You Should Never Waste A Good Recession
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You Should Never Waste A Good Recession

Category: General
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Here are three proven steps to help you beat the downturn.

On the 15th of October 1987 a hurricane smashed into the South of England causing 22 deaths and £1bn in damage overnight

Four days later, on October 19th, the New York Stock Exchange went into meltdown and precipitated a short, sharp recession in most Western economies. It was the first financial crash to spread rapidly throughout the world – an electronic contagion if you like. The Presidential Task Force calculated that the US alone lost $1trillion.

Two pretty momentous events that should have given a wiser man pause to consider his future. But I was young and daft and I had just written my first business plan. I confess I had no big idea – I just knew that I could do a better job of running a company than my then employer.

So I set off into the teeth of the first, but by no means the last, recession of my career.

Since then I’ve had 4 other recessions and one industry specific slowdown (post Y2K) to deal with and they are all different; but, spookily, they are all the same. As Mark Twain is alleged to have said “History doesn’t repeat itself, but it does rhyme.”

When Europe started shutting down on March 12th 2020 I called my kids, one in New York and one in Dubai, and said: “Guys, you need to make sure you have some savings and ready cash to hand and make some plans for the immediate future”. They both rolled their eyes at the havers of an old man – I would have done the same as them at that age of course – but within a week the hammer was falling.

The coming recession was baked in to all of our futures right there and then.

So as I go in to this one, potentially my fiercest, I thought I’d take a moment and pass along a few things I have learned along the way:

  1. Batten down.

This is the time to lean on your Finance Director. Every penny needs to work doubly hard for you or it should not be spent. Unnecessary costs need to be cut and underperforming assets need to be removed or changed. This is not a cut for cutting’s sakes and nor is it a charter to renege on paying key suppliers: this is a cold, calculated review of what is working and what is not in your business. You cannot cut that which may save you or that which is essential to your recovery; you must be laser focused on what must go, what must be improved and what must be ring-fenced. The paradox is that during recessions you may find yourself having to spend a little more on certain critical processes whilst making swinging cuts elsewhere. A lot of suppliers and service companies become complacent and the service you get from them can fade over time: now is when you change them and get some newer, hungrier blood in. This is strategy – not knee jerk cost cutting.

 

  1. Get a grip.

It is a pretty well established fact that just as many, if not more, businesses go bust after the worst of the recession is over than do on the way in. That is why employment levels are such a lag indicator in recessions: they rise after the worst is over. This one is very different in that unemployment would have been a lead indicator were it not for the government intervention with furlough payments. However, when we start to get past this, and we will get past this, all those furloughed employees need to be gainfully employed or the canoe can still tip. Unemployment may yet prove to be a lag indicator. I have had enough bum-twittering moments coming out of recessions to know wherof I speak: rapid expansion in a fragile market can catch you out just as easily as rapid contraction in a disaster. And see Point 1 above: if you have shafted key suppliers by not paying them without a sensible agreement in place, be prepared for them to exact some retribution as things recover. What goes around after all…

 

  1. Never waste a crisis.
    There is a lot of talk about managing our way out of this. Well that’s fine; but Chief Executives are not there to manage – they are there to lead. If you take Point 1 again, any fool can cut costs by 25%. It takes leadership to cut the right 25% so that you add 10% growth on the way out. For small businesses this thinking is even more critical because our influence on the bigger picture is so limited. Sometimes the only option is to buddy up to a high growth sector: to follow the money in other words. Back in the recession of the 1990s, a clear winner in the recovery was low cost clothing, so we developed a revolutionary EPOS system and sold it to the iconic Glasgow store, What Every Woman Wants. Their growth rocketed on the way out of that recession and so did ours by default. In the early 2000s, no one in the UK understood what we were doing with the internet – so we went to America where they did. In 2008 the financial crisis opened doors down Mexico way and we gained a foothold in the high net-worth tourist enclave of Los Cabos. Recessions present just as many opportunities as crisis: leaders need to work the opportunities and leave mere crisis to the managers.

A recession, even a depression, does not crush every business. I have two personal friends that have already become overnight millionaires simply by seeing a new opportunity and going for it. And doing some good along the way I might add; I am not talking about wanton profiteering here.

That Mark Twain quote may not have been uttered by him, but the pithy sentiment is perfect. This is nothing some of us haven’t seen before.

Perhaps a better quote for our times comes from Robert Browning: “Time's wheel runs back or stops: Potter and clay endure.”

