Practical tips to grow your company during an economic recession

Companies globally are going through one of the most challenging economic crises since the 2008 Global Financial Crisis. Unfortunately, this is opening the door for increased liquidation and instances of financial distress.

Reports from Australia point out that as the country moves beyond the economic support programmes offered during Covid-19, 70% of the country’s business rescue professionals believe that the government is heading for a recession, which will increase liquidations.

This is a situation which South Africa needs to avoid at all costs. Can a company experience growth during a recession?

Plan your time appropriately

I recently read an article on the Harvard Business Review (HBR) Website which discusses this growth in more detail. Suppose you have a sturdy balance sheet, low debt, and plentiful amounts of cash. How can you employ these strengths to take on rivals who have been weakened considerably?

The author of the HBR article was mindful of the importance of considering these questions when he read Steven Jobs’ recent quotes about Apple’s strategy in the days and months ahead. Jobs promises to expand the firm’s research and development efforts this year, even if economic growth does turn negative. Here is what Jobs told Fortune magazine in 2008 when reflecting on the last recession as well as the current economic climate: we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that’s exactly what we did. And it worked. And that’s exactly what we’ll do this time.

Of course, Apple sits in an enviable position. They have an impressive balance sheet, mountains of cash, and no debt. If your firm also finds itself in such a position of strength, remember that it too can use the recession to become even stronger relative to the competition.

The article adds that there are four steps your company should consider now:

• First, invest heavily in research and development now so that new products and services are ready for launch as the economy begins to grow again. Your competitors may be inclined to cut R&D, particularly if they face high interest payments, substantial drops in revenue, and the like. If so, your acceleration of investment now will yield a strong product advantage in the coming years;
• Second, spend some time learning about the customers of your weakest competitors. You might be inclined to go after their largest and most attractive clients. However, be aware that your rivals are probably working desperately to save those customers. They might not, however, have the time and resources to focus on smaller clients. Focus your attention on these potential new customers, particularly those with attractive growth prospects and strong balance sheets;
• Third, identify your most critical suppliers and distributors, and determine if any face the possibility of severe impairment to their business due to the economic downturn. Assess the risk to your business if they should falter badly or even fail completely. Then, examine ways in which you might help those supplies and distributors weather the downturn. Even the smallest gesture can sometimes build an enduring loyalty that will pay off for years to come;
• Finally, think carefully about your talent needs. As weak companies lay off employees, many good people will find themselves searching for work. Other skilled workers may still have a job, but they may be disenchanted with their struggling firms. Capitalize on this opportunity to identify and attract talented employees, while slack exists in the labor market.

Focus your energies in the right areas

Planning your time appropriately is merely the first intervention that needs to be made. I recently read an article on the Forbes website which points out that business leaders need to focus their energies in the right areas.

• Develop a clear business plan. It’s vital that your business and its teams have a shared vision of what you want to achieve in the short and long term. Having a coherent, agreed-upon plan of attack is the best way to provide this guidance. It should identify your target customers and the services or products they need from your business. You also need to consider any potential risks that may come with the strategies you want to put in place. With that in mind, you can develop the best plan forward;
• Cut costs. During a recession, it’s important to identify any areas where you can reduce costs in order to maintain profits. For example, can you reduce your overhead by renegotiating leases or arranging better prices with suppliers? If you can downsize staff without compromising the quality of your products or services, that’s another avenue for cost-cutting. You may need to consider seeking additional financing, such as business loans or grants. In those cases, be prepared to demonstrate how your business plans to succeed despite the economic downturn. An unconventional option is partnering with related businesses to offer things like joint promotions or discounts. This allows your company to minimize certain costs, like advertising, while reaching new customers. This, as a result, increases your chances of making a profit;
• Focus on customer retention. In a difficult economy, consumers may be hesitant to spend money. Providing excellent customer service, while always important, can particularly help you increase customer loyalty and maintain good relationships during a recession. You can also retain your existing customer base by offering promotions or discounts and creating loyalty programs;
• Invest in marketing. When used properly, marketing strategies are powerful tools for increasing profits. During recessions, you must fully comprehend what value your strategies bring. Focus on engaging with existing customers directly through digital marketing and social media platforms, as well as on developing an effective public relations strategy to help maintain good customer relationships. Then, adopt marketing strategies that can increase brand awareness and attract new customers effectively. This may include expanding your online presence, as many cost-conscious consumers turn to online shopping to find the best deals;
• Consider diversifying. Updating or broadening the services or products you provide is one way to increase profits during economic uncertainty. However, you must look carefully at how diversification will impact you financially. Do you have the resources available so it won’t cost you further or create minimal increases? For example, many restaurants began offering delivery services during the pandemic. Because they had the product and staff available, they could provide a slightly different service that didn’t change their costs much—or at all. When you consider diversifying your product or service, ensure that the new options still solve the problems your customers care about. Research what’s in demand and determine if those are products or services you can add. You may want to look for new markets or a broader range of customers who are more likely to purchase the diverse options you’re considering.

It will not be easy

Last month, a GCS thought leadership editorial pointed out that CEOs will play a central role in the future development of the South African economy.

However, business development in South Africa will be challenging as we face structural challenges that companies cannot fix independently. Over the coming months, there will be a growing need for companies to engage with turnaround professionals and business experts on an increased basis for them to avoid financial distress.

If you are trying to grow your business during this challenging period, make a decision and stick to it. Even the smallest intervention can be groundbreaking for a company.

Moses Singo is a Partner at Genesis Corporate Solutions.