Don’t worry – this article won’t all be doom and gloom! While it seems daunting, it’s important to recognise what’s on the horizon and adapt. So let’s get to planning!
Let’s face it, recessions are terrifying for everyone, especially those who own small businesses. The uncertainty is almost too much to bear, but trust me, there are ways to make it through. In fact, recessions provide business opportunities that you won’t ever encounter at other times. As people change their spending and motivations for choosing a specific product or business, this can be a time of opportunity for you to find bigger success.
How to Take Advantage of a Recession
Before the 2008 recession, Aldi was struggling to compete with stores like Tesco and Sainsburys. Why? Because customers were already loyal to their “regular spots.” With the arrival of the recession, people began to wonder how they could get the most value for their money, and say hello to Aldi. It was this economic change that allowed Aldi to take center stage.
It’s important to recognise that people don’t like the uncertainty and energy expenditure that comes with change. For many, if there’s no reason to change routine, they won’t.
In my own business, which was in the recruitment industry, we saw many recruitment agencies go to the wall simply because all they did was send CVs that came across their desk onto companies and get thousands of pounds for it.
As businesses started to look at their costs, they realised they were getting poor value for their money and started to try job boards instead.
Crucially, like with the Aldi, some people never returned to their old systems.
How Many Small Businesses Died in the Last Recession?
While there are positive lights to recessions, I also have to be honest about the facts. Let’s be real, recessions do kill small businesses. In the US, more than 170,000 small businesses closed their doors, and entrepreneurship fell by 4% during the 2008 recession.
During the 2008 recession, The Guardian was reporting 280 UK small business closures a week, and in the 90’s it was in the thousands.
Small businesses are particularly vulnerable to complete closure due to their low cash reserves, which is why you have to prepare yourself for a recession financially.
Recession Proofing Your business
There’s a term thrown around called “recession proofing”. The reality is there’s no way to do this with 100% certainty, but you can make huge steps towards making your business more effective as we move into the recession.
Well, the first one I’ve already mentioned: make use of the time you have right now.
Don’t “wait and see” if the recession hits you, because by then it might be too late, with your competition working on their strategy and implementing plans while you were hoping for the best.
So, take action NOW.
A Strategy for Making it Through the 2023 Recession as a Small Business
What can you do to ensure that you make it through the upcoming recession? If we’re being really impactful, what’s the most important strategy? Well, that comes in 3 key parts.
1. Understand How Your Customers Will Change Their Buying Habits
You can’t produce solutions to a problem unless you know what the problem is.
Your customers mindset will be changing. They will be wanting something new. It might be:
- A cheaper price
- A greater amount of value for the same price
- A way to gain more from the business
For example, they might really appreciate a new free course, or a bundling option that saves them money.
What’s important to prepare is getting to know how your customers are thinking. Pick up the phone! Understand their concerns! Ask them questions! Just the act of asking might make them feel that they’re not alone in this.
2. Understand How Your Competitors Are Adapting
When Aldi started to gain more customers, many leading premium supermarkets began running ads about “Aldi price matching,” but they were too late. Many customers were already shopping at Aldi.
The larger supermarkets weren’t keeping their eye on competitors.
So, start to look at what they’re doing. You could:
- Check out their website and social media
- Subscribe to their newsletter using an anonymous email
- Look at what technology they’re using
- Discover what ads they’re running
- Hire people to be “potential customers” and ask them to get in contact with your competition (sneaky, I know)
- Build a group on Facebook for similar businesses and start to ask questions
There are dozens of ways to snoop on your competition! Is it OK to do so? Well, that’s between you and your conscience, but most businesses do this.
3. Keep Thinking About Meeting Customer Needs
Once you understand what your customers are thinking, and what you competitors are doing, you can start to come up with solutions.
I love to use MindMaps with customers in business coaching sessions to come up with fresh new options and ideas. It’s the perfect brain storming tool for me!
Start by asking yourself “What exactly are the problems?”
Then, challenge yourself to write a series of solutions to each problem. Be creative! Don’t just use the regular patterns and ideas you’ve used before – do some research and come up with new perspectives. You could also ask ChatGPT.
Once you’ve produced a list of solutions for all of the problems you’ve found, consider what the impact of each of them might be. How difficult would they would be to implement? Are there other important factors to take into account? How resistant am I to implement these? These are examples of some questions you could ask yourself. This will lead to the most effective solutions.
4. Take Real Action
Of course, plans mean nothing if you’re not going to do anything. Choose what you’re going to implement – maybe for this month – and set aside time to focus on it. Make it a non-negotiable.
