What Is An Economic Recession?
An economic recession is a period where economic activities make a significant decline. Various factors can cause an economic recession, for example,
high-interest rates, reduced wages, or even a global pandemic like the one we are currently facing. Currently, Individuals have no choice but to stay at home for health safety reasons. Most countries and airlines have even banned travel. However, this shall come to pass with the help of a global medical campaign and support for one another.
As an entrepreneur or investor, you can take this period to ensure that there is a silver lining to the cloud. It may surprise you to learn that some of the most successful startups who launched during periods of economic recession. Furthermore, studies show that startups have a better chance when formed during an economic recession than during the economic boom. Also, existing businesses have a better chance at opportunity recognition during economic crises. How do you ensure that your startup or business gains long-term success at the end of this recession?
How Your Business Can Handle An Economic Crisis.
- Pick Opportunity Over Necessity
Necessities in a business usually tend to lean towards short-term goals, full stop opportunities, on the other hand, lean towards long-term goals. You can take a necessity venture to complement, substitute, or replace an existing idea job or business during poor market conditions. Opportunities promote innovation. This innovation can help solve an existing problem. For example, uber started out in 2008 during the economic recession. However, it was a great step in the transport industry as it has brought cost-effective taxis. Results from studies show that opportunity recognition and innovation are more important success factors than necessity driven Ventures during the economic recession.
2. Focus on product development
Customers normally reduce during economic recession. However, it is an excellent time to launch a new product in the market. There is a lower risk because you will test on a smaller number of customers. Furthermore, you can involve your customers in this product development to ensure it is more successful. Once you get a product that is successful for a smaller number of people, you will have more confidence when expanding your sales after the recession.
3. Work On Customer Retention
This mainly goes out to existing businesses. Poor economic conditions will hinder the growth of your business. It will actually cost you less to keep existing customers than to get new ones. Studies show that investment strategy rather than venture capital funding changes during unstable economic conditions. During such periods your startup or business needs to evaluate initiatives and business units that add value to the customer.
4. Re-Negotiate With Your Suppliers
Every party in the supply chain will experience the effects of an economic recession. If you have a long-term supplier it is a good idea to initiate contract talks. These talks should cover closures that are more suitable for an economic downturn. It is important to let your suppliers know when you cannot buy as much as the contract guarantees. Contact them and negotiate possible adjustments to the clauses. For example, in a retail business, you may have to stop your purchases or lower the number of goods.
5. Focus On Flexibility Over Cost
Lower economic activity is the main characteristic of an economic recession. It will not benefit you to make any more burgers when people are staying indoors and cooking for themselves. Flexible production is very important as it helps you save on inventory costs. It means the ability to quickly increase or decrease your production.
6. Cash Is King
One of the traits that makes money a valuable medium of exchange is that it is a good store of value. Yes, there are some asset Investments that would be useful at the end of an economic recession. However, if you do not have a strategy in place or hard to predict customer behavior it is only advisable for your business or startup to store its value in cash or money.
7. Be Ready For The Comeback
An economic recession will come to an end once the root cause has been solved. It is difficult to predict the nature of the market at the time however it will have many opportunities. Cash resources discussed in (6) above, will help a lot during this time. You should be ready to make the comeback with steps like hiring skilled employees to stay ahead of the competition launching better products like the ones discussed in (2) above and more. In case the economic recession did not interfere with your business the inflection point will mark a good time to start expansion.
The tough (and careful) survive during tough times. In the case of a health pandemic like the current one of Corona Virus, it is advisable to take the safety of your customers and yourself first. You should close down and follow the advised precautions. This will actually secure the most important aspect of your business which is your customers. Yes, they are tough times in a global pandemic and an economic recession. However, you should always look to the light at the tunnel. We would love to hear any other tips you have implemented for your startup or business to survive an economic recess.
Here are some tips on how to operate a business from home during the pandemic