On the 15th of October 1987 a hurricane smashed into the South of England causing 22 deaths and £1bn in damage overnight

Four days later, on October 19th, the New York Stock Exchange went into meltdown and precipitated a short, sharp recession in most Western economies. It was the first financial crash to spread rapidly throughout the world – an electronic contagion if you like. The Presidential Task Force calculated that the US alone lost $1trillion.

Two pretty momentous events that should have given a wiser man pause to consider his future. But I was young and daft and I had just written my first business plan. I confess I had no big idea – I just knew that I could do a better job of running a company than my then employer.

So I set off into the teeth of the first, but by no means the last, recession of my career.

Since then I’ve had 4 other recessions and one industry specific slowdown (post Y2K) to deal with and they are all different; but, spookily, they are all the same. As Mark Twain is alleged to have said, “History doesn’t repeat itself, but it does rhyme.”

When Europe started shutting down on March 12th 2020 I called my kids, one in New York and one in Dubai, and said: “Guys, you need to make sure you have some savings and ready cash to hand and make some plans for the immediate future”. They both rolled their eyes at the havers of an old man – I would have done the same as them at that age of course – but within a week the hammer was falling.

The coming recession was baked in to all of our futures right there and then.

So as I go in to this one, potentially my fiercest, I thought I’d take a moment and pass along a few things I have learned along the way:

1) Batten down.

This is the time to lean on your Finance Director. Every penny needs to work doubly hard for you or it should not be spent. Unnecessary costs need to be cut and underperforming assets need to be removed or changed. This is not a cut for cutting’s sakes and nor is it a charter to renege on paying key suppliers: this is a cold, calculated review of what is working and what is not in your business. You cannot cut that which may save you or that which is essential to your recovery; you must be laser focused on what must go, what must be improved and what must be ring-fenced. The paradox is that during recessions you may find yourself having to spend a little more on certain critical processes whilst making swinging cuts elsewhere. A lot of suppliers and service companies become complacent and the service you get from them can fade over time: now is when you change them and get some newer, hungrier blood in. This is strategy – not knee jerk cost cutting.

2) Get a grip.

It is a pretty well established fact that just as many, if not more, businesses go bust after the worst of the recession is over than do on the way in. That is why employment levels are such a lag indicator in recessions: they rise after the worst is over. This one is very different in that unemployment would have been a lead indicator were it not for the government intervention with furlough payments. However, when we start to get past this, and we will get past this, all those furloughed employees need to be gainfully employed or the canoe can still tip. Unemployment may yet prove to be a lag indicator. I have had enough bum-twittering moments coming out of recessions to know wherof I speak: rapid expansion in a fragile market can catch you out just as easily as rapid contraction in a disaster. And see Point 1 above: if you have shafted key suppliers by not paying them without a sensible agreement in place, be prepared for them to exact some retribution as things recover. What goes around after all…

3) Never waste a crisis.

There is a lot of talk about managing our way out of this. Well that’s fine; but Chief Executives are not there to manage – they are there to lead. If you take Point 1 again, any fool can cut costs by 25%. It takes leadership to cut the right 25% so that you add 10% growth on the way out. For small businesses this thinking is even more critical because our influence on the bigger picture is so limited. Sometimes the only option is to buddy up to a high growth sector: to follow the money in other words. Back in the recession of the 1990s, a clear winner in the recovery was low cost clothing, so we developed a revolutionary EPOS system and sold it to the iconic Glasgow store, What Every Woman Wants. Their growth rocketed on the way out of that recession and so did ours by default. In the early 2000s, no one in the UK understood what we were doing with the internet – so we went to America where they did. In 2008 the financial crisis opened doors down Mexico way and we gained a foothold in the high net-worth tourist enclave of Los Cabos. Recessions present just as many opportunities as crisis: leaders need to work the opportunities and leave mere crisis to the managers.

A recession, even a depression, does not crush every business. I have two personal friends that have already become overnight millionaires simply by seeing a new opportunity and going for it. And doing some good along the way I might add; I am not talking about wanton profiteering here.

That Mark Twain quote may not have been uttered by him, but the pithy sentiment is perfect. This is nothing some of us haven’t seen before.

Perhaps a better quote for our times comes from Robert Browning: “Time's wheel runs back or stops: Potter and clay endure.”

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About The Author

After 33 years of running my own IT businesses, I've seen trends come, go...and come back again. With each business I've been involved in, the focus has always been on building in value for my customers. I was honoured to receive an OBE for my services to Scottish business in 2018.

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