In my book They Ask, You Answer, I wrote candidly about one of the darkest times in my professional life.
When the Great Recession hit in 2008, we thought our business, River Pools and Spas, would never recover.
Almost overnight, we lost much of our expected revenue as customers decided they weren’t comfortable going forward with spending on the pool we agreed to.
And it was understandable.
However, within a few months, our business bank account was overdrawn, and we were forced to contemplate shuttering retail stores, laying off workers, and, potentially, closing our business for good.
Now, more than a decade later, I can look back on that experience as a truly formative one in my own development as a businessman and leader.
Today, we again face economic uncertainty that comes from a complex bevy of reasons that stretch around the globe.
Although no two recessions are the same, the way you should prepare doesn't change. In this article, I'll share what I learned — and the tips I share with businesses today:
Seeing opportunity in every challenge
Key metrics to watch for to know what's coming
How to make plan A, plan B, and plan C so you're ready for anything
I know this isn't the most pleasant conversation to have, but it's necessary. And you'll be glad you did. So let's dive in.
Plan for a recession begins when things are booming
Today, the economy is one more thing no one can seem to agree on.
In some ways, the economy is humming along, with low unemployment and rising wages. At the same time, inflation, energy costs, and lingering pandemic fallout are troubling.
All businesses can use this uncertainty to take a good look in the mirror and prepare for whatever is ahead.
Economic downturns are part of the natural cycle of business.
While you can’t control the economy, you can prepare in the best way possible — and you can control your own reaction. However, if you choose not to prepare, you're less likely to make it through unscathed.
When a recession hits, your employees, customers, and clients will all look to you, as a business leader for guidance, and they will interpret both what you say and what you do when determining how they should react.
Even when the waves get rough and the storm rages, people like to know that there’s a steady hand driving the boat.
Remember the old saying: A smooth sea never made a skilled sailor.
A culture of agility and openness is crucial to your long-term success
The truth about any economic downturn is that some businesses are guaranteed to gain market share, even as others lose it.
This happens in every economic contraction. Sometimes this comes with your industry, but in my experience, it is the small, agile businesses who are most likely to do this — to see opportunity amid the crisis.
Although this sounds like cold comfort if you’re facing a recession, small business owners have an advantage because of the nimbleness that comes with being small.
While small to medium-sized businesses (SMBs) might lack the resources of larger corporations, I like to say that they can be a “digital David in a land of Goliaths.”
Major pivots and new initiatives are more realistic with a smaller team. You can move quickly, shift to meet new opportunities, and react effectively. There is less red tape and training to take place.
Secondly, the smaller the business, the less bureaucracy and the better the chance that everyone knows everyone else. This makes small businesses more likely to have the advantage of transparency, which becomes an asset in a downturn.
I believe it is critical for business owners to be open and frank with their employees. (Of course, this should begin long before times get tough.)
The more transparent leaders can be with their team, the more likely those employees will feel trusting and informed. Value candor over comfort.
With a culture of transparency, you are more likely to have employees volunteer to accept new roles or change responsibilities if the company needs it during difficult times.
If you do have to close stores or lay off people, it’s best if they can see it coming and understand the rationale behind it, rather than feeling blindsided. Should it come to this, you may have employees choose to leave and go on unemployment if that seems like the best option for them.
Such decisions are always difficult for all involved. Transparency, I’ve found, is the best method for easing the pain.
A downturn can be a time of growth — with the right strategy
I don’t want to pretend that anyone ever hopes for a recession or dreams about a depression, but trying times call for fortitude, initiative, innovation, and teamwork like nothing else.
I know that River Pools and Spas would not be the strong company it is today if it were not for the storm we weathered together a decade ago.
Although it was a very difficult time for me personally and professionally, the decisions we made allowed us to emerge more sturdy and focused than we had been in the past.
A hedgehog concept is the one thing your business does best. In a downturn, businesses should cling to their hedgehog concept — and that should be their guiding principle.
Be really clear about where your revenue is actually coming from. Then, you can double down on what's profitable and shift focus away from anything that's not.
For us at River Pools, it took a recession for us to see that we were not doing retail very well.
We had two beautiful retail stores where we sold everything from pool noodles to tanning beds. The tough economy made us see that these facilities didn’t align with our core goals, so we closed them.
Now, you may think that was a bad thing, but in reality, it was the right decision. It was a decision we didn’t have to make it when the economy was strong, however.
The recession forced us to see the writing on the wall.
In turn, we were able to focus our efforts on installing fiberglass pools. That was our hedgehog concept, and that became our sole focus.
Keep an eye on these 2 metrics to know when a downturn is coming
The downturn of 2008 took us by surprise.
We, at River Pools, were not prepared, so our scrambling was all the more frenzied. But we were certainly not the only ones surprised.
Major businesses and institutions were caught off-guard, and many did not make it through the recession.
After all, Lehman Brothers Holdings had been in business since 1850, weathering the Great Depression and any number of smaller recessions, but the firm filed bankruptcy in 2008, which remains the largest bankruptcy in US history.
Today, with a myriad of metrics being reported by dozens of government and NGO organizations, it can be hard to know which ones matter to your business.
For small businesses concerned about a coming downturn, I would say there are two essential metrics to monitor.
1. Lead flow
If you are aware that your lead flow is trending downward and you haven’t really changed anything with your marketing, this should be a red flag.
If you see this happening, you should use the relationships you have with industry peers to see if they’re experiencing the same thing.
Remember, recessions are something everyone goes through together. If you have friendships with competitors in your market, you can ask if they are experiencing a dip in leads as well.
In my experience, the number one reason why a customer doesn’t choose to buy from a salesperson is not because they found a better solution elsewhere — it’s because they decide they can’t afford to make the deal, especially in a recession.
The biggest enemy to sales is not the competition, it’s inaction.
It’s important to train your salespeople to build relationships with prospects that are strong enough to still have a conversation even if a deal falls through. That way, you can find out the real reason a deal didn’t close.
If the relationship is a trusting one, the prospect will tell you, “you know what, we just looked around and said to ourselves, ‘we’re just too nervous about the market.’”
In such a case, you should remember that you didn’t lose the deal. There was no deal. What’s more, that might be a deal you can win in the future.
Again, a downturn forces you to be inventive. If enough deals fall through for a certain product or service, now might be the time to reimagine what you sell.
Can you come up with a package that would help more deals close?
At River Pools, we were suddenly much less likely to sell our typical pool installation package, that usually ran about $60K at the time.
So, we asked ourselves, could we come up with a $40K package that might bring in more deals, even if we make less profit and have to adapt our work process?
The business owner in a recession has to always be thinking creatively.
You'll be okay if you make plans A, B, and C
Future-proofing your company starts in the good times. It begins with communication and alignment.
If you don’t have those things in the good times, you can’t expect that they will suddenly be there in a downturn. Pain and struggle magnify every element of your company. If there are divisions or fractures, those will get worse.