How to Prepare for a Recession
What’s the number 1 streaming service for films and movies?
There are probably a few you thought of, but I can bet you that somewhere on that list, you thought of Netflix. Netflix is one of the world’s leading entertainment services with 223 million paid memberships in over 190 countries.
But to me, what’s fascinating about Netflix is that it grew out of a recession. In 2008, during the great recession, they introduced a new product (the streaming service), as a response to dying video rental stores. Then, they continued to work on partnerships with organizations like Xbox so people could stream through those devices.
These innovations allowed the company to continue to grow during the economic downturn, and even increase memberships and subscriptions while other companies were struggling to maintain revenue.
Netflix is just an example. From Mailchimp, Lego, Team Logic IT, and Airbnb, some of the richest and most successful businesses and business people made their fortunes in recessions.
The 2008 financial crisis led to the closure of 800,000 businesses. And there’s absolutely no denying that we’re heading for a global recession or depression.
The UK Recession and What Business Owners Should Know
You’ve probably in one way or the other experienced the negative economic effects like high cost of living, inflation, high interest rates and weakening business and consumer confidence.
And what we know about a recession and inflation, is that there will be a lot less money around for people to pay their electric, their gas, their TV, and other bills. So they’re going to stop buying as much, and bigger businesses are going to stop selling as much.
And as a result, they will reduce headcount. People will lose their jobs, simply because it’s the easiest thing to do for business owners when times are tough. Human resource is the simplest and quickest way to reduce your overheads.
Just recently, Twitter sacked 50% of its employees, then went ahead to lay off another 4,400 contractual workers. Facebook also announced that more than 11,000 employees would be fired to reduce costs following disappointing earnings and a drop in revenue. Amazon is set to lay off 10,000 workers. These are some of the biggest companies in the world!
All these announcements were made within two weeks. And it’s not going to get better…
So this puts a flush of really good people into the market. And since some of those people really need to pay their mortgage, they will work for less money somewhere else to be able to get money coming in.
Things are about to change, because in the last few years there has been a lot of money around, and little labour. People got to choose where they work and how much they earn. Now, there will be an influx in supply and less money in circulation.
What this means for small business owners
A recession isn’t easy for anyone, but it’s even harder for small business owners. Businesses that were easily thriving will now have to work twice as hard to succeed.
And if you don’t become proactive about it, you’ll fail. Your customers will have less to spend and your income will drop. And if you’re not making enough to sustain your business, you have to let it go.
And truth be told, the reason why most people make fortunes in recessions as lots of businesses end up folding is because the latter have not been proactive. They’ve not mastered their sales and marketing.
Once all the competition dies down, the strong businesses mop up all of the demand and whilst that demand might be less, when there’s no option, there’s not as much competition. You’re going to find that there are more opportunities.
Success over the next 3 – 6 months is going to be about how well small business owners can adapt to tougher selling conditions. And for me, the most significant part of the puzzle is proactivity. It’s being proactive enough to not sit there as the orders dry up.
Our 5 Tips to Prepare for a Recession
The indicators are there, and chances are high that a recession is on its way. Here are our 7 tips to prepare for a recession:
- The controllables
- Risk assessment
The First Tip to Prepare for a Recession – Positivity
There’s a lot of doom and gloom going around about the state of the economy, but if you’re going to succeed through it, you have to keep a positive attitude.
How? Don’t contribute to the doom and gloom because then it becomes self-perpetuating. In life, there’s always positive and negative, left and right, rich and poor
From where something’s not going your way. It can be very easy to look at all of the things that are going wrong and concentrate your energies there. But that won’t ever help you change your mindset. So wherever there is negativity, there is always an opportunity to look for positive.
How do you remain positive?
Be Intentional About What you Consume
If you’re glued to the screen watching news all day, you’re more likely to stray towards negative thinking.
If you stay on social media reading about the economy and all the opinions out there, you’ll absorb that information and become a negative person.
This, of course, will do more harm than good. As a business owner, you want to be reading the success stories that will push you and inspire you to do the same.
Minimise your Exposure to Negative People
Have you ever been around someone who does nothing but complain? How did it make you feel?
It’s either you start to get irritated by their negativity, or that you slowly start to become like them.
As a small business owner, you might want to surround yourself with positive people who can see the sliver lining in the cloud.
Surround yourself with positive-minded people.
Find people who are going through the same thing but that are going to be positive and proactive and surround yourself with them.
If you are hanging around with people that are just talking about doom and gloom and how the recession is ruining everything, you’ll land in trouble. Find people who encourage you to learn, network, collaborate, and make it happen.
2. The Second Tip To Prepare for a Recession – The Controllables
You’ve got to focus on the things that you can actually do something about. Embrace proactivity in going out and speaking to people and making things happen. Proactively network proactively. Proactively cold call. Pro actively seek referrals. Whatever works for you.
Don’t worry about the things that you can’t do. You can’t control what a government does, and you can’t control what’s happening with other businesses. You can’t control any of that but what you can control is your attitude towards it all.
Here is how to manage the controllable
Make a List of All the Controllables
You have to first become aware of everything you can control. Write down a list of every single thing that you have the power to control and improve within your business. Put this list in a visible location as a reminder of the focus areas.
