It’s no secret in late May, 2016 that Calgary’s, Alberta’s, and even Canada’s economy is not doing all that well. Beyond typical ‘feast or famine’ economic cycles that accompany a resource-based economy like Alberta’s, this is as bad as we’ve seen it in more than 30 years. But you don’t need more depressing news, and this blog is not supposed to be a downer!
The reason I highlight the misery is to point out that even in a down economy, there are winners. Even more so, I want to explore WHY some people win when the economy itself is in a state of atrophy.
Let us start by acknowledging that some businesses are A) nearly recession proof, and B) positioned to benefit in an economic downturn. While we’ll touch on both of the above points, few among us stand to benefit from these advantage points, so we will mostly explore how any company can better position themselves.
In terms of recession proof businesses, basic needs stand out, as do vices. We still need to eat, though we may change our spending patterns. In a strong economy, we may opt for nicer restaurants, more expensive cuts of meat from the butcher or grocery store, or we may dine out more frequently. In a downturn, we may be forced to choose pizza or a sub sandwich over steak, and fine dining might turn into fast food or diners. Depending on economic sector, the total spend can remain relatively constant, though there may be a significant shift among vendors. Many entrepreneurs have adapted to this, by diversifying their portfolio, and within a master brand offering multiple sub-brands (ie Cara Operations which owns Harveys, Swiss Chalet, Montana’s, Milestones, Kelseys, East Side Marios, and St. Hubert).
Another example, perhaps one even benefiting from a recession, is our favorite vices.
People are still going to drink (or gamble), but they may choose to do so less frequently, or whenever possibly, more affordably (ie at home, or less expensive brands, see this article).
Other winners in this recession range from pawn shops, repossession businesses, and even benefit providers (as employers look to stretch their benefits dollars and get more creative in their coverage).
At first glance, it’s easy to attribute these businesses and industries’ success to ‘luck’ or to being positioned to win by unpredictable, uncontrollable market forces.
There are a few things that businesses can do to be more agile and more opportunistic during a recession however, as follows;
1. Gain market intelligence: rather than waiting for mass trends to emerge as customers ‘vote with their feet’, meet with current customers, analyze early shifts in spend patterns, and develop analytic processes and/or tools to give your business a predictive advantage that can help you be more proactive- and less reactive- in your decision-making and strategy.
2. Focus on your current customers: low-cost and even no cost initiatives such as thank you cards, emails, phone calls, and coffees, or even networking events – all remind your current customers that you value them and that you haven’t forgotten about them. This is actually one of the fastest ways to improve your bottom line – research by Queens University (2015) shows that improving customer loyalty even 1% can improve profitability by 11% – profound!
3. Cut back on costs: rather than waiting for your net income to dwindle from healthy returns into bleeding into the red, reduce discretionary spending (both corporately and personally), and delay optional and non-essential projects. Even if you spend the same amount, but can delay your expenses (without pissing off suppliers or acting unethically), you can improve your cash flow.
4. Balance your balance sheet: for business who have investments, inventory, equipment or machinery, and anything else that has a financial value or cost associated with it that could affect your liquidity, do the math, and see what can be done to improve solvency early rather than waiting for desperation mode to set in when you’ll need to sell off remaining assets at a fraction of their value.
5. Get back to the basics: challenging times bring out our creative and operational bests. Sometimes it takes a financial crisis for us to sharpen our axes and refine and improve the efficiency of our operations. With strong discipline, and keen strategic focus, companies can identify (or recapture) their profitable ‘core’; that which they do better than their competitors.
6. Innovate: by staying disciplined to your profitable core, you uncover your strengths, as well as the target market you serve. These are great pillars to innovate around, for example customer loyalty programs born in the business to consumer (B2C) world might have fewer hurdles to profitability by entering to B2B (business to business) realm than by trying to sell new products they are not experienced producing to their existing customer base.
7. Gain market share: well-positioned companies who are disciplined with their cash flow management heading into a recession often find themselves in a position to target their competitions’ customers, or even acquire smaller companies at a fraction of their market value to gain a higher portion of their given market share.
8. Continue (prudent) advertising: According to research by Queens (2015), companies that maintain a reasonable spend on advertising during a recession recover faster and gain more market share than companies that strip this expense. This is due (according to professor Ken Wong) to the notion ‘share of mind’. When customers are spend-averse, they sit on their wallets. When their consumer confidence returns, they go with who they trust (which is largely tied to who is top of mind).
Thanks for sticking with me this far – a long read today, but very relevant based on what a lot of companies are facing in Alberta (and even Canada) right now. I’d love to hear your comments & suggestions for other topics as well, leave a comment!
Keep healthy, keep inspired, keep livin’ the dream, and let me know how InSite can help!