In 1988, I approached successful land developer Louis Matte to see if he would be interested in investing in a medical supply business.
He told me he wanted to start a religious book store, but we could combine them and he would invest if there was an opportunity to add a business that was recession proof.
Louis had come through the 1981 recession, when many other land developers in the community had gone bankrupt. His business had been on the brink of disaster as a result of interest rates between 14 and 18 percent.
So he was concerned about the ability of any business to survive tough times.
With talk of a world recession resulting from the coronavirus – with falling markets, quarantined populations and travel restrictions – businesses looking to the future should be similarly concerned about falling revenues.
A recession is typified by spending reductions and a restriction of available money.
Because the economy tends to lag behind the stock market, leaders of organizations should be making plans now for future flat or declining sales. We need to engage our teams to think about recession-proofing our businesses.
We need to look for strategies and tactics that will enable us to be successful and even thrive during hard economic times.
Having survived the recessions of 1993, 2001, 2008 and 2011 in my retail businesses, I realize that the most natural response to a slowdown in sales is to start cutting costs. Business owners naturally look at cutting unnecessary expenses.
But we need to be wise in these decisions.
A study of 4,700 public companies before and after a recession found that those companies that cut employees less than their competitors and invested in the future through research and development, marketing and asset purchases, did better than their competitors.
It’s easy to cut jobs to save money, since labour is typically a company’s biggest expense. However, we need to be thinking longer term and outside of the box to keep from following them to the unemployment lines.
Cuts in staff are often followed by a reduction in service, followed again by a loss of customers.
To think strategically, we need to weigh our options and have a set of criteria for decisions. (If you would like an opportunity analyzer, email me at [email protected] and I’ll be happy to send you the worksheet.)
There are certain types of businesses that do well during recessions, including auctions, renovators, thrift- and value-focused retailers, as well as businesses that focus on hobbies.
Organizations that have cash and can buy assets or services at a discount rate usually thrive.
Educational institutions are also big winners during recessions, since people are in search of more skills to get ahead.
Businesses that support health, death or addictions also tend to have fairly good success rates during recessionary times.
To predict if you’re going to be successful, you need to think in terms of your customers:
- How are their needs going to change?
- What happens when their cash starts to dry up?
- How can we provide more value for less money?
- What do we need to do now to be successful in six months, one year, five years?
- How can we diversify our products or services to ensure we’re successful?
- Are our inventory levels manageable or do we have excess cash tied up that we’ll need in the future?
Creating businesses that are healthy during economic downturns starts well before the downturn itself. Having and promoting an entrepreneurial culture within your organization will enable you to be positively optimistic and allow you to survive some tough times that your competitors might not.
In 1988, Louis happened to know a fellow named Joe Borowski, who had a health food store in Winnipeg. Joe told Louis at one point that he thought health food stores were recession-proof.
Luckily for me, I had a Mom who believed in the benefits of health food and supplements, and so I jumped at the opportunity. The business model we created allowed that business to survive through a number of economic downturns and it’s still successful.