With inflation stubbornly high and the fed rate increases continuing, you may feel frustrated by lack of growth in your small business. Although slow economies are overall stagnant, you can still find business growth opportunities. Throw out the playbook from the boom years and adopt strategies for business growth in a recession. The following are some strategies that we deploy with our clients during slowed economic growth.
Shift your expectations
Growing in a recession is not the same as growing during the boom cycle. Forget 20%+ growth targets; 1-5% growth during an economic downturn is great for most businesses – certainly better than losing money. Rather taking big gambles on high growth targets, opt for slower growth in exchange for lower risk.
Follow market signals
Demand shifts during recessions. Are you shifting your growth marketing strategies to match? The only way to know is to follow the market closely and respond quickly. Consider the following best practices to identify growing markets and seize business growth opportunities:
- Measure market demand daily and identify trends.
- Speak to customers monthly to understand their challenges.
- Have sales and operations meet regularly to brainstorm product or service improvements.
These tactics will allow you to identify new demand and adjust your growth marketing strategies.
If overall demand is shrinking, your growth must come from stealing market share. The following tactics will give you competitive intelligence you can use to steal customers.
The more you know about your competitors, the better you can identify weaknesses and establish your niche. Here’s some simple tactics to research competitors:
- Look at competitor websites.
- Check out online reviews.
- Buy competitor products or mystery-shop their services.
- Talk to your competitor’s customers.
Invest in speed and efficiency
Downturns and slow economies are ideal times to focus on productivity growth. Although the primary benefit of productivity is lower costs, a secondary benefit is a more competitive product or service through higher quality, faster delivery, or lower price. Lastly, productivity growth will facilitate scale when the growth economy returns.
Investments that lead to productivity growth includes:
- Lean process improvement through Kaizen, 5S, etc.
- Error and waste reduction through automation, poke-yoke, FMEA, and process redesign
- Employee training and training improvement
- Process documentation
Rethink your R&D initiatives
Growing in a recession will require some research and development, but not the same initiatives you started before the downturn. Slowed economic growth changed the market, so you need to question every new product development initiative. Use your market research to validate or pause, or pivot R&D projects. Remain agile by constantly questioning your old programs and pivoting towards growing markets.
Focus less on scale, more on cash flow
During tight capital markets, cash becomes more valuable while scalability becomes less valuable. That’s why many organizations opt to lay off excess staff or sell underutilized assets. Strong cash flow means more business growth opportunities such as:
- Investing in sales to increase market share
- Hiring away key talent at discounted rates
- Acquiring competitors in distress
- Investing in R&D to capture a new market formed during the downturn
On the other hand, companies with scalable systems but weak cash flow face several constraints:
- High debt interest expense
- Long equity raise cycles with uncertain outcomes at low valuations
- Losses from bad debt
- Expensive administrative investments in cash forecasting and management
These constraints are all distractions from profit growth, and allow your competitors to take market share from you.
To improve your cash flow, perform the following steps:
- Use a financial planning tool to project cash flow 12 months. Cash runway should be more than 3 months.
- Map your cash conversion cycle. Fewer days are better, negative days are best.
- Analyze your gross margins. Margins under 20% are generally unsustainable except for very large and efficient corporations.
- Brainstorm ways to boost cash flow through:
- Price increases
- Discontinuing low-margin work
- Volume increases
- Faster collections
- Faster product or service delivery
- Pre-selling (warranties, subscriptions, or service agreements)
- Cost reduction initiatives
- Reducing overhead expense
Know what factors slow economic growth
Understanding the macro-economic outlook helps you plan strategies for business growth. Macro-economic factors that slow growth include:
- Rising interest rates
- High unemployment
- High debt levels
- Reduced government spending
- Uncertainty (e.g. Covid-19)
- Rising energy costs (oil, natural gas, etc.)
- Rising taxes
Work with a CFO experienced in slow economies
If you weren’t in business during 2008, this may be your first time facing a slow economy. Save yourself expensive mistakes through the mentorship of an experienced CFO. Contact us today to schedule your free consultation to see how your business can grow in a slow economy.