If you have to let something else drop to make this happen, look for what will have the least real-world impact, at least in the next year or so, and take action.
Continue with This Cycle
Now, once you’ve started this process, you should continue it. Dedicate an hour or two a month to making sure you really understand your business at a high level.
Pop your head up from time to time and think “what does the market really want right now?”
How Could I Make My Customers Happier?
Since your business is unique, I can’t be specific about how you could improve your business, but here are some general ideas to make your customers happier:
- Streamline your ordering process. Many businesses will have little glitches or frustrations in their ordering process. This can be a deterrent for many, so a streamlined, easy ordering process is a first step in improving business.
- Canvas your customers for feedback regularly. I worked with a UX company years ago who sent out feedback Google forms every month which asked for feedback about the previous month. They learned about what was working and what wasn’t. As a result, customers received better service.
- Offer a level of customisation. We all like to feel like we’re unique and special, which often gets lost in the pursuit of efficiency. However, you could provide some customisation options that are still process-based.
- Be positive in your communications. Your business’ brand is important to your customers. Generally, we all like to engage with positive and upbeat people. Evaluate your communications and see if there are ways you can sound more positive and supportive of your customers.
- Address customer complaints promptly. Sure, some customers are a PITA (if you know, you know), but even these customers probably bring something that you can learn from. A Growth Mindset approach can allow you to focus on the learning that comes from complaints in a positive way, solving customer issues quickly and fully.
- Increase your transparency. A very modern approach to improving SAAS businesses is allowing your customers to suggest and vote for features that they’d like you to implement, publishing a roadmap of development. This is considered a very customer-focused approach.
- Offer payment options. In a recession, people want to invest in their own businesses, but they’ll often worry about money. Providing customers with payment plans or finance arrangements can help them to manage their spending. Look at the housing and car industries – both work completely on this model, allowing them to charge a large amount for their products, but make them affordable to most people.
These are just a few ideas which might get you thinking about how you could improve the situation for your customers.
Small Business Ideas to Start During a Recession
If you want to diversify your business, or grow your own startup from scratch, here are some thoughts about businesses that do well during a recession:
- Businesses that reduce salaries. Typically these will be automation and technology-based businesses which replace salaries with software or cheaper options.
- Businesses that reduce work for a small amount of money. For example, you can buy very cheap Etsy social media templates to produce highly effective graphics quickly using Canva.
- Businesses that increase efficiency. ChatGPT is a really good example, since it can significantly increase the speed of doing certain types of work.
- Businesses that offer essentials. These include food, healthcare and personal care. People will always buy these regardless of what’s happening (unless they literally can’t afford them).
- Remote solutions. Typically, remote offerings, possibly benefiting from salaries abroad, can increase the cost efficiency for businesses.
- Budget friendly entertainment. People still need some level of entertainment, and if you can sell them a board game which they spend 2 hours a night on for a year, they’ve received huge value for money.
- Debt management systems. There’s no doubt that some people will start to struggle with debt, and cheap or free ways to help them will be popular at these times.
- Cutting out the middle man. Any ideas that allow you to get closer to your direct customer will reduce overheads and allow you to retain more profit.
Small Business Ideas to be Cautious About During a Recession
To complete this list, here are some ideas that might be less effective in an economic downturn. It’s important to realise, though, that any idea can work at any time, presuming you market it correctly to people who value and can afford what you offer.
- Luxury goods sold to the middle of the market. If someone has millions of pounds, they can buy what they like, but if you’re offering an element of luxury to middle or working class people, they may deem it unessential compared with food and fuel.
- High end restaurants. For the same reason as luxury goods, expensive restaurants are seen as an unnecessary luxury to most.
- Advertising and marketing. Sadly for marketers, business owners will often cut their market spending during recessions, or they may switch to marketing systems that offer more organic and ongoing value rather than PPC models. This doesn’t mean all marketing will die, it’ll just remain with people who demonstrate value.
- Travel and tourism. Since people don’t have as much money, they’ll tend to remove holidays as a luxury they don’t need. During the pandemic, the term “staycation” was coined, since people realised they can do a lot at home.
To End: Make Proactive Plans
Don’t panic during any time you’re in business, but plan instead. This helps you to feel in control and optimistic about your prospects. People can literally feel your panic if it begins, which doesn’t set a good tone.
So take some steps today, and make some proactive plans.
Of course, I’d suggest business coaching to help you too, and if you want to explore it, I’d love to explain how business coaching can make you more money.