A crisis, of whatever nature, always stands for “uncertainty”, “risk” and “danger” but the word crisis also stands for “opportunity”. You can always view a crisis, disaster or emergency situation in two ways. And that is not for nothing.
Admittedly, with the energy prices swinging out of control, which increase operational costs by up to 50% for some companies, there is little or no positive EBITDA left at the end of the day. And how were you supposed to anticipate the energy prices of which no one knows what height they will reach? Even politicians don’t know, but one thing is certain, negotiating a new contract with a fixed rate with your energy supplier is no longer an option.
In this blog we take a closer look at “why a crisis and as a result a recession can be both a danger and an opportunity for your company” and we explain how you can anticipate this.
How do you recognize a recession and what are its signs?
A crisis can be a sign of a recession. It forces companies to take a critical look at their current way of working and to adjust it when the situation calls for it.
This was clearly visible during the corona crisis, for example. Instead of working at the office, we were at home every day via Teams, Zoom, Google Meet, doing our internal meetings and with customers. Tech companies have therefore developed online programs at lightning speed to make working from home easier. But also think of online flash delivery parties such as Hello Fresh, Coolblue, Deliveroo …. Which experienced a huge increase in turnover. And in the meantime, just about every smaller Retail player also has a webshop and they deliver to your home within 24 hours, something they never saw as a possible option before the sanitary crisis. There is hardly a better example of being forced to respond to a crisis.
The almost reptilian reflexes of an entrepreneur
When you start to feel the financial effect of a crisis or recession, cutting costs is often the first reflex you have as an entrepreneur. You will be cutting budgets for research, development, education and training of employees. Cutting the workforce or cutting back on marketing are also common interventions.
Perhaps you also intervene in all these budgets. However, the question is whether cutting back is the wisest choice.
You can also opt for a combination of savings by increasing operational efficiency and at the same time investing in the future of your company.
You can read what we mean by that later in this blog. First, let’s start by answering the question “Why do companies survive a crisis and how do they emerge stronger?”.
Survival of the fittest
What has become clear in recent years is that adjustment is necessary. Darwin once said: “It is not the strongest or smartest species that survive, but those that adapt best to a changing environment”. One way to make your business respond to change in the environment is to innovate by developing a new idea or concept and successfully launching it in the market. A crisis makes it clear which things suddenly belong to the basic needs and which resources or services are ‘superfluous’. This can make you think as an entrepreneur. Because what can you do to make your product/service one of your customer’s essential products/services?
5 concrete tips to anticipate a crisis as well as possible:
1. Be consistent and show leadership
Leadership actually starts long before a crisis. In a working environment where no mistakes are allowed, employees will always go for certainty. A business leader who does not tolerate contradiction will probably never hear about his company’s weaknesses. However, this does not mean that they do not exist. In fact, things will lurk in the background that you don’t know about.
It can also be done differently. If you give employees responsibility and room to make mistakes, you teach them to think for themselves and come up with solutions. In this way they learn to act adequately in unexpected situations and you make use of the collective thinking power. In this way you stimulate and create resilience, problem-solving capacity and crisis resistance.
Choose a clear direction. In this way you are prepared, with steering space to act in unexpected situations along the way. In a self-managing organization, leadership and taking responsibility are intertwined in the organization. This prevents one person from acting as a driver and ensures that everyone is jointly responsible for the well-being of the company.
2. Be prepared for lean times
Over the years we have had to deal with several crises in Belgium: in the thirties the financial system collapsed in America, in the eighties it was the oil crisis, in 2008 the cause lay with the banks and during the corona crisis it had to dealing with a pandemic.
And we had not yet recovered from the corona crisis and we were already confronted with extremely high energy prices. And although each crisis had a different cause, there were similarities. In all cases people lost their jobs and in all cases opportunities arose. When your company is in the corner where the blows fall, you better be prepared.
Every crisis or recession will pass. On average, a recession lasts about 14 months, recovery from a recession takes an average of 2 years. The periods of growth after a recession last on average about 6 years. Use those 6 years to create a buffer for lesser times.
