Saving vs Spending: How to be Recession Ready and Thrive in the Downturn

By Anish Sengupta from Blue Helion.


When we hear the word “recession”, our mind goes into alert mode buzzing with all kinds of alarm bells.

According to a recent Reuters estimate, the United States is 40% likely to enter a recession in the following year. Financial experts are afraid that we are on the cusp of a recession, as record-high inflation limits consumer spending and big-box stores like Walmart and Target lose money. GDP is a key indication of economic development and recessions, according to analysts. According to these figures, the US GDP declined by 1.4% and the UK GDP fell by 0.3% in the first three months of 2022.

According to the IMF, global GDP is anticipated to reach 4.4% in 2022, up from 3.4% the previous year due to wars and sanctions. However, these projections are expected to be revised downward in light of new evidence.

At the International Economic Forum 2022 in Davos, world leaders examined how current global problems are increasing the hardships of global supply networks. The ongoing pandemic lockdowns, climate change, the conflict in Ukraine, and record-high inflation rates have compelled us to alter the paradigm and focus on how to be better prepared for such disasters in the future, as well as how to revive the global economy.

Difficult choice

Recession ready

As a leader, choosing between spending and cost-cutting amid an economic crisis is undoubtedly tough. According to a Fortune article, economic experts and investment bankers from Goldman Sachs, Morgan Stanley, Moody’s, Deutsche Bank, Bank of America, and others are divided on whether the US economy will experience a “soft landing,” in which inflation rates will begin to cool and growth will continue.

During the financial crisis of 2008, many startups like Uber, Airbnb and Spotify started operations and flourished by taking the risk on the prevalent opportunities during the downturn. They spent more in these situations, resulting in increased brand recognition and market value. An increase in marketing and sales budgets assisted the organisations in retaining some important clients while generating a new prospective consumer base.

So as a leader, what should be your future plan of action? 

As a CEO, there are myriad challenges you may be facing during a financial downturn. But here is where it gets a little trickier – 

­1. How to be well-prepared to face the business risks

2. How to seek an opportunity in a financial crisis 

3. How to play it to your advantage on the business front

Here are some ways in which business leaders have sought opportunities at the right time and played them to their advantage to grow in an economic slowdown. And here’s how you can also join the many businesses that have experienced growth during a financial crisis.

Don’t Slash Marketing Budgets Instantly 

Each downturn is peculiar and has different effects on the global economy. With such peculiarities, businesses across the globe have different strategies and views on budgeting. Although the norm would be to cut costs, it has not always proved to be beneficial in the long run.

During the Great Recession of 2008, companies like Procter & Gamble, Amazon, Nike, and Accenture among others had significantly increased their marketing and sales budgets to turn the tables in their favour. With an enhanced advertising budget, Amazon was able to increase its sales by 28% despite collapsing economies around the world. It gained customers’ attention by introducing one of its notable products- Kindle, which placed the e-commerce giant as a leader in the innovative business space. 

Recession ready

Invest in Customer Success

The famous proverb, “Customer is the king” is true in every sense whether the economy is experiencing a boom or slowdown. It’s the long-term customers that act as brand ambassadors for businesses through word-of-mouth marketing and help them gain more eyeballs in the marketplace.

One of the notable real-world examples would be the collaborative partnership between HubSpot & Parlor Skis in which HubSpot, an inbound marketing and sales software platform helped Parlor Skis, a personalised ski equipment provider, in categorising and tracking orders and delivering them on time to lessen sales disruptions caused due to excessive email threads and delighted customers who were more than happy to receive their orders on time despite the odds.

Outsource Key Business Functions 

During a financial crisis, leaders find ways to cut costs. They try to find alternatives to reduce operational costs that could help them weather the downturn. One of the best time-tested methods to save cost is outsourcing.

Outsourcing helps leaders with strategies that help them reduce cost and grow. It helps businesses improve their strategic focus and enhances efficiency within the business processes across departments.

Companies like Amazon, Microsoft, Google and Visa among others have been taking advantage of outsourcing for many years now. Visa for instance, has witnessed a 15% surge in its value due to the increase in electronic payments. Visa solely relies on its outsourced sales processes for consumer revenue. It partners with other banks or institutions to handle the payment cycle.

Operational efficiency

To survive a recession, most businesses use aggressive cost-cutting strategies. Companies that focus on enhancing operational efficiency, on the other hand, outperform those that focus on lowering the number of people. Progressive businesses also lay off staff, but far less frequently than their contemporaries. Only 23% of progressive businesses lay off employees, but 56% of prevention-focused businesses do, and they lay off considerably fewer individuals.

Companies that depend only on workforce reductions have an 11% chance of reaching breakaway performance during a slump. This might be due to a variety of factors. Morale is frequently higher in firms that emphasise operational efficiency. Employees in these organisations value senior management’s dedication to them, and as a result, they are more creative in cutting expenses. They don’t waste time fretting about job security, as do employees at corporations that rely on drastic personnel reductions. Layoffs, although instantly reducing expenses, make recovery more difficult. Companies risk scaling up too late, especially if hiring proves more challenging than expected. People dislike working for organisations that cut headcount during bad times.

At Blue Helion, we have helped one of the largest internet ventures from South East Asia to set up its business unit in India and assisted them in creating a 10+ partner network ecosystem with 50+ outsourced staff operating at different levels.

Conclusion

There is no one-strategy-fits-all approach that works for companies during an economic slowdown or recession. But it is often the right decisions at the management level that help in paving the growth path for businesses in future.

There are a few business leaders that come up with a master plan to survive a recession. They encourage their workforce to share ideas that can work for them and evaluate them with market trends to build a potential plan for surviving and thriving during a slowdown. This agility and analysis help them sail uncharted waters smoothly with minor hiccups.

So don’t let a recession or an economic slowdown become a hurdle in improving your business. In the words of Walt Disney, “I’ve heard there’s going to be a recession. I’ve decided not to participate”. The dead rise again, bats fly, terror strikes and screams echo, for tonight it’s Halloween.

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