Surviving a Recession

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A recession requires a shift in our thinking, our planning, and our decision-making in order for our business to see the light of day at the other end of this economic cycle. Economic cycles, by the way, are usually long. The common chatter heard from talking heads and prognosticators is that we should see the beginnings of a recovery in 6 months – or 9 months – or 12 months – or 18 months, etc.

February 7, 2009
Author: Derek Rowley

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The truth may be that we are in for a longer ride than we optimistically expect. (For example, economists generally agree that we were in a bear market cycle from 1966 to 1982 – a period lasting 16 years; and that we experienced a bull market from 1983 to 2000 – a period of 17 years.) If history is our guide, the recovery might not come quickly. Fixing the global mess will probably take years.

So, as small business owners and entrepreneurs, what do we do and how do we survive? For what it’s worth, here’s my two cents on survival in a recession.

1. Shift your paradigm away from growth and towards survival.

Survival in a recession requires a paradigm shift. This is a dramatic change that runs counter to how entrepreneurs are deeply programmed. But, again, we are experiencing an economy we have not seen before. This means changing your assumptions about growth, revenues, and earnings. Any baseline assumptions or business plan projections that were based on the old economy are impractical, if not meaningless, now. For many businesses, the only thing that really matters is surviving this cycle to live to take advantage of the next one.

2. Control your spending and preserve your capital

It is absolutely critical to reduce costs. Manage the pennies and the dollars take care of themselves. Consider dropping marginal product or service lines. If you can reduce costs and still focus on critical priorities that differentiate your company from you competitors, that is wonderful. But, some companies will be forced to choose between maintaining spending on those differentiators and company survival. Spend every dollar as if it were your last.

3. Reduce your debt to lower your risk

This isn’t easy to do when revenues slip. But companies that fail to do this effectively will be far less likely to survive this recession. The only way to accomplish this is to spend less than you earn. In other words, if your company is carrying debt right now, it isn’t necessarily good news to just “break even”. You need to manage expenses so that you can show a profit at your current revenue level – and that profit goes to pay down debt.

4. Retain and develop your top talent

In difficult economic times, your best people can be lured to competitors where they perceive the grass is greener. Now is the time to offer them new challenges, new training, and new experiences to keep them where you need them.

5. Top-grade your employees

In 1981 (which was in the midst of a recession), Jack Welsh gave a speech in New York City where he outlined a strategy for success for General Electric. Much of his strategy was related to improving the quality of company employees. His policy of firing the bottom 10% of his managers each year earned him a reputation of brutal honesty and respect. It is a model that even small businesses can learn from. When unemployment levels climb – as they have and will continue to do – more and more qualified and experienced people enter the workforce. This provides even small companies like yours with the opportunity to hire a level of talent that was inaccessible even a year ago. By increasing the quality of his managers and employees – and then raising the expectations of their performance – Welsh guided General Electric to success in the midst of economic difficulty, and was named “Manager of the Century” by Fortune magazine.

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6. Communicate with authenticity

Things are tough. Your employees know it. By sharing challenges and struggles, leaders build trust. Having a leadership account filled with trust is one of the greatest assets a business leader can have when making the most difficult decisions.

7. Simplify company goals

Entrepreneurs can be prone to a scattered approach to business. We have a tendency to see opportunity everywhere – and we also tend to chase it. This can lead us to a state of being tyrannized by the demands – and the costs – of our own entrepreneurial passions. The paradigm of business survival requires and rewards focus much more than diversity.

8. Focus on quality

Jack Welsh decided that General Electric should only be in a business in which it could be #1 or #2. If they could not, they got out of the business. This is a good model to apply to your focus on quality. Focus on those things that your business does the best. Spend your energies improving those things, and consider dropping products or services where you don’t – or can’t reasonably – offer the best.

9. Protect yourself

Asset protection planning has never been more important than it is today. The hard reality is that not every company – even well-run companies in good markets – will survive this economic cycle. Business failure can be devastating to everyone involved. But, the scars can be limited in scope, and it is much easier for entrepreneurs to be able to rise again to chase another dream if they have protected their assets along the way. The benefits and protections offered by Nevada corporations, limited liability companies and LLLPs may be key to your ultimate financial survival.

10. Act now

This is “Survival of the Quickest”. Business owners that do not act quickly enough to today’s economic challenges can find themselves in a death-spiral of cutting costs only after revenues slide. This becomes a spiral when this is repeated month after month. Would you rather operate from the strength of “What decision do I need to make” or from the regret of “What decision do I wish I had made”? 

Survival in a recession is possible but it will take hard work.

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