Implementing smart growth strategies now can help your business survive a recession.
Pundits may disagree on the date, but they agree on one thing: a recession is coming.
When an economic downturn strikes, you need to be ready. At the same time, you can't miss out on the tail end of a good economy. The current expansion may continue for another year or two, giving you a valuable growth window. The more progress your company makes in that time, the larger your cushion will be when markets do dip.
But, unless you've got a crystal ball, that's a tough balance to strike. The solution? Invest in ways that protect you but also benefit your bottom line.
Growth that protects
Most investments represent risks. Starting a new service line or doubling your sales staff might bring in more revenue, but they also might burn your business. Fortunately, there a few approaches offer the best of both worlds. Consider the following strategies.
1. Refocus on customer retention
When a recession hits, chances are good that your customer base is going to shrink. With that in mind, you might think the best protection is to acquire new customers. But, bear in mind the cost-benefit breakdown of acquisition and retention. Improving retention by just 5% can increase your profits by 25% to 95%.
In other words, your best bet is to strengthen the customer base you've already got. Not only is it more valuable to improve your existing relationships, but you'll lose fewer of them when customers have to make hard choices with their wallets.
What are some low-cost ways to ramp up retention? Personalize your emails. Create educational content that helps users maximize your product. Instruct your customer-service staff to be generous; a customer who's comped a month of service is far less likely to cut ties when money gets tight.
2. Offer self-service
Customers can, and do, solve most of their own product issues. They might still need expert help for certain challenges, but almost three-fourths of consumers want some sort of self-service.
Give your customers what they want. Not only does self-service improve your customer experience, but it frees up your staff to address users' trickiest issues. When the recession kicks in, you'll have fewer salaries to pay and your customers will have more time to service themselves.
To do self-service right, think about your model. Kiosks are a smart approach for brick-and-mortar businesses, while chatbots can handle many needs online or over the phone. Updating your blog with troubleshooting content can fill gaps between chatbot abilities and complex issues that require human attention.
3. Perfect your core product
When business leaders see a recession on the horizon, they often react by trying to get a foothold in new markets. Because nobody can predict which markets will suffer the most, the thinking goes, it's best to get established in as many as possible.
To see the flaw in that, recall how major tech companies fared during the last recession. Microsoft, which had its hands in everything from gaming systems to tablets to offsite servers, was forced to cut thousands of jobs. Meanwhile, Apple's sales actually grew because it stayed focused on its iPhone, iPod and Mac products.
Instead of spreading yourself thin, iron out the wrinkles in what you do best. Get customer feedback via focus groups or surveys and use it to direct your R&D efforts. If you only have a little to spend, focus on your interface. A sleeker, easier to use product is one of the most cost-effective boosts to your customer experience.
4. Prove that loyalty pays
If your business does start to slow down, employees will worry that they're aboard a sinking ship. Although a pre-recession period might seem like the wrong time to boost workers' pay, doing so sends a powerful sign to employees that the company is stable and has their back.
Remind team members that recessions are temporary. Provide an across-the-board bump in pay to long-haul employees – say, those who've been there at least three to five years. If you offer profit-sharing, consider boosting the percentage of profits shared for every year of employee tenure.
What about your here-and-now growth? Studies show that investing in employees actually delivers better ROI than other sorts of spending. University of Pennsylvania researchers discovered that allocating a tenth of a company's revenue to capital improvements increases productivity by about 4%. Investing that same 10% on employee capital, however, boosts productivity by an average of 8.5%.
5. Strengthen supplier relationships
Recessions create cascades. Even if a supplier is in a seemingly safe space, you never know what will happen when markets begin to fail. Everyone needs to eat, for example, but food distribution services are still susceptible to dips in agricultural production.
Review your supply chain. For critical vendors, ensure you have a backup in case your primary one goes under. For the remainder, put together a plan for shortfalls. For print supplies, for instance, can you work with digital documents in most cases and refill ink cartridges if needed?
Remember, too, to build rapport with each vendor's point of contact. If a vendor can't fulfill all of its orders, it'll need to pick and choose. In those circumstances, personal relationships tend to dictate which accounts get serviced. Something as simple as sending a "happy birthday" email or a holiday gift can go a long way. At the very least, you'll have an easier time resolving vendor issues in the future.
6. Make marketing more scalable
One of the first areas most companies cut in lean times is marketing. On one hand, it's better to reduce promotional expenses than it is to cut, say, operational or legal ones. But the real issue is that those companies let their marketing budgets get bloated in the first place.
Instead of investing in questionable tactics until you can't anymore, shift your spend toward efficient, scalable ones. For two-thirds of companies, email marketing delivers the best ROI. Once you've drafted a campaign, scaling it is just a matter of collecting more email addresses.
Other online channels are also good bets. When researching a product, where do you start? Most people turn to Google, making SEO a smart investment. Social media is a similar story: It costs the same to update your Facebook page – practically nothing – no matter how many consumers see it.
7. Build a bank of contractors
Even if you do everything else right, the reality is that you're likely to face hard choices in the event of a recession. Keep employees on board if at all possible, but realize that labor costs account for up to 70% of the typical company's expenses.
Think about which business tasks could be easily outsourced. Check sites like Upwork to know what contractors charge for them. Even if you'd have to pay a freelancer more per hour than you would a traditional employee, you're still likely to save money when you factor in employee payroll taxes and benefits.
What if you're lucky and never have to cut staff? You've built an auxiliary team. Tap them when the core team's capacity gets tight. In the meantime, maintain those contractor relationships by commissioning "nice to have" things like blog posts, website audits and branding updates.
Like it or not, your company can't control the economy. Bond markets could tank tomorrow. A housing crash could happen despite high home prices. Unrest abroad could turn into a general strike at home.
Just because the economy is uncertain doesn't mean you're at its mercy. Companies can and do come out stronger from recessions. Stay lean and invest wisely, and yours might just be one of them.