Set Goals and Objectives for Each of Them
Once you know the things that you can and want to control, you need to set goals for each of them.
For example, you may want to better manage your time and free it up in the future. Or it could be that you want to increase your sales to a certain amount per year. Whatever it is, write it down and keep it in mind.
Create Systems to Manage the Controllables
This stage is all about strategy. Now that you know what exactly you can control, and you’ve set goals for them, plan exactly how you’re going to go after them. Delegate responsibility for the controllable aspects of your business and regularly review them.
3. The Third Tip to Prepare for a Recession – Spending
There’s a great quote by business tycoon Warren Buffet that goes, “Be greedy when others are fearful, and fearful when others are greedy.”
When others are greedy, prices typically boil over, and one should be cautious because they may overpay for an asset that subsequently leads to few returns. When others are fearful, it may present a good value investment opportunity.
It may sound silly telling people to be less fearful in times where the cost of living is constantly rising. But for a business owner, it makes perfect sense.
This isn’t to say that you spend blindly without caring about your future, but again, don’t be a hoarder.
Here are 3 tips to manage your fear of spending money:
Some of us are fearful about our spending because we can’t see the bigger picture.
If you can see the positive outcome that spending more is likely to get you, you won’t be as scared.
Go back to the drawing board and take a look at what you would like to achieve for your business. How many more clients do you want to have in one year’s time? How many employees do you want? And how much money do you need for these goals to be actualised?
Have a Plan
The reason why you’re so scared of spending money could be because you do it blindly.
To solve this problem, you need to have a solid plan. Build an emergency fund for your business, and set aside money that you’re willing to risk.
Then, create a budget which will help you to check your spending boundaries without denying the business what it needs to grow.
4. The Fourth Tip to Prepare for a Recession – Planning
Spend time in strategy, really understanding who the customers are and what their pain points are going to be. Invest in design. What being proactive means is having more conversations with people or having more eyeballs on what you do.
So that could mean going out leafleting or literally knocking on doors, or speaking to people, or contacting them on LinkedIn, and asking them whether they’d be interested. And lastly, find more strategic partners, and proactively ask for referrals. The proactivity will soon pay off.
And while at it, do an audit of your business expenditure by:
Cutting Down on your Expenses Where Possible
It’s a little ironic to say that you need to spend more to make more, then in the same breath talk about cutting down expenses.
But here’s the thing, you don’t need to flash money around even when it’s not necessary.
Do an audit and understand where your money is going. You’ll find that, in some instances, there are costs that you can easily cut down without having to suffer.
Plan For The Future
Sometimes, when you’re in the middle of a problem, it’s hard to see the other side of it.
Things will eventually get better and you will need a plan that lasts for when they do.
Evaluate if your previous aspirations for your company still seem viable or if you have a new vision for its future. Look at your stakeholders; are they on board?
5. The Fifth Tip to Prepare for a Recession – Risk Assessment
You can’t just blindly spend more money without properly calculating. You’ve got to do a cash flow forecast. That’s what proactivity is all about.
Be honest with yourself about what your income looks like now. What it would look like if you lost 50% of your customers? What would it look like if you were able to keep your customers and get new ones?
This can inform how much money you’re willing to spend more in sales and marketing, and still survive if things don’t exactly work out.
Here are three things you need to keep in mind when calculating your risks:
Do your Due Diligence
To take a risk, you have to understand it firstly. Justify your ideas using logic rather than emotions. Evaluate every detail and do as much research as you can before you come to a conclusion.
Don’t just scan over things because you think they are minor. If you do that, they might come back to bite you. The devil is in the detail.
When you’re taking a calculated risk, you need to have a roadmap.
You have to monitor the progress at each particular stage. This way, you can even anticipate possible outcomes. Don’t get surprised by negative outcomes. Plan ahead for each of them, and know how to deal with them.
Which brings me to the next point…
If you’re taking a calculated risk, you can probably foresee the mistakes to come.
You should be able to point out red flags or potential issues way before they come up, and you should know how to handle them.
You may also want to involve a mentor to help you to point out any flaws or mistakes that can be predicted in the future.
Five Tips to Prepare for a Recession – Our Summary
In summary, we have little control over the economic state of the country. What we can control is our proactivity towards the situation.
I am a raving fan of the book Atomic Habits by James Clear. He taught me about how you create a habit and one of the most important factors in creating a habit is to gamify it to make it fun so you can compete with yourself.
And with my clients on a weekly basis, they compete against themselves to learn a prerequisite number of productivity points.
So you can track how proactive you are, by gaining points on stuff like going to a networking event, picking up the phone, knocking on someone’s door. And competing with yourself makes you even more proactive.
I want to write a book on proactivity one day because to me it’s such a simple concept, and I can guarantee that if people play with proactivity points and give themselves a score every time they do something, that’s going to move the business forward.
You’ll want to start competing with yourself. In the meantime, I’ve found that staying proactive is the secret to success in times of an economic crisis.
The five ways to prepare for a recession are:
- The Controllables
- Risk Assessment
If you would like help in becoming more proactive, get in touch. Outside ideas are on a mission to help people and businesses grow. We have a range of support that can help you.