Business Recession Response Plan

Is it possible to "'recession-proof" your business? Most business experience slow periods, recession, seasonality, growth, and varying profitability. When going through a period of recession, keep going.

It is important to recognize the reasons for any period of business recession. Some businesses experience significant seasonal trends. Consumer Electronics seasonality in retail and the sales channel has often fluctuated with Christmas purchases, Father's Day and Graduation, also known as "Dad's and Grad's", and back to school. The educational seasonal spending often follows the end of school year, and beginning of the school year, as the twin peaks for the year. Automotive trends are significantly impacted by the introduction of new models. Sports stores follow the seasons, tuxedoes and bridal gowns are in higher demand for June brides, exercise and fitness facilities peak with New Year resolutions and bathing suit season. These are all commonly accepted trends based on consumer demand. As consumers, we do not give much thought to the impact of these seasons, but for individuals within these associated business industries, there is a consistent anticipated period of business recession at the end of the peak season.

Sometimes the period of recession is based on other external factors. Consumer confidence and perceived state of the economy can impact spending habits. Sometimes it is merely a matter of market adjustments if prices have been inflated, or a glut of available items on the market. The introduction of new competition, sudden erosion of market prices, or introduction of new models can have an enormous impact on a single vendor within the market, thereby resulting in individual business recession. Understanding the external factors that impact the business is critical to crafting an appropriate response.

It is also important to recognize when a business recession is the result of individual business practices. Just as business can enjoy the waves of seasonality, or monitor the trends of competition, it is important to identify individual business habits that impact consumer confidence and profitability. Recognizing external factors that impact the opportunity for business is relevant to prepare and adjust to external market conditions, but conducting a very honest introspective review of personal organizational habits is critical to identify characteristics that impact profitability and the ability to sustain loyal clients. After all, profitability and loyal clients are the key to making it through the tough times.

Let's take a look at how a few companies have handled periods of business recession.

Cuts Across the Board

In reviewing the financial situation resulting from a downward trend in revenue, a company determined that it would be necessary to cut one third of total costs to meet the forecasted budget. Some expenses and commitments could not be avoided. Therefore, the company determined to look at immediate opportunity to slice costs from the bottom line, and the slicing included immediate reduction of thirty percent of the headcount in all departments.
Executives gathered behind closed doors with sticky notes and organization charts. The name of each employee was written on a sticky note and placed on a whiteboard in the approximate position within the organization. Sticky notes were counted, and the executives decided to aggressively reduce headcount by forty percent. Even though the company proclaimed a directive to reduce thirty percent, the executives realized this as an opportunity to demonstrate commitment and earn recognition by once again exceeding the company expectations, so forty percent would be on the floor by the end of the hour.

The process for selecting the forty percent to fall on the floor was a scientific method of name identification. If the executives recognized the name of the person on the note, then the person was presumed important, and was selected to remain with the organization. If the executives did not recognize the name of the individual on the sticky note, it was decided that the person must not be a very important contributor to the organization, and was therefore immediately expendable.

Not only did the executives exceed the quota by selecting a forty percent reduction, but they achieved this ahead of schedule, and in time to leave for an early lunch. What do you think was the impact to the organization as a result of this process? What was the message to the employees who remained in the organization, the ones left to continue the business with forty percent fewer headcount? The amount of work did not change, but the amount that could be performed was adjusted accordingly. Who decided which tasks should be sustained, and which tasks could be sacrificed? Was the same scientific method used to select tasks and customer commitments that would be kept, as opposed to those that would be cut?

The New Strategy

After several weeks of careful planning, a company decided to roll out a new strategy. As a result of surviving a recent loss of customers and associated business recession, the organization determined that it would be beneficial to diversify the portfolio. Of course, diversification is often touted as a strength to withstand sudden decreases in a specific market, so the company decided to expand the portfolio into new areas for which it had very little previous experience. Despite the absence of experienced core competency, it was determined that the expanded offerings were similar enough to entice existing clients and customers in similar markets. In other words, it was determined that customers in the existing channel would also be interested in the new expanded portfolio.

Introduce an expanded portfolio into an existing market, using the existing resources, and challenging the other companies with experienced core competency in that portfolio, sounds good, right? There was certainly some merit to the concept of expanding the portfolio, and using that expanded portfolio to withstand fluctuations within a particular market. However, lacking experience in the newly acquired competencies, the organization did not fully realize the investment necessary to develop the infrastructure of the competitors. Developing the portfolio, the channel, and the clientele takes significant investment. Furthermore, if a company is being run well, then it is reasonable to assume that the available manpower serves a purpose and is already being utilized. Diversifying the internal resources to sustain the introduction of the new portfolio can be hazardous to existing business, and a strain on the manpower.

This strategic maneuver can unintentionally introduce a business recession, as financial and manpower resources are strained and redirected to support investigation, implementation, and a long learning curve. Any expansion of a portfolio should be approached as a long term investment, and not as a short term escape. Running from the bullet can get tiresome, and you do not want to be standing still when the bullet catches up to you.

