Culture Matters

The Five Mistakes of a Recession

By Shirlaws Coaching

Recessionary times normally "surprise" most business people. It is almost like the recession sneaks up on them and creates the surprise. Very few businesses in the world have themselves financially and strategically set for a recession before it arrives.

There are then five common mistakes made by business people when they implement the consequent change in strategy and adjustments to the business to cope with the economic environment. In outlining these, we hope that it helps you to avoid these common pitfalls.

MISTAKE NO. 1: TIMING

There are four stages to every economic cycle;
Down - as the market heads south into a bear market
Drag - as the market bounces off the bottom but drags out of a flat period
Release - the market spikes downward initially and then releases into a new period of growth
Up - the market moves into the new bull market

More commonly than not, business owners are implementing strategies behind these cycles instead of getting in front of them. The opportunity rests with being able to see when these cycles come into play in an economy and investing in our businesses accordingly.

MISTAKE NO. 2: RISK PROFILE

Risk Profile is a measure of how willing an owner/management team is to taking business risks. What typically happens is the owner/manager reduces their risk profile through a recession. This puts them into the spiral of "sell low, buy high" - and creates the mismatch of timing mentioned above.

Measuring a businesses risk profile and adjusting tactics accordingly is what enables a business to grow quickly when coming out of recession - the "buy low, sell high strategy."

MISTAKE NO. 3: WIND/UNWIND

When a business is in growth mode we describe this as "winding up" - think of a bicycle winding up to gain speed. When a recession hits, businesses start to "unwind" - think of slowing that bike down; you have to put the brakes on.

When the market turns most owner/managers still have their foot on the brake, operating their businesses in the "unwind" modality. And with a low risk profile, they are reluctant to take their foot off the brake until there is lots of proof that we are genuinely out of recession.

Problem is: by the time there is plenty of proof that we are out of recession and it is safe to invest again; then the opportunity is gone as the market will have already picked up 30% to 50% growth in the initial stages of the new cycle.

The Opportunity is Now - at the bottom of the cycle.

MISTAKE NO. 4: MACRO/MICRO

During boom times, business managers tend to focus on the bigger strategic plays available to them; mergers, acquisitions, new markets, new branches/outlets, etc. - it is what we call micro strategies. What is forgotten during these times is micro - all the detail that keeps a business lean and efficient. You can hide these mistakes during a boom period as the growth will hide them. So during boom times micro is the blind spot in a business.

The opposite is true during recessionary periods. Owners tend to get dragged back into all the detail of the business and become very micro focused. This means that the alignment of the detail to the macro strategies and visions is often overlooked. Businesses come out of the recession in one piece but not aligned with the growth strategies. They then waste 12 months plus aligning the business to grow - but the market is already growing - they miss the boat!

MISTAKE NO. 5 - INDUSTRY CYCLE

And the last mistake is often linked to cycles within industries. Owners tend to get caught up in the conversations of "doom and gloom" across the market and fail to watch the economic cycles within their own industries. Not all industries move with the same timing as the overall economy.

SUMMARY

Watching these cycles is critical to achieving timing of individual business strategies.

Five common mistakes; easy to see when you are looking for them, easy to not see if you forget about them.

The Five Growth OpportunIties of a Recession

Recessionary times present huge opportunities for businesses to thrive. While many businesses are hurting through a downturn, it presents those that are structured well with massive growth opportunities.

There were four take away food shops in a small township; the recession hits and two of them go out of business. The two that survived are now thriving.

There are five organic growth opportunities during a turndown.

OPPORTUNITY NO. 1: PRODUCT INNOVATION

Businesses that innovate their product during a turndown always do well during the next boom.

The easiest time to reposition a business is actually a downturn. The hardest time to reposition is at the height of a boom.

Are you still selling the same product, in the same way and with the same pricing structure as you were two years ago? If so, then you are still selling a boom product in a bear market?

The key to this strategy: know how to innovate product, know when to introduce the "recession product" and when to dump the "recession product" in favor of the innovated growth product.

To Do:
Boom time - Product extension strategy
Downturn - Product innovation strategy

OPPORTUNITY NO. 2: CHANNELS TO MARKET

If a business innovates product, then it is clear that they will use different channels to market to sell its product post a recession than prior to the recession.

If a business does not have enough revenue coming through during a recession, then it is clear that whatever channels to market the business was using pre-recession were either not a) well enough established or b) the correct ones to see the business through all parts of a cycle.

If it takes a business too long to establish new channels to market in the next growth cycle, then they can miss a large chunk of uplift readily available.

To Do:
Boom time - Channel extension strategy
Downturn - Channel development strategy

OPPORTUNITY NO. 3: FUNCTIONAL STRUCTURE

And what can stop a business owner/manager from finding the time to develop product and find those new channels to market? Answer: the functional structure of their business. Often dragged back into the business during a recession to "run" the day-to-day operations, the manager finds it difficult to find the space to undertake growth initiatives.

The output is that the business needs a "recession functional structure" - a lot of businesses fail to adapt their structures through the cycle and end up simply retrenching staff against cost budgets.

To Do:
Boom time - Micro functionality review
Downturn - Macro functionality review

OPPORTUNITY NO. 4: CAPABILITY

We come out of recession with a fresh new innovated product range, sold into new channels to market; the business needs different levels of infrastructure and different skills levels post the downturn.

The fast moving businesses coming out of recession build their capability.

To Do:
Boom time - Wide capability strategy
Downturn - Depth capability strategy

OPPORTUNITY NO. 5: SUCCESSION PLANNING

Many business forget staffing succession during downturns. It is almost as if staff are safe during the downturn so no need to worry about them. They will stay out of sheer fear of not getting another job.

The problem is that staff, post recessions, then leave. This creates a recruitment problem for businesses. And so while other businesses are starting to grow during the upturn, some businesses spend most of their time re-staffing and spending those valuable investment dollars on recruitment costs.

To Do:
Boom time - External succession strategy around equity
Downturn - Internal succession strategy around staffing