Business Growth in a Recession

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Big changes in the business environment bring opportunities. Even a recession that reduces sales for most companies provides opportunities for a few to expand. Business planning for a recession (which I expect to start in late 2023 or early 2024) should include not just surviving, but thriving post-recession.

Company leaders should outline their growth opportunities at the beginning of the recession planning process. Then, if they try to cut spending, they can keep in mind the upside potential they hope to capture in the final stages of the recession.

In a recession, increasing market share is an achievable goal. An Arizona distributor of fasteners (nuts, bolts, nails, etc.) expanded its market share by stocking more inventory than its competitors. Cutting inventories is a common tactic to fight a recession, but the company entered the downturn with a healthy amount of cash. Their clients belong to highly cyclical sectors of the economy: construction and manufacturing. The company knows their sales will drop in a downturn, but they also know their merchandise won’t go out of style. So they keep well stocked. Buyers call other companies and learn that the specific product and size they need is out of stock. So they tried this company that had the stock. The next time buyers are ready to order, they call this company first. The distributor ended the recession with a more loyal customer base than it began.

The same approach can work through better customer service and sales efforts. A magazine slashed its ad sales staff, leaving only reps taking orders. No outbound sales calls were made. When the recession ended, the company was at a disadvantage because past clients had shifted advertising to the company asking for a sale.

Getting better equipment in a recession can propel a company forward in a recovery. Early low-cost carrier AirTran (now part of Southwest Airlines) took advantage of the 2001 recession and the disruption of air travel following the 9/11 attacks. They bought modern planes that were more fuel efficient and less expensive to maintain than the older fleet. Some of the planes are the latest used models, while others are brand new and whose buyers have withdrawn from their purchases. When air traffic picks up, AirTran has a cost advantage over most of its competitors.

In addition to buying equipment, companies can also take advantage of the recession to improve their position. Before the 2008 recession, a Dublin hairdresser owned 3 mid-range shops. She wants to upgrade her location, but the best locations are expensive. So she piled up the cash and waited. During the economic downturn that has hit Ireland hard, she has seen top locations vacant. After a respectful time, she found the landlord — and negotiated hard for a low rent. She also buys wigs and extensions stock cheaply from bankrupt stores. She told me that the recession was the best thing that ever happened to her business.

Years ago, a McKinsey study of multinational corporations confirmed the barber’s approach. Companies with the best long-term track records use good years to pay down debt and build cash. They didn’t get caught up in the euphoria and optimism of prosperity. When the recession hit, the top performers acquired competitors and market-adjacent businesses to expand their product offerings. They are willing to borrow for bargains, and their banks are happy to lend to a prudent company with a solid balance sheet. As the hairdresser attests, this strategy works for both small and large businesses.

A year before a recession — and possibly now — is a great time to scout for talent. In a tight labor market, many companies are reluctant to offer sky-high wages. Part of the problem is the actual cost of new hires, but the bigger issue is how current employees are paid when they know what new hires are earning. Therefore, a good talent acquisition strategy is to use the pre-recession period to identify talent. Managers should understand good prospects. Lots of coffee dates help. Rather than offering high salaries during boom times, wait until the talent’s current employer gets into trouble, cuts bonuses, and fires some great talent, then offers modest salaries.

What other strategies could help companies emerge from a recession stronger than they entered it? Bring the management team together to brainstorm ways to tackle this challenge.