The last decade of economic growth has almost overshadowed the sting of the Great Recession. But several recent economic indicators have led some economists to believe another recession may be on the horizon. Whether or not a bust is coming, this boon we’ve been enjoying can’t last forever.
The economy took a downturn just as I was starting my second company. I was a young entrepreneur, and there were plenty of self-proclaimed business experts who were eager to give me advice. Looking back, I’m glad I didn’t take most of it. Though I made some mistakes, my team and I discovered a formula for how to not only survive but thrive throughout a recession.
In 2009 — our first year in business — my company reached $3 million in annual revenue. We were small but expanding quickly as we looked for ways to rapidly grow our business at a time while others were struggling. Over the next couple of years, our revenues rocketed to $11 million and then $23 million. The lessons I learned during that time — both from my own experience and other successful companies — continue to inform my business choices today, and it’s knowledge I will apply when the next inevitable downturn hits.
Here’s what I learned:
It can be tempting to cut back on marketing to save on costs, but that kind of decision usually does more harm than good. You can’t grow your business if no one knows about you, and just counting on current clientele to stay with you is a serious gamble in a downturn.
Instead, maintain your marketing volume for four to six months into the recession and track your profitability on those new accounts to see if you’re still getting a return that makes economic sense. In my case, I found our marketing investment brought in sales numbers that were just as good or even better, likely because other companies panicked and took their foot off the gas. That meant there were more customers for the taking — and more revenues to help us grow our organization while others floundered.
Domino’s Pizza is a great example of a company that continued to invest during a time of financial instability. When the recession hit, the pizza giant was already struggling with low customer satisfaction, including complaints about the crust “tasting like cardboard” and the sauce being “ketchup-like.” In 2009, Domino’s not only listened to the complaints, but also responded by rebuilding their pizza from scratch and publicizing the improvement process through marketing. The effort brought massive success, with Domino’s gaining additional public interest through their transparent improvement efforts — which, in turn, brought rising revenues to match.
Like marketing, training is another investment that can put you ahead of the competition. To avoid your sales team’s closing ratios from taking a dip, your company’s training efforts will likely need to increase.
For example, dedicate the first 20 minutes daily to a sales training meeting so team members can brainstorm ways to improve and share best practices.
Our then-president of sales — now CEO — Vess Pearson was committed to this daily routine for our organization, and we’ve remained devoted to this practice even once the economy improved. As helpful as it is now, it was vital during the recession to maintain and even improve our team’s sales efforts.
During the Great Recession, I made a mistake in cutting back on some of the small things that made my first business fun and engaging for employees. The Great Recession was the first downturn I’d experienced as an entrepreneur, and I had no idea how deep its effects might permeate our financials. I listened to the advice of other business owners that led me to cut company activities, weekly employee breakfasts, incentive-based competitions, and company retreats — extras that cost money, but also made work a fun place to be.
In the throes of the Great Recession, a group of Wall Street leaders started taking a closer look at employee motivation across the financial industry. Workers, unsurprisingly, were experiencing extreme stress in their jobs, but the causes were less expected. One of their discoveries was that cutting small luxuries had a negative effect on employee morale and motivation disproportionate to the money saved.
This is what we found with our employees as well. My team was already surrounded by a grim economic reality — with even greater fears of what might come to pass.
Don’t make work another source of worry. While a recession might make maintaining the level of those activities unrealistic, keeping them in some way or another is going to help maintain employee morale, as well as give them confidence in you and the organization.
Slower cash flow can affect vendors, customers, and your own business equally, but that doesn’t mean you have to necessarily cut back so much as get creative. Recessions don’t discriminate between businesses or clients, and you may find some customers struggling to make payments. Rather than writing off that income and sending the customer off to collections, get creative to help the client.
One idea we implemented was letting customers break up payments into smaller installments and extending their payment period. Recessions are temporary and helping a customer weather the storm can not only help you improve customer loyalty but increase the number of referrals to friends and family.
Just as you can work with a struggling customer, see what flexibility your vendors are willing to give you. Whether you’re about to go bankrupt or just trying to increase profit margins, I’ve found that vendors are most willing to reduce prices and increase payment periods during this stage of the business cycle.
In strong economies, many of my vendors were demanding annual price increases that were often out of line with inflation. Nothing changes a vendor’s tune quite like a recession, so take advantage of this opportunity to lower your costs. It will not only help you get through the recession but give you an additional cushion as the economy improves.
Groupon exercised this idea with great success in a then-novel approach to connecting companies looking for new customers with families trying to make the most out of their shallower budgets. Groupon launched in November 2008 but grew rapidly by offering quick, cheap deals that would-be customers could snap up quickly. Although this meant the vendors they partnered with were making less per customer, they were getting enough extra business to make up for that deficit and expanded their customer base — a benefit that really paid off when the economy improved.
It seems counterintuitive to hire when the red downward arrows of the stock market are making other companies reduce their workforce, but a recession can actually bring in some of your brightest talent to help you navigate through this period and even climb to new heights.
More businesses than usual will inevitably go bankrupt and be forced to lay off some incredible employees, while other great potential hires may be looking to leave their current organizations due to cutbacks, wage freezes, and low morale. According to a 2009 Hewitt Associates survey of 518 companies, 70% of companies had issued or were considering issuing furloughs. We picked up some of our very best and brightest managers shortly after the 2008 downturn, so remember to keep your eyes open and invest in new talent to ensure you pick up some of your future all-stars.
David Royce is the founder and chairman of Aptive Environmental, providing environmentally responsible pest solutions to customers in more than 3,700 cities nationwide. David’s areas of expertise include entrepreneurship, sales and marketing, strategy, manager development, business culture, and scaling exponential growth via systems, processes, and technology. He’s built a staff of 4,000, providing entrepreneurial training and financial success to his team members while instilling a unique set of core values. Today, Aptive ranks as the number one fastest-growing company in its industry of more than 20,000 competitors.