Ignore Economic Predictions

We’ve all read about how businesses shut down during recessions, and we’re witnessing it today in the middle of the COVID pandemic.

Seeing a fellow entrepreneur do well in their business only for it to shut down because of a declining economic climate is truly a “horror story” in the business world.

Seemingly, what this tells us is that our businesses are doomed when a recession happens. And because of this, many end up depending on economic predictions to make decisions for their business.

But the truth is, even if the economy shrank by billions or trillions, you’ll still be able to find ways to thrive. Cliche as it may sound, “If there’s a will, there’s a way” is a good mantra in building a successful business.

Basing your business’ future on economic predictions is just another excuse to point fingers if your business doesn’t do well. For many entrepreneurs, it’s become a way to defend their lack of determination to work hard.

In reality, if you make the right decisions around your business regardless of the state of the economy, there will always be customers who will buy your products or services.

Businesses during a recession

According to Investopedia, a recession is “a period of economic contraction where businesses see less demand and begin to lose money.”

There are various reasons why businesses fail during a recession. Among them include:

• negative economic shocks
• real resource or credit crunches brought about by previously over-expansionary monetary policy
• the collapse of debt-based asset price bubbles
• a negative shift in consumer or business mood

So to cut costs, businesses typically lay off workers. But when their losses are too great, many tend to close down – and entrepreneurs always fear the same fate.

We’ve seen the numbers: amidst the Global Financial Crisis, more than 638,000 Australian businesses stopped operating in the two years from 2007.

Harvard Business Review also conducted research revealing that 17% out of the 4,700 public companies that they studied didn’t survive the 1980 crisis, the 1990 slowdown, or the 2000 bust.

Just with this data, it’s reasonable to feel wary to start a business or keep it running when the economy is down. 799 out of 4,700 is undeniably a big fraction. But think about it this way: the bigger fraction is still of the recession survivors.

Recessions, while impactful on a large scale, don’t affect all businesses equally.

In fact, many successful businesses today thrived during a recession, such as:

• Microsoft
• Apple
• Netflix
• Groupon
• Lego
• Citigroup

That you’re familiar with all of these companies is proof of their current success, despite going through a global economic meltdown.

Given that, just because experts say that our economy might turn to crap in the near future or so, doesn’t mean that your business will surely fail and close down.

In tough economic times, where as many as a fifth of companies may shut down, you can do something to be part of the rest that survived, or better yet, be part of the fraction that can flourish.

Economic predictions affect us on a macro scale. The stuff we hear on the news and see everywhere in the media describe the economic health of the whole country (or the whole world).

However, we are often playing at a micro level – meaning, whatever the predictions are will not always be relevant to our individual business. Many micro economies will still go strong and some emerging ones will also boom, and it all depends on how these businesses are being managed.

So, the success of your business doesn’t depend on what the media says about the world economy – truth is, your success will solely be determined by you and your decisions alone.

Why a bad economy can grow your business

Look, I’m not saying that bad economies will automatically help any business – I’ve just run you through some statistics that say otherwise.

But, there are silver-linings to a bad economy. Contrary to popular belief, it’s not all cons – there are several effects that can be pros too, you just need to see these circumstances as opportunities and use them to your business’ advantage.

So here are five ways that a bad economy can actually grow your business:

#1: You’ll have lower start-up costs

If you’ve been looking to start a business but couldn’t because of the high capital cost, starting one during a recession isn’t a bad idea. Prices are a lot cheaper because of deflation and repossessed assets.

Plus, if your new business does fail, your losses won’t be too great compared to your losses if you started in a thriving economy.

#2: It’s easier to keep top talent

In a good economy, employees are more confident in hopping from one job to another in their search for greener pastures, especially those who are highly talented achievers. 

Keeping them in your business will be tough, and you can’t exactly blame them if they look for better-paying jobs in bigger companies.

In a declining economy, on the other hand, people are more adamant to keep their jobs. They know that finding a new job will be a struggle, and if they leave without better options, they’re taking a huge risk for their careers.

#3: There’s more talent on the market

On the flip side, while people will try not to leave their jobs during a bad economy, many will lose their jobs after being laid off – yes, even those who are highly skilled and talented. 

