Preparing for recession

“The best thing that ever happened to my business was the recession in the early 80’s.” Unemployment was over 10% and the prime interest rate was over 20%. My father is gone, but his words haunt my thoughts.

It is 3:30AM. I can’t sleep. The eerie sounds of coyotes echo through the canyon as I’m reading that Chinese imports are down 18% and exports are down 11%.[1] This sounds like drama, but it is real. China, the world’s second-largest economy, looks bad. Japan, the world’s third-largest economy, turned recessionary last quarter. The coyotes are normally more melodic. But this morning they sound agitated and afraid. Why was the recession so good for my dad’s business? What is key to this kind of success looking down the throat of another pending global recession?

It is about debt and margin. When the economy slows down, cash dries up and debt becomes expensive. (Just ask GE, Goldman Sachs or anyone else who took a loan from Warren Buffett in 2008. Buffett’s loans would make a payday lender blush.) Many businesses cut prices to stimulate sales, but don’t have the margin to do it profitably. At some point, you run out of cash and take a loan to keep the business afloat. Or, so you try.

One problem is that credit is harder to get during recessions. We saw this across multiple industries in 2008. General Motors, Chrysler, Goldman Sachs, GE and others had to go to extraordinary efforts to secure operating capital during that recession. But the terms of the loans were horrible and Chrysler was sold to Fiat.

How Ford Planned for Recession

Ford Motor Company was the smart one in the bunch. Sort of. They lined up 23 billion in loans prior to the recession and were the only company that didn’t have to take a bailout. But, to secure the loan, they used the iconic blue Ford logo as collateral.[2] Ford was eventually able to own their own logo once again.

Our preparation for recession is simple. Stay lean and keep expenses under control. Remain debt-free. Diversify the client base. Build operating reserves to handle an eventual drop in business. It is simple, but hard.

Looking Forward to the Next Recession

I’m not exactly looking forward to any recession. Even more, I’m not looking forward to this next recession when the Federal Reserve has exhausted all of its stimulus measures prior to the onset of the recession. But the words of my father give me hope and I firmly believe we will exit this next recession much stronger than we entered it.

Many companies are using inbound marketing. But many are still not. Inbound marketing generates leads at 62% of the cost of traditional marketing. Now that customers opt for self-service through 60% of the sales cycle, inbound marketing has become critical. Cash strapped companies in the coming recession will have to find ways to drive sales at lower costs. Unable to get affordable loans, some will finally turn to inbound marketing and survive. We will partner with these companies, provide inbound marketing services for them and jointly emerge from the recession stronger.

Another area of business that will prosper during the recession is conversion rate optimization services. Think of it as getting more juice from the orange, or yield-optimizing your website, or whatever metaphor works for you. It is about increasing efficiency and utility. If only 2 out of 100 web visitors become customers, we up it to 4. That is doubling your business off the same web traffic. Conversion optimization has even lower adoption rates than inbound marketing. During recessionary times, a viable way of doubling sales will be the cool water on the tongues of the masses trying to navigate through the recession.

Are you preparing for recession?

Yes, I believe my father was right. A recession can be good for business. But you have to go in prepared – and cash is the best preparation.  Are you doing inbound marketing and conversion optimization? If not, then start now. Like the Ford Motor Company, you start working your plan prior to the recession. Implement inbound marketing to reduce your cost of sales. Start conversion optimization exercises to increase the yield of your web traffic. Most of your competitors aren’t doing these things. By investing in these things now, you’re the company who survives the recession.

[1] http://www.businessinsider.com/chinas-latest-trade-data-is-a-very-worrying-sign-for-global-growth-2016-2

[2] http://www.bloomberg.com/bw/articles/2012-05-17/freeing-fords-logo-from-debtors-prison