Boyan Ivanov is the cofounder and Chief Executive Officer at StorPool since November 2011.
An economic downturn can be a difficult time for any company. During a downturn, consumers tend to spend less money, resulting in downward pressure on prices, sales cycles getting longer and fiercer competition. All these developments can lead to a decrease in revenue and profitability as well as a higher risk of going out of business for many companies. However, with the right strategies in place, a company cannot only survive but flourish during such a period.
Here are 10 tips that can help a company stay afloat and come out stronger on the other side.
1. Optimize your operations and P&L.
One of the first things a company should do during an economic downturn is to take a hard look at its income statement and consider optimizing its operations. This can include reducing some expenses or freezing business lines that are marginal or are not likely to deliver during a tougher economy. By doing so, a company can maintain its margins and have enough cash to invest in other areas and improve its bottom line or at least have a more solid position.
2. Maintain a strong balance sheet.
Following profit and loss statement (P&L) optimizations, management should review the balance sheet in order to have a strong financial foundation. This means having a healthy cash reserve and a neat balance sheet. Having a cash reserve is fundamental as working capital requirements will likely increase due to increased account receivables and potentially reduced revenues.
A strong balance sheet as a whole can make the company more stable. It will also allow a company to borrow money, which can be useful for investing in growth opportunities during an economic downturn.
3. Invest in marketing and sales.
While it may seem counterintuitive to spend money on marketing and sales during a recession, it can actually be a smart move. By continuing to invest in these areas, a company can help maintain its visibility and keep its brand top-of-mind with customers. This can help a company maintain or even grow its market share during an economic downturn, as some competitors are likely not going to make it.
4. Adopt a customer-centric business model. here's a reason why the axiom "the customer is always right" has stood the test of time. Making decisions on what you believe is best for the bottom line without taking into consideration how those decisions impact your customers is a recipe for disaster. It is far costlier to attract new customers than to retain them. Good quality service is recession-proof, and the cost to make that happen will pay dividends when the economy strengthens again.
5. Have a plan to deal with change.
Whether evolutionary or revolutionary, nothing stays the same. Having a solid plan to deal with changing business environments ensures that you are not making knee-jerk decisions. Listen to your customers' needs and adapt. Look outside the echo chamber of your own company and see how to implement positive steps and stay ahead of competitors.
6. Keep an eye on the competition.
During an economic downturn, companies should keep a close eye on the competition. This means monitoring their pricing, marketing strategies and other activities to understand how they are responding to the downturn. Companies can then use this information to develop their own strategies to stay competitive, as the market is likely going to become quite dynamic.
7. Remember that every cloud has a silver lining.
If a tough economy is making the sales cycle difficult, all hope is not lost. Figure out the best way to make your product or service a need versus a want. Identify redundancies and eliminate bloat, then look to see how competitors are positioning themselves.
The short term may be difficult, but looking at the bright spots and identifying areas of success offers opportunities for growth that might have otherwise been overlooked.
8. Dream, diversify and never miss an angle.
This business maxim is ideally suited to help companies navigate tough economic conditions. Have a vision of where you see your business beyond the downturn. Make sure you have stock-keeping units (SKUs) or product lines for more than one industry or market.
Look for opportunities that present themselves simply because the world's been turned upside down. It's easy to stand pat when things are going well, but the strength and agility gained during challenging times will ensure your company is better positioned in the long term.
9. Project strength.
Business is cyclical by nature. The worst thing that leaders can do when things start heading south is to project panic and fear. This will trickle down to employees throughout the organization and result in a self-fulfilling prophecy of doom.
Act with the same positive attitude in both good and bad times. Restate expectations and goals. Keep staff informed so that gossip and worry do not derail efforts. Confidence is contagious and will encourage the teamwork necessary to endure rough patches while excelling when things get back on the upswing.
10. Have a plan for exiting a downturn.
Finally, it is important for companies to have a clear plan for exiting an economic downturn. This means having a strategy in place for returning to growth and profitability once the downturn is over. For example, a company may need to invest in more equipment or hire additional staff to meet increased demand. Additionally, a company may need to adjust its pricing or marketing strategies to reflect the post-recession economic environment.
Most of the advice given above is simply a return-to-basics philosophy that many companies often stray from over time when not facing negative economic realities. By sticking to a plan, embracing change, investing in employees and listening to customers, companies can ensure that they will not only survive any economic condition but thrive.
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