Five mistakes businesses make in a recession

I had the pleasure of listening to Darren Shirlaw this week – founder of Shirlaws business coaching. He shared his thoughts on the current economic climate and what businesses could do to come out “one top”.

He noted that there is nothing “unprecedented” about the current cycle. In fact by reviewing the ASX over the past century, he was able to demonstrate how this recession follows a similar pattern to those of the past. He was very careful to outline that this in no way represented “financial advise”, just his views on the world.
I remember Paul Keating saying back in 1991 that we were having “the recession we had to have”. We did have a downturn primarily driven by the technology sector in the early part of this century too – that many seem to have forgotten.

One of the differences in this recession is that it was not manufacturing or retail businesses failing that caused the “needed” restructure. It was of course the banks and financial institutions. This has not been the case historically; usually it is the banks that fail after business does.
There are four phases of the macro economic cycle.
1.    Downturn (sharemarket plummets).
2.    Drag (sharemarket stays constant).
3.    Release (a 30% lift in sharemarket before a sharp decline again).
4.    Up (sharemarket rises).
The “downturn” has passed – we are through that phase, again looking at history, to predict the future the sharemarket is probably at 90% of how far it will fall.
February may have even shown signs of recovery – but the media is not yet reporting this.
It is a bit late to tighten the belt if the recession is past. In fact this is a great time to invest in growth… the point of course being that we need to know where to invest strategically in the business to take advantage of the “up” phase, which in all reality will be late in 2010.
So now that I know the markets are in the “drag” phase I can begin to plan the future.
 
Shirlaws five mistakes of business owners in a recession
1.    Timing – they cut back during the “drag” phase rather than getting ready for the “up” phase.
2.    Risk – when everyone around you is gloom and doom then business owners are likely to become more risk adverse.
3.    Unwind – when we think our business is on the rise we set the P&L up for growth – yet if an external event (AKA recession) hits, then we begin to unwind the longer term strategy and change to a P&L focused on saving money rather than making money.
4.    Macro/micro view – we need to stay focused on where we are to be five or 10 years from now. That is being strategic rather than operational.
5.    Sector cycles – the recession means that some industries simply must restructure – they are inefficient and not sustainable… it is important to be aware that some sectors can be completely marginalised and a recession will flush these out really quickly. Don’t assume that all sectors will come back.

Five areas to maximise opportunities during a recession
1.    Product innovation – in reality much product innovation is in fact “packaging innovation”, that is the things around the product improve – such as service gaps, pricing gaps etc.
2.    New channels – with product innovation you must look for new ways to come to market. The way people purchase, consume and acquire is constantly changing. Whole distribution channels may have been restructured.
3.    Functionality – “doing more with less” by improving efficiencies. This must be a relentless pursuit to get better and smarter.
4.    Capability – do you have the right resources and the capacity to build the foundation for growth? What vision, skills, talents, and resources do you need in all the functions of the business to make sure that you have the foundation to support the “up” phase.
5.    Succession – an absolute focus on relationships – not just with customers but also more importantly with employees. When the “up” phase comes, upward of 30% of employees will be ready to move to another employer who treats them better than their present employer. Now is the time to invest in training, recognition, and development – so that you have a total team of “A graders” who are going to want to stay and be part of delivering on the growth in the future.
I urgently have things to get done, to make ready for the huge “up” that is on its way. This is the third recession of my business career… and I know it will not be the last. So I am learning wherever I can and investing to make the most of the “up” times.
Are you ready for the ride?
 

Naomi is the 2008 National Telstra Women’s Business Award winner for Innovation. Naomi was also a finalist for the Australian HR Awards and a finalist for the BRW Most Admired Business Owner Award in 2008. Also in 2008 RedBalloon achieved a 97% Hewitt employee engagement score. One of Australia’s outstanding female entrepreneurs, Naomi regularly entertains as a professional speaker inspiring middle to high-level leaders on employer branding, engagement and reward and recognition. Naomi writes a blog and has written a book sharing the lessons from her first five years.

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