Let us step outside the classroom for a minute and ask the average entrepreneur how business has been. Almost all will tell you sales have dropped, margins reduced and some are even considering going back to paid employment where, sadly too, only very few are employing. Others are “rightsizing”. The intent of this article is to look at how to profit in a downtime (or recession), both at a macro and micro level.
A recession by itself doesn’t always spell doom. Sometimes recessions have been used as motivation to go back to the basics and set the fundamentals right. In 2008 (the world’s most recent recession), the United States government created new policies and oversight guidelines for the automobile and financial services industries, the two industries that were most at risk of causing a cataclysmic economic collapse.
When the United Arab Emirate, in the mid-80s, were confronted with the possibility of running out of oil and having their economy go into a decline, they consolidated on their oil gains, diversified their economy and increased their revenue sources.
In a downtime, the fundamentals change. Same efforts cease to deliver expected results. People are more hard pressed for money and disposable income also reduces. A recession many times goes hand in hand with job losses and subtly confidence is eroded and fear creeps in. Governments all over the world take the driver’s seat in steering the economy to growth paths through fundamental policy changes and cash injections into the economy.
A very common way of doing this is through capital-intensive projects, just like was done in FDR’s New Deal and in Nigeria’s finance ministry’s N350 billion stimulus plan. Nigeria is not in short supply of sectors that could benefit from massive government spending. Power, roads, health, education and security are just a few worthy of mentioning.
Focusing now on your business, how do you stay afloat and even thrive in these times? After all, recession or none, people still spend money building houses, buying new cars, going on vacations around the world and one is left wondering if we all live in this same country.
I have looked at four practices which, if followed, will guarantee your business remains profitable. Some of these practices are also useful outside a recession. However, they are imperative during one.
1) Strip it bare
There are 3 financial indices critical to most businesses: profit, expenses and cash flow. In a downtime, your revenue isn’t predictable, in turn making your profit non-predictable. Keep a close eye on your expenses, that’s within your control. Question every expense and ensure it returns value regardless of the monetary amount. Also look at cutting out whole expenses. For instance, do you still need to buy newspapers everyday knowing you get most news these days online?
The other angle to stripping it bare is peeling the value construct of your business to get to its core. What are your clients really paying for? What do they really want? Domino’s Pizza recently did a buy-one-get-one-free and when we called from my office to buy, we were told it was for take outs only. We were only too glad to walk a few blocks down from our office to pick up the order. Domino’s core business is pizza. The delivery is added service that may have varying values depending on the customer.
Many times, businesses have added services that complement their core offerings. In a downtime, peel off your added services as long as it does not impact too much on the core and focus on delivering your core product or service in the most cost effective way possible.
Low cost airlines in Europe peel off the cost of onboard meals, charge you for baggage, have free seating, have no onboard entertainment and focus on the core of their service which is getting you from point A to B on the least fare possible.
2) Go one step further during a downtime
This is at the other end of my first advice. Going one step further is about doing more than the industry average. There are two approaches to this: the horizontal and vertical approaches.
With the horizontal approach, let us assume you are a baker. When someone orders an eight-inch cake, for instance, you give them four cupcakes as a way of saying thank you for doing business with you. Definitely that customer will remember you, patronise you again and even refer you to others.
The vertical approach of going one step further as a baker would be asking your existing customers for phone numbers of their loved ones for instance spouses or work colleagues. You then issue them a reminder days to the person’s birthday and offer to deliver the cake to the celebrant. On delivery, you could add a complimentary bottle of wine or a small not-so-expensive makeup case, depending on the receiver’s gender. These extra expenses you incur will pay for themselves by way of repeat business and referrals from satisfied customers.
In a downtime, customers have less to spend and you literally have to lure, convince and encourage them to buy from you.
3) Take advantage of free publicity
One of the many expenses your business will understandably slash during a downtime is marketing expense. In a downtime, as an entrepreneur, you need to actively look for free publicity. From experience, I realise journalists, talk show hosts, etc. are constantly looking for useful and newsworthy content. Reach out to some of these folks for a feature.
A few things to note though: Don’t try to sell your product or service, rather sell the importance and value of your industry. Don’t talk down a competitor’s brand or deliberately upsell your brand. People don’t trust advertising on paid platforms as much they do non-paid ones. The more you show up in the news talking about your industry, the more credibility you build. You literally look like the spokesperson and spearhead for that industry and that usually leads to increased business coming your way.
4) Discounts and promotions
While this can’t be sustainable as a sales strategy on a long term basis, when reasonably used, it can boost sales revenue significantly in the short term. The idea is to use discounts and promotions effectively during downtimes when your business is not earning revenue or numbers are significantly down.
Your business at every point incurs fixed costs, so a properly designed promotion can bring in the much needed revenue. Ensure promotions don’t cannibalise your regular sales and does not leave you with strictly price-driven customers.
While there are a whole lot more ways to stay afloat in a downtime, these simple steps will keep you standing above other industry players.