How to survive a recession

A recession can be like a volcano: to survive you have to move fast. As the economy becomes increasingly volatile, Ken Jacobson gives his take on what MDs, CEOs and owner managers need to do to keep their companies safe.

Many of us have sat out recessions before – or tried to. For others, sustained turmoil in world markets and a threatened recession are prospects as new as they are unwelcome.

With a global credit crisis underway, plus a barrage of negative headlines, the sense of unease among the UK’s business leaders looks set to increase. The world’s leading financial policymakers are warning that the global credit crisis will get worse before it gets better, while the UK’s mortgage lenders are expecting commercial repossessions to rise. In Wednesday’s Budget, Chancellor Alistair Darling revised his 2008 growth forecast for the UK downwards to 1.75 to 2.25 per cent.

Despite this doom and gloom, your company’s future does not have to be bleak. I have seven ground rules that apply to any MD, CEO or owner-manager entering a volatile economic climate. I know from personal experience that those who are suitably prepared can pass through the storm – and even prosper and grow in uncertain times.

1. Keep your nerve
Those of us who made it through the recession in the early 1990s, or the dot-com tailspin in 2001, are old hands at this wearisome drill. However, if you belong to the new generation of entrepreneurs, and have made your mark during a period of prolonged economic boom, you may now be exposed to an unstable climate for the first time. If a recession strikes, view it as a new opportunity rather than a death knell. This is easier said than done, but a positive mindset is essential.

2. Polish the customer’s pedestal
During periods of unrest, it is all too tempting for MDs to become insular, ignoring customers to focus on internal operational challenges. This is a terrible mistake to make: those who do so will promptly disconnect themselves from their best source of current revenue and future success. Instead, do your utmost to retain your customers. Keep them informed and reassured and involve them in your plans. Remember that your customers will be braving the difficult climate too, so demonstrate your company’s value and stability at every opportunity. Get in front of them as this will enable you to identify what your customers value and make this the key building block of your competitive strategy.

3. ‘What would Mr Burns do?’
The money-grabbing tycoon from The Simpsons is an unlikely paragon of business virtue, but his calculated ruthlessness should be your guide here. Tough times call for tough action. This isn’t the moment for touchy-feely platitudes: even the late Dame Anita Roddick, renowned for her unequivocal business conscience, did not shy away from cutting her workforce when she had to. If your business is to survive a global liquidity crisis, you must be prepared to press ahead with difficult and unpleasant decisions. If your company is losing money, don’t vacillate.

4. Hire slowly and fire quickly

When operating conditions become difficult, it is more important than ever to have made the right recruitment choices and to be surrounded by a committed, trustworthy team. If you have yet to achieve this, you are on the back foot. Jettison the underperformers as soon as you can, and align the right collection of talent to help you face the challenges that lie ahead.

5. Cut costs…
Evaluate every part of your business. The rule is simple: if it doesn’t yield a profit, get rid of it or scale it down. If the economy continues to worsen, you don’t want to mire your company in areas that aren’t going to grow. Anything that doesn’t add value or is not capable of a profit should not be there. Ask yourself: ‘Would my customer pay for processes in my company that do not add value?’ I don’t think so.

6. …but not corners
At the same time, don’t get carried away. Cutting costs should increase your chances for survival and growth, and enable you to trump your competition. If your cuts are ill conceived they can sink your business, so don’t axe your most valuable team members. If you are going to jettison an underperforming team, be sure to examine the recent, wide-ranging changes to employment law. Don’t slash your prices while failing to strengthen relationships with your long-standing customers. These may be obvious mistakes but I have seen them all made – by MDs who should have known better.

7. Batten down the hatches
If your business is watertight, you can dig in your heels and prepare to sit out the challenges ahead. Recession causes the intrinsic value of a business to fall, so your core business needs to be strong to begin with, and your profit margins must be established and robust. However, your business plan needs to be flexible. Last time around, the companies that emerged from the recession with flying colours were those able to adapt their business models swiftly to changed circumstances within their respective sectors. The companies with rigid, restricted business models were more likely to fail because if their established customers fell away, they had nowhere else to go.

Those confronted with the worst-case scenario – the prospect of business failure – would do well to remember that all is not lost. In the US, where attitudes to business and success remain years ahead of our own, failure is viewed as a valuable learning experience that can bring out the best in entrepreneurs.

Ken Jacobson is the CEO of Vistage International (UK), the world’s largest chief executive membership organisation. He has held roles on the boards of a number of technology and telecommunications companies.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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