How should Business Management Change in a Recession?
As inflation continues to rise around the world, so does the rising probability of a global recession. According to a Bloomberg survey of economists from July of this year, the likelihood of a looming recession is now hovering at around 50%. Banks, Citigroup and Deloitte, previously predicted a slowdown in 2023, but recent forecasts say a recession could occur in 2022 or earlier in 2023 than formerly expected. Starting from 10Clouds Voices Tech Talks we want to initiate the discussion on how can business leaders weather these difficult times by adapting their strategies? Or even use the economic slowdown and changes of consumer behavior and market trends for their benefit.
- Covid-19 was an inflation engine trigger that led to speculation in financial assets.
- Even when the economy is bad, there are still a few businesses that do well.
- Assess your company's health based on data, cut costs only in areas that aren't your core business, become agile and retain talents.
Why are we headed towards a recession?
Recessions, or general drops in output and investment, can be sparked by a number of factors. The Great Recession, which started in December 2007, was largely triggered by the collapse of the US housing market, and was fuelled by low interest rates, easy credit and insufficient regulation.
But this time round we’re in a different situation. It’s excess liquidity which will be the most likely cause of a recession. Covid-19 was an ‘inflation engine’ which drove speculation in financial assets. It’s an important difference for investors as the effect on corporate earnings is lessened during an inflation-driven recession. It’s also worth noting that housing prices have remained high and that we’re still very much in a candidate-driven market with no shortage of jobs.
The impact of a recession on smaller businesses
Smaller businesses are usually defined as those which have fewer than 500 employees and have a revenue of less than $100,000. They are likely to be much more severely affected by a recession than larger businesses, mainly due to their limited market power and leverage within their industry. Lenders are aware of this and they’re much less likely to lend to businesses without significant cash reserves.
The impact of a recession on larger businesses
Larger businesses might be less severely impacted by a recession, but their share prices are also likely to suffer decline. However, they have more methods to counteract a fall in profits than smaller businesses do. They may for example curtail their research, or impose a pay freeze. These types of measures are likely to have widespread impact across a company’s entire supply chain.
Top business management strategies during a recession
Even during an economic downturn, there is a small number of companies that are thriving. In fact, some large brands including AirBnB, Whatsapp and Instagram grew considerably during the last recession of 2007-2009.
So the million dollar question is how do you become one of these? We offer some top tips from senior leaders at 10Clouds and from Stephen M. Lowisz, Founder of Enterprise Sales Institute.
1. Make a solid assessment of your business’ health
As mentioned above, businesses of all sizes are likely to see an impact on their sales during a recession, but it’s important to ascertain how best to react to a downturn in business. And here it’s important to ground any decisions that you make in data. What do the metrics say about your day to day operations? Which elements of your offer are the most attractive to clients?
Stephen M. Lowisz, Founder of Enterprise Sales Institute, points out that: “Too many companies put too much money into brand new R&D and they don’t pay enough attention to what the data says from their customer engagement.”
Michał Kłujszo, Head of Delivery at 10Clouds adds: “Cutting costs is the easy way out, but you first need to understand where you can afford to make these cuts. Which elements of your business are not part of your core structure? You need to make sure that you have a deep understanding of your company strategy.”
The first things that you should consider cutting down on are things that haven’t been validated - for example any product-related experiments that you may have been undertaking. But at the same time, it’s important not to go full pelt into cost-cutting mode without making full use of the opportunities that are available to you.
Michał says: “Bear in mind that the things that may at first glance seem non-essential, should not necessarily be the first to go. If you have a marketing campaign that’s working, double down on it.”
It’s all about streamlining your business to really focus on what’s working, and to move away from anything that hasn’t been validated.
2. Become agile and lean
We saw that over COVID, a lot of companies became agile and lean. But what does this mean in practice?
Wiosna Wiłkomirska, Senior Agile Coach at 10Clouds, says: “I think it’s important to think about agility not in terms of frameworks, but in terms of being able to make decisions quickly. Once you’ve established what your strategy is, try to decentralize the decision-making process. Make decisions on those levels that are closest to the actual operations, closest to your customers and to your business partners.”
Why is this important? It’s actually not just about speed, but also about the fact that the people on the ground are on the whole much more attuned to what is happening on the market. For example, Sales’ Team staff are likely to have a much deeper understanding of changing client needs, pain points and the opportunities arising from these pain points - than the senior leaders who have no direct contact with clients.
Implementing decentralized decision-making relies on trust. Marta Klepka, 10Clouds' Head of Growth says, “as the classic phrase goes: ‘Don’t ask for permission; ask for forgiveness. At 10Clouds we pride ourselves on the trust that we place in our employees.”
3. Retain your talent and make good use of it
While a recession can mean a downturn in sales for a lot of companies, it’s still important to retain your staff and to be transparent with them about how the business is performing. Economic uncertainty can have a damaging impact on morale.
Michał says: “At 10Clouds, we place a huge focus on transparent communication and we talk openly about any external events that are likely to impact business - be it the pandemic, the war in Ukraine, or anything else. You need a strong culture to weather difficult times.”
The current recruitment market is unusual, as while there are talks of the looming recession, the battle for top talent following the Great Resignation is still fierce - and recruiting new staff can be time-consuming and expensive at the best of times, let alone with added pressures of a recession.
Stephen says: “It’s particularly difficult to retain Sales teams these days. But I find that showing people how important they are to the company makes a huge difference - because Sales staff are often the lifeblood of a business. Without them there would be no projects. You have to remind your teams day in and day out why you’re doing what you’re doing, and why they’re important.”
Flexible working is still generally quite a contentious subject and company leaders have very different views on in-office vs. remote work. The question is whether remote work can be used to your advantage in order to facilitate growth. Because arguably, in tough economic times, it enables you to tap into talent from all over the world.
Stephen says: “I think the format of work largely depends on the type of work that you do. For roles that are highly qualitative, a hybrid model is the best approach. If, as a manager, you’re unable to quantify your team’s output, you need to be in touch with them on a daily basis.”
Michał adds: “I think for development teams, the remote work model works well alongside in-person interaction particularly when it comes to planning. Technology companies which do not embrace a dispersed team model might risk not being able to recruit and retain top talent.”
Play the long game
Having a strong business strategy grounded in data, decentralizing your decision-making process and placing trust in your employees, are among the top ways in which companies can weather a difficult economic climate. If you’d like to hear more on the subject, we encourage you to view our 10Clouds Voices episode in which we take a deeper dive into each of the above points.