The Reorganization

Caught in an economic spiral, a company conducted a thorough internal review and realized that drastic changes would be necessary to survive. In reviewing the market and the competition, the company realized that the entire industry had caught cold. It gave them little comfort to know that this was not an isolated event, but rather a trend that had crippled the competition as well. Overall consumer spending was down, and all of the companies in the industry were sharing a similar burden.

The first recommendations entertained by the board members were all related to immediate layoffs. This approach was accepted practice in the industry, and would not be a surprise to anyone. When a company ship is slowly taking on water, the obvious way to lose weight and buoy profitability is to jettison manpower overboard. Several proposals demonstrated that, due to the minimal financial impact of salaries, it would be necessary to cut thirty percent of the workforce. A few other executives proposed forty percent, just to be on the safe side. Perhaps these executives had experience somewhere else?

The board studied the financial impact of the salaries and threw out the proposals. Conducting a more thorough study of the manpower, the operational infrastructure, and the potential revenue generated from employees in the sales cycle, the company determined to reorganize instead. Rather than cut jobs to calculate a reduction in wages, the company determined that it would be more appropriate to increase the ratio of revenue generating functions in comparison to operational support. Rather than reduce the jobs that generated revenue, or risk losing the experienced operational infrastructure that supported them, the company chose to expand the revenue generating functions. Yes, that's right, the company actually hired more commission incentivized positions to accelerate revenue and offset the operational expenses.

Like their competitors, this company struggled to get through the low period. The available opportunities were unchanged, but this company successfully won more of the business. Perhaps a reason for winning more of the business could be associated with the increased number of available sales functions, as compared to the severely reduced resources of competitors that cut across the board. The customers who did still want or need to buy found better response from the company that chose to expand front line support when threatened. Furthermore, as the economic trends began to lift the overall market, this company was best equipped to grow rapidly with experienced and grateful staff members.

A Bigger Piece of the Pie

The representative from a company walked into a distributor to speak with sales associates who were responsible for supporting many different brands of goods. In speaking with the sales associates, the representative realized that all of the brands had been reducing support as a result of recent decline in the market. Through further investigation, the company representative learned that several competing brands had even cancelled advertising contracts for distribution sponsored magazines and catalogs. All of the companies in the related industry were cancelling advertisements, cutting back budgets, and reducing the seemingly insignificant channel support functions.

The market was clearly down for all brands in the market. There were no signs of immediate profit potential, but the company representative recognized the opportunity to grow market-share. Realizing that the competition had all but abandoned the equally hungry distribution channel, the company representative approached the channel partners with a suggestion for mutual sustainability and commitment. Rather than cancel the advertising contracts, the company representative requested special pricing to incentivize doubling the existing ad space, based on performance. Furthermore, the company committed to increase commissions to the sales associates, and introduced creative incentive bonuses for winning new clients.

Suddenly, the company began to realize a small gain in total revenue. The distribution and channel partners embraced the commitment exhibited by the brand, and responded by encouraging sales of that brand to clients and consumers. The greater ad space increased awareness, especially by comparison to the complete lack of advertising by the competition. The company gained mindshare, market-share, and a bigger piece of the pie. When the economy turned the corner and sales began to rise throughout the industry, the competition realized that they had lost a substantial percentage of the market to this company during the drought. It was much easier for this company to gain substantial percentage of the market when the total size of the market was small. When the market began the next period of growth, this company representative was ready to maintain the percentage of the market and grow at a much faster pace. In addition, the channel partners remembered that loyalty during the tough times, and continued to recommend the respected friend of the industry.

Your Turn

Now it is time to build your own business recession response plan, and update it each year, regardless of the economic trends. Conduct a quick analysis of the competition and the market. Chances are that you already have a considerable amount of data to substantiate your intuition on the status of the market. The problem with facts and figures to substantiate intuition is that it usually leads to creating justifiable excuses for failure. Don't let that happen to you, or to your your company. Rather, take the next step, and conduct a thorough introspective review of what turns your economic engine. You cannot afford to play roulette with your resources, as with names on sticky notes. You cannot risk diversification of the portfolio, if you are not willing to make the sacrifice and the investment of expense. You can identify the aspects of your business that are essential to maintain profitability during bleak periods of business recession, and respond to the market accordingly.

Sometimes reductions, cuts, and reorganization are unavoidable. Make sure that the process is planned with precision, and that you have looked at all of the possibilities. Don't expect that common practices employed by other organizations are necessarily the best response for your unique situation. Cuts, diversifying portfolios, and other strategies are only effective if applicable for your unique situation. Remember that the goal is to get through the low periods with enough stamina and strength to grow faster than your competition when the trends turn around. You may not be able to control the winds, but you can control the direction of your sails.

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Words of Wisdom

"My dog is worried about the economy because Alpo is up to 99 cents a can. That's almost $7.00 in dog money."- Joe Weinstein

"It's a recession when your neighbor loses his job; it's a depression when you lose yours."- Harry S Truman

'If our house be on fire, without inquiring whether it was fired from within or without, we must try to extinguish it."- Thomas Jefferson

"If you aren't fired with enthusiasm, you will be fired with enthusiasm." - Vince Lombardi

"The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn't want to go bankrupt. People must again learn to work, instead of living on public assistance."- Cicero 55BC (What, you thought this was a modern quote?)
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