There’s little doubt that the world is headed for a recession in 2021 - and some countries may even have to contend with a depression. However, that doesn’t mean that ambitious business owners should put all their growth plans on hold. In fact, inaction and complacency is the riskiest way to deal with a global downturn. But so is being overly reactive. The best strategies to prepare your business for the economic downtown master a balance between reducing costs and investing more. But not in the ways you think.
How the past can inform your businesses future
Following the global financial crisis in 2017, HBR analysed the strategy and performance of 4,700 public companies during three global recessions. What they found would make any business leader a little queasy.
- 17% of companies did not survive – they either went bankrupt, were acquired or became private.
- 9% come out of a recession stronger than ever - outperforming rivals by at least 10% in sales and profits growth.
- The remaining companies survived but did not regain their pre-recession growth rates for sales and profits three years after the recession.
A study by Bain further confirmed these findings. They analysed nearly 3,900 companies and found that 10% saw their earnings climb steadily during the Great Recession.
So, what went so wrong for the 17% of non-survivors? Hoping to weather the storm, they slashed costs - cutting R&D, scaling back sales and marketing activities and laying off their people. Some made poor investments outside their core business. Others simply acted too late.
But we’re here to talk about the companies that beat the odds and came out stronger than ever. That elusive 9%. What actions did they take to come out so strong and what can we learn from them? As it turns out, quite a lot.
The behaviours of companies that flourish during economic downturns
These recession-proof companies recognise that cost cutting is necessary. At the same time they believe that investment is equally essential to continue growth. But cutting costs is achieved through operational efficiency as opposed to slashing head counts. And investment is based on innovation – focusing on R&D, marketing and even global expansion.
1. Cost cutting with operational efficiency
In order to prepare their business for an economic downturn, proactive businesses scrutinise their business operations to discover any opportunities to transform efficiency, productivity and resource use. In the past, businesses didn’t have access to the robust functionality and affordability of today’s mature cloud ERP solutions. But today’s cloud-based ERP systems, when implemented correctly, are essential to help radically transform all business operations across logistics, supply chain, finance, sales and marketing, payroll, warehouse and inventory management.
This approach may be the difference between just surviving or emerging permanently ahead. Because, as demand returns, their operational costs remain low, allowing them to grow faster.
Investment for continued growth
Even during a downturn, there are growth opportunities. It may sound counter intuitive, but the businesses who emerge from a recession with flying colours are often the ones who invest – albeit strategically. Financed by improvements in operational efficiency, the winning companies purchase property, equipment or other companies at recession-discounted prices. They invest in R&D to improve, change or adapt products and services. And they ramp up marketing to target new customers and increase market share, readying themselves to win when the good times return.
2. Expanding during a downturn
Greater market diversity through global expansion can offer much needed stability in times of volatility . This move may have some business leaders baffled but territory expansion - when based on market research and real-time business insight - can help attain more consistent business and increase revenue opportunities. Once upon a time, entering new markets was an expensive, drawn out process that added unwanted new layers of complexity. With a real-time, unified global business management system - such as NetSuite OneWorld - quickly entering and exiting global markets is now possible. NetSuite OneWorld enables the management of multiple subsidiaries, business units, legal entities and currencies, while supporting consistent processes and visibility across countries. Here’s a high level look at how NetSuite OneWorld helps alleviate the problems associated with a complicated global expansion process:
- Accelerates time to market entry– allows you to rapidly scale and respond to market dynamics and customers.
- Cost savings - a fraction of the cost of traditional on-premise ERP solutions.
- Mitigates risk - by providing real-time global business insight.
- Streamlined process– manages multi-subsidiary operations and provides real-time visibility at the local, regional and corporate levels.
- Run your business from anywhere - web-based access enables you and your employees to access NetSuite from anywhere on the globe.
3. Understand shifts in markets and customer behaviour
Insight is the key to making bold, strategic moves. A recession does not only impact different geographic markets and industries, it also has a significant effect on consumer preferences and priorities. For instance, governments around the world had very different responses to the pandemic and strategies to contain it. Analysing how these different approaches are impacting your sector in key strategic markets can uncover new opportunities for growth.
What’s more, months of working from home and social distancing are likely to have a long-term impact on consumer behaviour. For example, while the trend toward online retail has already been well under way before the pandemic, the shift was vastly accelerated by it - and is unlikely to completely reverse in the ‘new normal. If you’re already selling online, are there ways for you to improve the customer journey long-term? Or, if you’re in B2B, are there any products or services you can offer that support the needs of more dispersed workforce?
Taking a deep dive into your own data and investing resources into industry research should be top priorities to help you adapt in a rapidly changing environment. While it might be tempting to just focus on putting out the most urgent fires in challenging times, this is exactly the time when you need to take a step back to clearly understand the market and your positioning in it. Your systems data and team can provide you with a lot of insights on your internal strengths and weaknesses, and your frontline staff are no doubt going to be keen observers of changing customer behaviour. So, be sure not to lose track of these valuable insights. December and January in Australia can be slow months for business, making it the perfect time to strategise for the year ahead, run internal workshops to recession-proof your business for 2021.
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Annexa is a leading NetSuite partner with extensive experience designing and implementing comprehensive and customised business systems, including payroll solutions, financial management, warehouse management and ecommerce solutions.