So that means, the number of people looking for jobs will multiply. Just post a job ad, and many talented job seekers will find your growing business and apply for a role.

#4: Niches stand out

In tough economic times, people prefer to cut down on luxuries and unnecessary expenses – they buy necessities. So if you can sell a revolutionary product or service that is focused on a certain aspect of what people’s needs (and if you market it well), you best believe that your business will thrive despite the economic downturn.

Take this as a chance to be as creative and resourceful as you can be. As long as your product is a specific necessity, your outrageous ideas might just become the next big thing.

#5: The market will heal

Recessions come and go, so the economy will eventually get back on its feet and the market will be healthy again.

Trudging through the recession and surviving is no small feat. If you can thrive during a recession where things weren’t so manageable, then you’ll have little trouble selling and scaling by the time the recession passes. And because your business was very cost-effective in the bad economy, your returns will be greater when the market heals.

How to thrive in a bad economy

Now that you know that a bad economy doesn’t equate to a bad business, here’s my advice on how to actually get your business to do well during an economic downturn:

Identify opportunities

In one of my previous blog posts, I talked about the steps you need to take to be able to identify opportunities. To summarise, these steps are:

1. Look at what you offer. Review all aspects of what you can give to customers and assess if that’s what they need during a recession.
2. Listen to your customers. At a time where getting people to notice your products or services can be more challenging, listening and acknowledging the pain points and feedback of your customers should be more of a priority than before. This is your main source of ideas for improvement.
3. Learn about the changing face of your industry. Being able to offer your customers ideas and techniques backed-up by evidence will set you apart from your competitors, especially when times are tough.
4. Be nimble and act quickly. Make sure you have the systems and processes in place to execute a change in business direction efficiently. You want to be faster than your competitors.

Find your niche

As mentioned above, niches stand out during recessions, and I’m saying that again here because it’s that important to specialise if you want to thrive during these times.

As competition increases globally, you are better off focusing your expertise on as narrow a niche as you can and then following that niche around the globe, rather than trying to be everything to everybody locally.

This approach also makes it easier to maintain pricing power and focus your distribution and promotion strategies.

Diversify Geographically

Diversifying your geographical base will insulate you from the vagaries of your local economy – the one that affects you the most.

Especially if your location is affected more than other areas are, you’ll struggle to keep your business standing, let alone see it flourish during a recession. But if you’re also selling to customers in other regions (or better yet, overseas), you’ll not only be tapping into fresh markets – you’ll also minimise potential losses in areas experiencing economic downturns.

The internet is an excellent tool to expand your reach geographically. Many businesses are now going online, building their own websites, and selling their products and services on various e-commerce and social media platforms.

While physical products will incur expensive delivery costs (which may limit your customers to nearby localities), many services can still be provided online. That, and establishing your brand identity to other geographical locations paves the way for future expansions when economies begin to grow again.  

Find the right side of demographics

Understanding who your products or services cater to the most is crucial in properly marketing your business and improving your offers.

Finding the right side of demographics is even more important during economic recessions, since interest in your business will mostly come from people who need what you sell, and rarely from those who won’t urgently benefit from it.

Here are three steps to sell your products or services to the right demographics:

1. Study your market. Who needs your product the most? Determine their age, gender, nationality, income level, etc.
2. Decide on a specific target. What customer identities do you want to cater to? The young professional, maybe? The experienced entrepreneur? Firms in their growth phase?
3. Put it all together. Make a positioning statement that’s attractive to your target demographic that answers this question: How do you directly serve them in a way that is unique to your rivals?

Staying ahead of demographic trends as opposed to depending on economic predictions means understanding the data that will directly impact your business and inform your strategies and planning.

As the late W. Edwards Deming, father of total quality management, often preached: the fundamental job of a leader is prediction, so when a company stumbles, it’s often because their leader failed to use the information at hand to forecast where they should be heading.

So, there’s really two ways to look at dire economic predictions. As a small business owner it can either sink you or you can use it to your advantage. 

That comes down to perspective and you didn’t start your business without being brave and positive, so don’t change direction now.