How big should your buffer be? That depends on the monthly costs you have, such as rent, wage costs, mortgage payments, taxes and the like. Your personal situation as an entrepreneur plays a major role. For example, if you do not have a car and you have a house without a mortgage, your costs will be somewhat lower. Our advice: calculate your buffer and reserve money for lesser times. That way you have some form of peace and security in times of crisis.
3. Every economic crisis also offers opportunities
The fact that a recession also offers opportunities is something that many entrepreneurs often forget, yet it is striking that companies that are resilient already improve their margins during the downward phase of the crisis. So during the downturn in the economy, the resilient companies are able to improve their margins, while the margins of non-resilient companies are falling.
This is because resilient companies take a more proactive approach to cutting operational costs. Where non-resilient companies often postpone this until after the crisis, resilient companies actively do this during the crisis. What is also striking is that resilient companies make strategic choices in their portfolio or other assets to improve their cash position.
This ensures a healthy cash flow, which in turn creates new opportunities. For example, after the lowest point of the crisis, they can make business acquisitions for relatively low prices. Non-resilient companies are not prepared for this and can therefore miss the boat.
4. Marketing and investing online
Marketing starts and ends with the end customer. Your customer will behave differently during a recession. Needs change. People lose balance, confidence and often income and especially purchasing power.
Successful companies solve their customers’ problems. It is therefore very important that you know the problems of your customers. People are looking for more ‘value’, which depresses prices and margins.
Companies are adopting a more international attitude (more market) and are looking for what works (diversity). It is precisely during a recession that you have to continuously and carefully analyze the customer, competitor and market from your marketing perspective and look at your own company.
What are the Core Competencies in your company? What are you doing well? What do we want to capitalize? From the basics such as Product, Place, Price and Promotion to a complete repositioning.
Make analyzes of your strengths, weaknesses, opportunities and threats (SWOT) and use situation analyses. It’s smart to do that regularly anyway, so you don’t have to spend your precious time on it during a disappointing financial period such as a recession.
Right now the advice is to optimize your website and invest in SEO. If your competitors delete this part, you can easily acquire high positions in Google. Higher positions mean more visitors for the long term. It seems like a smart savings because it’s so intangible, but it could haunt you for years to come. Think of it like a fruit tree. You now have to give it some of your precious water, but after the recession the other trees are fruitless and you can reap the benefits.
Take a good look at your implementation plan.
If something goes completely wrong, what is plan B (work on a contingency plan)? If things are going really well, can you scale up quickly?
Whatever you do; stay in touch with your customer.
• Know what your customers are doing now;
• Know what is bothering your customers;
• Build the emotional connection;
• Work on the involvement and commitment of your customers
• Strengthen and earn trust;
• Help your customers whenever possible.
5. Guard your reputation
An increase in turnover can also cause growing pains.
Making choices always has a significant impact on the confidence of both employees in the company and customers. A survey by the European Communication Monitor shows that the most important strategy until 2025 is to build and maintain trust (39.3%). In other words, reputation management is more important than ever. But how do you get a credible reputation?
a) What people can’t see:
• Integrity: Do you do what you say?
• Intentions: What is your plan or goal? Will you help us both?
b) What people can see:
• Abilities: Includes skills, knowledge and style. Means to achieve results.
Based on the results/performance you deliver, but just as much on the products and services you put on the market.
d) Your values and corporate culture
These values also become more important in the war-on-talent, new employees will not only choose a position and/or a certain salary. As a company you will have to propagate your values more and more and what your company now stands for.
Just like customers, they will opt for a project in which sustainability, vision and inclusiveness are central.
Reputation management therefore encompasses several factors. Yet what people often see is your results (product or service) and your capabilities. However, Covey’s model shows that this is not the only factor to consider.
Wondering how I can help you develop a future proof marketing plan or if you need a completely new strategy, request a free brainstorming session by clicking on the link below.