Before we begin with how to survive an economic downturn, here’s a little factual story to ponder. Let’s flashback to the early 2000s when Amazon.com sold $672 million in convertible bonds to sustain its financial position. A month later after the sales, the dot-com bubble exploded. Over the next few years, more than half of all the digital start-ups that were created went out of business. This included a lot of digital start-ups in e-commerce, some of which was Amazon’s rivals. Now, had it been that the dot-com bubble burst out a few weeks earlier, Amazon, one of the biggest and most successful computers might have fallen prey to the economic downturn.
Is Economic Downturns and Recessions the same?
Yes, they are. An economic downturn, also known as a recession, is known as two consecutive quarters of negative economic growth and can be caused by rapid changes in economic expectations, financial panics, and shocks in the economy, such as spikes in oil or commodity prices. It could also be caused by a combination of all three at the same time.
During an economic downturn, most firms suffer and this is primarily because revenue and demand fall and there is an increasing cloud of uncertainty about the future of the economy. However, research has shown that there are several ways for one to mitigate the damage of an economic downturn.
So, how should companies and firms prepare in advance of an economic downturn and what moves should they make when an economic downturn hits? Answers to these questions came from several case studies and research of examining the Great Recession. One underlying message across the various solutions for dealing with an economic downturn, such as digital transformation, workforce management, decision-making, and debt, is that all economic downturns are high-pressure exercises and this means that there has to be a change in management strategies and ideologies, ability to adjust and be more flexible. This enables companies and firms to navigate through an economic downturn successfully.
Here are three ways to make it out of an economic downturn:
Do Not Crash The Company
The first thing to do is to deleverage the company before an economic downturn. This means that as a starting point, one of the things to keep in your mind is to not run out of money. Now, an economic downturn always brings about lower sales and this means that there would be less cash to fund operations, for that you need to have deft financial management to survive an economic downturn. Start your deleveraging early. This means that you need to reduce the levels of debt you have before the economy comes into a full-blown economic downturn. Take a hard look at your portfolio and shed the assets as this is one of the ways to reduce leverage without cutting out the essential aspects of your operations.
Pay Attention to Decision Making
The performance of a company or firm during and after a recession extremely lies not just on the decisions that are made but also on those who make them. Match all decisions with expertise. Do not fall into the trap of keeping all rights of the decision during a downturn. Decisions that will be made throughout the organization should go through experimentation because of the uncertainty of an economic downturn.
See Beyond The Layoffs
While layoffs are inevitable, you need to see beyond it as a company or firm to not just lay off staff to cut costs. To survive and thrive in an economic downturn, you need to learn more about operational improvements. Go for performance pay, shorter hours, short-time work, and furloughs. This helps the company, ore and boosts the productivity and morale of the staff during the economic downturn.