Five Recession Lessons
We’ve all seen the news. We all know it’s coming. And we’ve all been given the same advice about conserving cash, battening down the hatches and various tips to ‘survive’ what’s coming.
I’m here to be the antidote to this negativity and to let you know that everything will be ok. In fact, everything will be just brilliant if you’re able to apply some of the lessons I’ve learned from growing several businesses through the economic ups and downs over the past 18 years. Here are my five recession lessons:
Lesson one: Check your mindset
It’s hard to think of the word ‘recession’ and be cheery. It has so many negative connotations that are reinforced by the media. I experienced this myself when I saw the bleak economic forecasts that were published recently. My instant response was “oh dear, that’s not good news”. But then I reminded myself that any feelings I had about what was coming were entirely made up… by me. Once I’d got over that, I was free to think differently about the situation. The question I always ask myself in these moments is this:
“How can I make this the best thing that’s ever happened to my business?”
I’ve asked myself the same question at the start of every single economic downturn. Initially, I have no answers. But I keep asking myself the question until something crops up… and lots of good things do. It’s a great way of switching from a fearful, defensive mindset to one that is positive, hopeful and open to opportunities. It’s a question that I ask myself often and it’s helped me to navigate so many challenging situations over the years.
Everything starts with mindset, so it’s worth checking in on how you’re feeling regularly. How’s your mindset right now? What stories are you telling yourself? And are they going to help you navigate what’s coming next?
Lesson two: Use imagined hindsight
We’ve all heard the expression “hindsight is a wonderful thing”. Of course it is. It’s great to be able to look back on a series of events and reflect on what you would have done differently had you known what you know now. How useful would it be if you could have this insight before you go through these experiences? That’s what imagined hindsight is and here’s how you can use it.
Imagine a situation a few years down the line where your business is thriving. You’ve solved the current challenges and managed to turn whatever happened in the economy to your advantage. There’s a big smile on your face. Imagine in detail what this business looks like. Write down the key points.
Now imagine you’re looking back on today and ask yourself this question:
“What am I really glad that I did back in 2022 that helped me get to this position?”
Then go into more detail, thinking specifically about what you’re glad you did with your:
- Products and services that you offer
- Existing clients
- How you spend your time
Economic downturns provide wonderful opportunities to innovate in all of these areas (and more). I saw it happen when the Covid pandemic hit our shores. After the initial panic, business owners showed astonishing abilities to adapt to circumstances that were thrust upon them. They actively sought out opportunities to make fundamental change in key areas. Many wished they had done it sooner. Maybe they needed a crisis to push them to do it.
The good news is that we can all see this coming, which gives us the opportunity to calmly plan how we’re going to innovate our businesses and seize the opportunities that are out there. Using imagined hindsight will help us work out what we’ll be really glad we did at the end of it.
Lesson three: Measure more
There is a clear correlation between the number of metrics measured and business performance. Put simply, the more you measure, the better you perform. In times of economic uncertainty, it’s also really important to measure the right metrics.
You’ll see that most of the advice at the moment is telling businesses to keep a close eye on cash. That’s sound advice. But cash in the bank is a retrospective metric. It’s also important to measure all three types of metrics in your business:
Sometimes called lagging indicators, these show you what has already happened, e.g. cash in the bank, sales for the month, profit at the end of a year. They have their place, but they’re a history lesson and are only useful when combined with other metrics.
These metrics show you what is happening right now, e.g. profitability on live projects, website sales today, or team utilisation rates this week.
Sometimes called leading indicators, these tell what is going to happen in the future, e.g. the number of website visits might be a leading indicator of the number of sales conversations you’re going to have, which is a leading indicator of the number of proposals you’ll issue, which is a leading indicator of what your sales might be in the future (based on your average client value, conversion rate, and sales cycle). The key is to work out which leading indicators are the biggest determinants of your future success.
Arguably, predictive metrics are the most important ones to keep an eye on in periods of economic uncertainty because they tell you well in advance if trouble is coming. This gives you longer to create a plan and take action. Imagine finding out you’re going to have a downturn in sales several months before it happens. The clues are all there in the data, you just need to dig them out. The further back you go, the greater visibility over future performance you’ll have.
How can you take your reporting up a level and measure more?
Lesson four: Do less
When faced with a challenge, our instinct is often to do more. More of everything. That’s likely to result in burnout, for you and your team.
There will be some things that you will want to do more of, e.g. spending more time with clients. However, you need to balance this out by doing less elsewhere. Here are some quick wins to help you do less and focus on what really matters:
- Fire your least profitable clients. To do this, you'll need to be able to report on profitability (not turnover) by client. If you don't currently have this information, now's a good time to get to grips with it. This data will clearly show you which clients don't make you money.
- Stop offering certain products/services. As well as measuring profit by client, understanding which products/services make you the most money is incredibly valuable. When you do this analysis, it’s likely that you’ll find that certain products/services just aren’t profitable. They’re just a lot of hard work for not much return. Stop offering these now and focus on the ones where you make the most profit.
- Restructure your teams. Are there any people that aren’t going to help you navigate what’s coming next? Maybe now’s the time for preemptive action? I remember speaking to a number of business owners in the early stages of the pandemic who made these structural changes. They all confessed that they wished they had done it sooner. Their gut instinct was telling them something wasn’t right with that member of staff. It took a crisis to force them to make a decision. What decisions are you putting off making?
- Ask yourself: Do I really need to get involved in this? Take a look at your diary for the next week and think carefully about the meetings you’re involved in and the projects you’re leading. Are these good uses of your valuable time? Or is there an opportunity to empower members of your team to step up and lead in your absence? How can you encourage a culture of empowerment, rather than dependency on you?
Lesson five: Choose how you want to lead
When the pandemic hit, I was skiing in France with my business partner, Paul. We had to dash back across Europe as borders were closing, whilst keeping our fingers crossed we would make it home. This time together in taxis and at airports gave us an opportunity to decide how we wanted to lead our business through what was coming next.
Even though we had no idea what was going to happen, we knew we could control how we were going to deal with it. We agreed upon three guiding principles that would help us navigate whatever was coming. They were:
These principles guided us through the ups and downs of the coming months and helped us make decisions along the way. They were incredibly helpful.
So, as we embark on another period of economic uncertainty, I invite you to think about how you’d like to lead your business through what’s coming next. What will your guiding principles be?
If you want to ensure your business has the cash to thrive during a recession, check out our cash flow resources.