you can ensure your company stays afloat — and even makes the most of it along the way.