How to survive and prosper during a recession

When Dame Angela Ahrendts was CEO of Burber­ry from 2006 to 2014, her tenure at the FTSE-100 fash­ion house coin­cid­ed with the glob­al finan­cial cri­sis and the so-called great reces­sion that ensued. Despite near­ly two years of eco­nom­ic tur­moil, the company’s val­u­a­tion more than tripled while she was at the helm. 

Ahrendts said lat­er that she’d been “taught nev­er to waste a good reces­sion”. Her spin on Sir Win­ston Churchill’s wartime quip, “nev­er let a good cri­sis go to waste”, goes against the con­ven­tion­al wis­dom that eco­nom­ic down­turns are uni­ver­sal­ly bad for busi­ness. His­to­ry has shown that they can present oppor­tu­ni­ties for growth. But how can com­pa­nies best iden­ti­fy and exploit those oppor­tu­ni­ties? 

As anoth­er reces­sion looks increas­ing­ly like­ly in the UK, the first move for busi­ness lead­ers should be to run a thor­ough check on their firms’ fun­da­men­tals. That’s the view of Ben Par­ry-Jones, COO of CFPro, a con­sul­tan­cy advis­ing busi­ness­es in a wide range of sec­tors. 

“Put back-up lines of cred­it in place, bring down aged debtors and ensure that you have a strong rela­tion­ship with your share­hold­ers,” he advis­es. “Get to grips with your cost struc­ture and run a sen­si­tiv­i­ty analy­sis (also known as a ‘what if?’ analy­sis) to look at how changes in vari­ables such as unit costs would affect your prof­its. Then get your team think­ing about what they would do in each of those sce­nar­ios.”

The qual­i­ty of your firm’s finance depart­ment is key, because the accounts team will pro­vide the foun­da­tion­al data on which all com­mer­cial deci­sions will be based. More cru­cial­ly, it has over­sight of the whole enter­prise and can there­fore con­tribute to process­es rang­ing from real­lo­cat­ing staff to rene­go­ti­at­ing con­tracts with sup­pli­ers. 

“Get­ting these deci­sions right will free your busi­ness to invest just as your com­peti­tors are pulling up the draw­bridge,” Par­ry-Jones says.

The first instinct of most com­pa­nies when a reces­sion is loom­ing is to focus on cost-cut­ting. Often, one of the first casu­al­ties is expen­di­ture on mar­ket­ing. This is despite a body of his­tor­i­cal stud­ies indi­cat­ing the advan­tages of main­tain­ing or even increas­ing adver­tis­ing bud­gets dur­ing a down­turn. 

As Dr Irute Karani­cholas, asso­ciate pro­fes­sor of mar­ket­ing and rep­u­ta­tion at Hen­ley Busi­ness School, points out, mar­ket­ing is an invest­ment, not a cost. She recalls the words of Peter Druck­er – wide­ly viewed as the father of mod­ern man­age­ment think­ing – who said: “Because the pur­pose of busi­ness is to cre­ate a cus­tomer, the busi­ness enter­prise has two – and only two – basic func­tions: mar­ket­ing and inno­va­tion. Mar­ket­ing and inno­va­tion pro­duce results. All the rest are costs.” 

Karani­cholas says: “This mes­sage seems to be lost when bad times hit. Yet half of the For­tune 500 were cre­at­ed in cri­sis. If you can sur­vive a cri­sis, there is only one way to go – and that is upwards. If you are adver­tis­ing when no one else is, you are sim­ply becom­ing more vis­i­ble. If any­thing, a reces­sion is prob­a­bly the best time to adver­tise.”

Nonethe­less, the instinc­tive reac­tion from busi­ness lead­ers when fac­ing a reces­sion is to bat­ten down the hatch­es, become very oper­a­tional and con­cen­trate on the down­side risks. Instead of think­ing oper­a­tional­ly, they need to think dif­fer­ent­ly, argues Phil Jones, man­ag­ing direc­tor of Broth­er UK, a provider of IT hard­ware and advi­so­ry ser­vices. 

“A down­turn is a good time to invest in your brand,” he says. “The price of ser­vices becomes more com­pet­i­tive when the mar­ket tight­ens, which means that you could achieve your goals at a much low­er cost.”

Jones also rec­om­mends study­ing trends in oth­er indus­tries and look­ing out for inno­va­tions that your com­pa­ny could adapt for its own use. 

After the pan­dem­ic start­ed, Broth­er UK start­ed pro­vid­ing sub­scrip­tion ser­vices for its print prod­ucts in what has proved a suc­cess­ful tweak to its busi­ness mod­el, Jones notes.

“The changes you make don’t have to be trans­for­ma­tive,” he stress­es. “There will be small things you can do to add val­ue for your cus­tomers at lit­tle cost.”

Busi­ness­es should beware of try­ing to diver­si­fy in search of a quick sales boost. If they aren’t thought through care­ful­ly, such moves often prove unsus­tain­able and cost­ly in the longer term. Instead, the leadership’s focus should remain fixed on the firm’s core areas of exper­tise and on adap­tions and inno­va­tions with­in those areas, with a clear under­stand­ing of the needs of the main cus­tomer base.

Mark Wil­son is man­ag­ing part­ner and CEO of Wil­son Fletch­er, a busi­ness inno­va­tion con­sul­tan­cy that spe­cialis­es in design­ing dig­i­tal enter­pris­es. He rec­om­mends mov­ing cus­tomers towards more self-ser­vice expe­ri­ences online. 

“This can offer busi­ness­es greater price flex­i­bil­i­ty and enable them to reduce their costs,” Wil­son explains. “Almost every­one under­stands that DIY takes more effort but costs less than it would if some­one were doing it for them to achieve broad­ly the same result.”

One of the sim­plest ways to attract and retain cus­tomers in a reces­sion is to offer them greater pay­ment flex­i­bil­i­ty, he adds. 

“As cash flow is crit­i­cal, for con­sumers and busi­ness­es alike, reces­sions quick­ly encour­age an aver­sion to com­mit­ment and inflex­i­ble con­tracts – fixed-price sub­scrip­tions, for instance,” Wil­son says. “If you can offer cus­tomers the same ser­vice on more flex­i­ble terms, it gives them a greater feel­ing of con­trol. A good num­ber may even end up spend­ing more with you as a result.”

One thing that the Covid cri­sis has taught busi­ness­es is the impor­tance of being agile, which should stand them in good stead for deal­ing suc­cess­ful­ly with oth­er chal­lenges, includ­ing a reces­sion. There is no dis­put­ing that down­turns are gen­er­al­ly bad for busi­ness. Indeed, they put an end to many com­pa­nies. The key to sur­viv­ing and, poten­tial­ly, thriv­ing as the econ­o­my fal­ters is to avoid knee-jerk reac­tions such as slash­ing the ad bud­get, as such moves are like­ly to prove coun­ter­pro­duc­tive in the longer term. 

A leader who can stay calm and focused, yet flex­i­ble, with an eye for oppor­tu­ni­ty amid the gloom, stands a far bet­ter chance of keep­ing – and grow­ing – their busi­ness while all around are los­ing theirs.