Will Covid-19 Kickstart a Recession?
Recent world events surrounding the Covid-19 pandemic has meant that economically we are quite likely to be heading into a recession. Technically that is when 2 consecutive quarters show negative growth. We are not there yet, but the economic effects of the Covid-19 pandemic mean that significant parts of our economy will be in free-fall over the next few months, particularly the service sector. No one knows how long it will last. We can only hope we manage to beat the pandemic within a relatively short space of time, like China has, and we can all get back to business as usual.
In the meantime it is prudent to plan for a period of lower business activity. I don’t want to be accused of being a “black hat thinker” but it would be a dereliction of my duties as a business advisor not to make suggestions around how business owners should adjust their strategies and tactics at this time in order to weather the storm and come out the other side in as strong a position as possible. I dug out an old article from NZ Trade & Enterprise (the government department tasked with business advice at the time) about how the most successful companies handled earlier recessions. I believe the points they made in 2009 are still relevant today and so I have repeated them below. They are non industry specific so you will need to read them and consider, “how does that relate to my particular business”.
Seven Factors to Recession Survival
Seven key factors seemed to have the greatest impact on firms’ ability to emerge strongly from recessionary periods.
- Focus on the core business – applying resources on the core business, where they are most needed. This creates opportunities to gain market share from competitors who diversify and split focus.
- Process and efficiency – speed and flexibility are very important in executing recession strategies, the faster the better.
- Strategic divestment – shedding non-core operations to improve liquidity and/or focus on the core strategy. Operating non-core business splits much needed focus and resources.
- Contingency planning – not easy to prepare for a downturn but it is never too late. Planning can be formal scenario planning or careful structuring of the business to maximise resiliency.
- Acquisitions and strategic alliances – to strengthen, re-focus, and position the company for increased growth and profitability. Acquisition ‘entry price’ is likely to be lower, and there may be less competition for acquisition targets. Companies also made acquisitions to access new markets, products, technologies, customers and talent at an accelerated pace.
- Increased advertising and marketing – to increase market share and take advantage of greater advertising reach, possibly at more competitive rates.
- Research and development – to create new value in core product/services that can sway recessionary consumers, as trading becomes more competitive. New product releases can have a greater impact during a downturn as competitors are slower to counter with their ‘me-too’ offerings. (Use this strategy with caution as it potentially conflicts with #1 – Focus on core business)
These factors underpinning success were common throughout the companies studied. Evidence from this study shows that focusing on these areas will better position businesses to ride out tough economic times.
One thing a recession does is to force you to analyse what you are doing in the business and making tough changes. Trading in the good times can lead to you becoming fat and lazy (in business terms) and so now is the time to hit the strategy gym and become more lean and ripped. Many of these changes are things you possibly should have been doing anyway. It’s just the pain of change outweighed the pain of inaction. That may not be a luxury you will have over the next little while so contact me here to start a conversation about how you can prepare yourself for probable leaner times.
A couple of other posts around making changes in your business at times of stress: