Seven Keys to a Recession-Proof Business

Seven Keys to a Recession-Proof Business

How a Former Retailer Transformed His Business-and His Life-with an Internet Business…and How You Can, Too

The charming, homey, mom-and-pop business on the corner with the sweet associate who provide personal service. The multibillion-dollar corporation with hefty CEO bonus packages and an army of well dressed executives. What do these two businesses have in shared? Not much, you may be thinking. But you’d be wrong. No matter what business you are in or how large it is, you have to be concerned with the economy. That method making sure you take steps to recession proof your business. Companies large and small have fallen victim to the recession. When Microsoft lays off employees, you know it’s a bad economy! It’s more of an issue for some businesses than for others, of course. People will sacrifice a night out on the town, a new pair of shoes, or seeing the latest movie… but they nevertheless need toilet paper. And soap. And food! But there are things you can do to ensure that you are at the minimum slightly immune to the unavoidable dips in your customers’ finances.

1. Build up a save

From the day you open your business-or starting right now-you need to put money aside in a cash save. You don’t want to be looking for loans to make a payroll or to keep the doors open another month. It’s cruel, but true: Those who need credit the least are the most likely to get it. If you wait until you are desperate, you will probably not find what you are looking for. When you find yourself needing money the most-like when I was trying to get a loan to keep my hardware business open-you will have the hardest time finding it. edges want a guaranteed return on their money. They couldn’t care less about whether you truly need it or not… in fact, already those with good credit can get denied. So when should you stop putting money aside? Never! You can never have too much cash. So if you don’t have a cash save, start making it a priority… today! Cut back on non-essentials. Analyze your inventory to make sure you are not overstocking. Cut employee hours by getting by with less staffing during the slow times. Find out the bare minimum you need to survive on, and put any excess revenue into savings. In extreme situations, you may want to try renegotiating the terms of your lease. You can already threaten to break it, if necessary. In these times, it’s a renter’s market. Most likely, there’s a better deal somewhere else… so find it, and use it as a negotiation tool.

2. Continue-or Step Up-Your Marketing Don’t stop marketing yourself… ever.

Unless you want to ensure that you go out of business, that is! Let’s take a look at a few case studies of this in action. MarketSense did a study analyzing the performance of over 100 brand-name household products during the 1989 to 1991 recession. This study came to some very eye-opening conclusions about the importance of advertising:

• Kraft Food’s Jell-O brand, Frito-Lay’s Doritos brand, and J. M. Smucker Company’s Crisco brand had their advertising cut… and sales of each dropped by 26 to 64% from past levels.

• J. M. Smucker Company increased the amount they spent advertising Jiff peanut butter… and their sales increased by a whopping 57% in a recession.

• In general, consumers bought less beer during that recession-observe the fact that the complete category was down by 1%. But 2 brands -Bud Light and Coors Light-pumped up their advertising, and their sales, too… by 15% and 16%.

• People nevertheless have to eat, right? Yes, but they nevertheless have choices. McDonald’s cut their advertising budget and watched sales drop 28%. Taco Bell and Pizza Hut increased their spending on advertising… and their sales rose 40% and 61%. Part of that has to do with the fact that the first thing business owners cut in an economic downturn is their advertising and marketing budget.

So those who keep the spending at the same level-or already increase it-end up grabbing a larger proportion of the market by default. In fact, a McGraw Hill study of the 1981-1982 economic slowdown demonstrated this. They found that businesses that maintained or increased their advertising levels averaged “considerably higher sales growth” than their competitors who cut or ceased advertising-during the slowdown and for the 3 years following it! And don’t think these are secluded studies. There have been studies on this subject dating back to 1923-and each and every one has shown similar results. Those who advertised the most had the most sales. Those who cut or deleted advertising hurt their sales.

3. Pay Attention

Many business owners are so absorbed in the day-to-day running of their businesses that they don’t look up to see what is happening in the world. That is a big mistake. Things change, and we have to change with them (or risk getting left behind). If you stay on top of developments in your industry and in the world in general, you can anticipate trends, changes, and new consumer tastes. for example, you can discontinue carrying some items that aren’t selling. You can clarify the next big thing and position yourself to take advantage of it. Remember, too, that you never know where inspiration can come from. Sometimes an innovation in another industry can be applied to yours. Sometimes a seemingly random news story or occurrence can spark a million-dollar idea. Sometimes a customer’s comments can rule the way to greater profitability. In fact, it’s a good idea to request your customers’ feedback on a regular basis. You can do this in the form of surveys, one-on-one interviews, and focus groups. In addition, your front-line employees can see things that you can’t. Reward them for suggestions that truly increase sales. The more you do it, the more good suggestions you will get in return. It just takes a few minutes here and there every day to stay in touch with the world around you. Invest the time it takes… stay open to what is going on and don’t be in so much of a rush you can’t get feedback from others or read the news!

4. Embrace Technology

There is no excuse for not taking complete advantage of all the technology that is obtainable to us. Yes, you may need to take time to learn it. But everything we do in life, we had to learn at some point (already walking, dressing, and eating!). Think about all you have to gain from embracing technology: greater profitability, a larger marketplace, and less time spent on menial responsibilities. That alone should be motivation enough to carry you by your dislike of any device. Take the Internet, for example. There are 1.5 billion people using it every day. already if you are a local retailer, you might be able to find a way to tap into that. And already though your local economy may be in the toilet, somewhere else it probably isn’t. You might just end up transforming your business by fully using the Internet’s possible. For example, let’s say you are in the Pacific Northwestern and you are able to catch fresh salmon; why just have a local restaurant and/or fish market? Smoke it, freeze it, and sell it over the Internet. You can find someone to manager the fulfillment-outsourcing can be a beautiful thing-and you adjust your prices consequently. If the U.S. is nevertheless hurting economically, perhaps Canada is a good market for you or Brazil. Or already China. You never know what’s going to work, but with the Internet, there’s no reason you can’t reach out to any part of the globe. Costs more to ship? Have to worry about customs? Well, charge more for international shipping and let your fulfillment company tell you how they will manager customs for you. Look, if you have an existing business, you have already conquer all sorts of barriers to entry-large and small-just to open your doors in the first place. If you did that, there is no doubt that you can also do the same with the Internet. There will be different barriers, yes-but they can nevertheless be conquer! Thousands of others have done it. And so can you.

5. Strategic Partnering

Consumers like dealing with the fewest number of people possible for a project. Think about building a swimming pool. There’s the pool contractor. Then the screening or fencing contractors. And then there are usually child fences needed in addition to that-and a pool service, too, for those who are too busy to do it on their own. If your company fits somewhere in that span of sets, partner with other companies who do the other work… and offer a package of sets to the customer at a discount.

Let’s say you are a general contractor. Partner up with an air conditioning and heating company, a pest control service, a lawn service, a home inspector, and a plumber. Co-market their sets with your own, refer customers to your partners (as they will to you), and let the referral fees start rolling in. You can take it one step further by presenting yourself as a unified front-an “end to end” solution for homeowners-with one toll free number. Market yourselves that way (splitting the cost of course). Just make sure the parameters of revenue sharing are well defined and agreed to in improvement in writing to avoid problems down the road. A good example of strategic partnerships is found on any PC you buy. Whether you buy a Dell, an HP, or a Compaq, Microsoft’s operating system software comes preloaded-it’s part of the package. They also usually also have an icon for Microsoft’s Office suite (information, Excel, strength Point programs)-and all you have to do is buy it in order to use it. How Microsoft and computer manufacturers work this out financially, I’m not exactly sure… but it clearly works for both of them. It’s one of the reasons Microsoft is so successful and also why people once screamed that they had a monopoly. Yes, it takes more work to put together a strategic partnership. But when it works, you’ll get twice, three times, already four times the amount back that you put into it. Strategic partnerships put the strength of leveraging to work for you, as other entities become invested in your success in addition.

6. Adding sets and/or Product Lines

This is a variation on the strategic partnership method. In this case though, instead of partnering with another company, you truly add those sets and products to your existing ones. You can start with natural extensions of your current product and service line. For example, grocery stores typically have a low profit margin on the food they sell. So what did they do? They additional higher-margin products like pots, pans, cooking utensils, coffee mugs, child plates… all of which are related to cooking and food. But they didn’t stop there. Now you can pick up flower arrangements, cards, gift cards, and more. It’s just a matter of time before they find already more ways to get an increasing proportion of consumer spending.

Or let’s say you have a lawn service. How about partnering with a pest control company? If you’re in a cold climate, add in firewood delivery. If you’re in a warm climate, you can add on that pool service! You already have a built-in base of customers, so you can provide to discount your add on sets. Think a recession is a bad time to expand? Think again. “With soaring oil and food prices, falling home values, and the credit crunch beginning to take their toll on the U.S. economy, it’s a terrible time to try to expand businesses or original, right? Not necessarily. By some accounts, the worst of economic times-the Great Depression-was truly a high period of management invention… a number of enterprises outperformed competitors and truly grew during that tumultuous era by excelling in understanding and satisfying customers’ changing needs. The Standard Oil companies built a lasting advantage by aggressively expanding their networks of service stations. DuPont increased its dominance by introducing nylon and other new products for consumer markets. Sears succeed-while Montgomery Ward languished-by coming out with innovations like low-cost refrigerators and mail-order automobile insurance and by doubling the number of its stores. And at a time when Wall Street was despised, Merrill Lynch recognized there was an opportunity for honest brokers.” – “Recession: The Mother of Invention?” Steve Prokesch, Harvard Business Review, June 17, 2008 Giving people what they want is the best way to create new opportunities for your business, Great Depression, Great Recession, or expansion times alike!

7. Hit “Restart” Listen, sometimes the best-laid plans go awry. If you have depleted all avenues in your existing business, it may be time to consider the possibility of ceasing operations and restarting another, more profitable venture. I know firsthand what this is like. After 2 years of decent profitability, my hardware store was in the red to the tune of $100K in its third year. Believe, me I tried everything I could-steps 1 by 6 and more-but it just wasn’t enough.

The town I was in had only 600 people. I made my money off the few months per year that tourists swelled our ranks to 3 times their normal level. But when the recession hit-and did not retreat-the number of months of good business fell from 8 to 4. I’m sure you can appreciate how hard it is to run a business on only 4 months of profitability. With only 2 good years prior to the recession hitting us, I hadn’t built up a meaningful enough cash save to float me for however another year after taking that kind of loss. So I would have had to borrow money to continue. And think about it-I was thoroughly dependent on the local economy! What happened in that 600-person town decided my fate. I had expanded my product line-I had a tool rental business, I had pumped up our paint department-but when you have a business that is so tied to one sector (construction/home improvement) in such a limited market, you are unprotected. And I did the numbers. I could see that I couldn’t survive for another year without returning to pre-recession profitability closest. And that wasn’t happening. I could see that! But I didn’t give up on business altogether. I KNEW there had to be a better way. I did my due diligence. I did my research. And I found that an Internet business-with its low start-up costs, access to a global marketplace, and limited operating expense-was the way to go for me. And I was right! Our local economy hasn’t come close to turning around. But now, it doesn’t matter. I own the business of my dreams, and I can do business with anyone, anywhere. I get to use quality time with my family. And I am making good money, without all of the headaches of employees, taxes, huge fixed expenses, and swings of fortune in the local economy. All of this is to say… I’m not someone from the outside, flippantly telling you to let go of your business. I know what it’s like, and I know how difficult it can be. I had thought I found the business that would sustain my family and me forever… but I was wrong. It was hard-very hard-to let it go. But you know what? It got better, and it got better fast. Some part of me truly felt relief. And I was free to go on to a more profitable situation, a better one for my family and me. Of course, you want to take the time to make the right decision for yourself. You don’t want to rush into anything. Take in any case time is necessary to figure it out. Just be open to the possibility that maybe the time for your current business has come to a end. Or maybe it’s just not right for you anymore. Run the numbers, talk to your spouse, and make the best decision for you. I’m here to tell you that if you have built a successful business at one time, you can do it again. Many times things happen that are just beyond our control. Sometimes, by no fault of our own, we lose something that was a part of our life for a long time. But then we end up better off when the next thing comes along. Above all else, remember that your greatest asset sits between your ears. Creativity and innovation start there-and have built fortunes for millions since the world began. The economy will always go up and down. By using your mind and your creativity, though, you can always find a way to prosper. Failure is only permanent, unless you choose it to be otherwise!

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