What Needs to be Done Before a Recession Hits?
Get an outside perspective and invest in ongoing employee education.
Waiting to Plan Your Recession Business Strategy Is Dangerous
Keep the economy in perspective and do the hard work before times get tough.
What Organizations Have Done in the Past to Pull Through a Recession
Invest in CX over R&D, acquire talent, and refine the 3 Ps—people, processes, platforms.
What Happens When You Emerge From a Recession With a Laser Focus on CX
Customers notice when you are actively improving the buying experience. Learn to listen and adapt.
One of the hardest topics to talk about is your recession business strategy. Mutter the word recession around the boardroom table and you’ll likely hear a collective groan. Conversations about the implications of a future economic downturn are usually approached begrudgingly, and with a “hopefully we never have to deal with that” kind of attitude.
Few things suck the air out of a room faster than economic catastrophe, and yet, I’ve been itching to write about the recession and how it pertains to business strategy for a while now. Call me crazy, but I love a challenge, and matters surrounding recessions are no different. Now, with the flattening of the yield curve hitting headlines and threats about the possible implications of increasing hiked interest rates, I know it’s time to get this information out into the world.
In this post, I’m going to tackle the things you need to do today to prepare for a recession, how you can spend strategically during a recession, and what it looks like to emerge successfully after adopting intelligent CX initiatives. But, in order to do this effectively, it’s imperative that you have an understanding of the macroeconomics behind anticipating and preparing for a recession.
The Correlation Between Business Recession Strategy and the Yield Curve
There are tons of lagging macroeconomic indicators out there, such as unemployment rates, interest rates, and the consumer price index (or inflation rates). These indicators are great in their own way, but unfortunately, they typically come too late to allow forward-thinking businesses enough time to strategize and pivot when necessary.
Leading indicators are a little different. They come ahead of major changes, giving businesses time to shift gears and make strategic moves that’ll enable them to withstand the upcoming economic climate—regardless of what it might look like. One leading indicator I trust for deep insights and keep a close eye on, along with many other leading economists, is the flattening U.S. yield curve.
If you’re not familiar with the yield curve, you should be – especially if you’re tasked with any aspect of the growth of your company and make budgetary decisions to the tune of millions of dollars. That’s because the yield curve can help gauge potential economic outcomes that could have a direct impact on your profit margins.
The yield curve is a line that showcases the current interest rate environment based on bonds and securities. When it goes up, it signals a chasm between the interest rates of long-term and short-term debt instruments. This steepening of the yield curve typically means the economy is strong and inflation rates are about to rise. On the flip side, when it’s flattening, that chasm between long- and short-term interest rates is closing in. And when it becomes inverted – where short-term interest rates are higher than long-term bond interest rates–it’s foreboding.
Historically, an inverted yield curve has been a strong signal that a recession could be right around the corner. In fact, negative yield curves have predicted all of the last nine U.S. recessions. This inverted yield curve to recession correlation chart from Charlie Bilello on the professional knowledge swap platform, Seeking Alpha, does a good job of showing just how effectively inverted yield curves have been at forecasting a recession. Pretty telling, right?
Take a closer look at the timing of the yield curve inversion in the chart above. In the 1960 recession, the yield curve inverted only seven months before the recession hit. In the 1957 and 1973 recession, the yield curve inverted only eight months before the recession hit. These aren’t tremendous lead times, especially for the number of preparations required for setting up your business to pivot strategically and minimize the risk of experiencing the well-known, punch-in-the-gut outcomes that so often happen during a recession.
You can’t wait for the yield curve to invert before deciding on your recession business strategy.
Waiting for the yield curve to invert is the equivalent of waiting for the first raindrops to fall. This approach won’t leave you enough time to solidify your ideas and create a recession-proof business strategy, making it much harder to pull through an economic catastrophe successfully. Watching for a flattening yield curve is one of the best ways to get a leading prediction that a recession could hit soon and knowing how it comes, how to speak articulately on it and democratize a preparedness approach to your organization will not only help insulate your business strategy against a recession, you’ll personally be seen within your team and organization as the forward thinker who “gets it”.
Before you hunker down too tightly, take a look at this video from one of my favorite economists, MKM Partners’ Michael Darda. He’s a brilliant strategist—one of the best on the planet earth—who has nailed so many things correctly over the years. This time, he’s suggesting that we shouldn’t worry just yet about the potential implications of the flattening of the yield curve but rather when the yield curve inverts caused by additional tightening from the Fed.
Remember that historically, an inverted yield curve has been the economic equivalent of a giant yellow warning light flashing at key business leaders and stakeholders. But now you have a renowned economic strategist, Darda, coming out and saying that he thinks the flattening yield curve isn’t actually a problem right now and predicting that it will only become a problem if the feds continue to hike interest rates. But look at other headlines and you’ll likely see that the Federal Reserve’s tightening cycle seems to be continuing at full steam. Analysts believe that the fed is planning to hike interest rates again, which is an ominous sign that the yield curve could invert.
Although the dark economic storm clouds appear to be building, Darda’s advice is sound. The flattening yield curve is just a predictor and a good warning that a recession could happen, so the time to start planning is now. You shouldn’t wait for an inversion before acting.
The key to a strong recession business strategy is to monitor the economic climate and pivot at just the right time without losing momentum. – Buckley Barlow
Another economist I follow is David Ader, Chief Macro Strategist at Informa Financial Intelligence. He was ranked as the top U.S. government bond strategist by Institutional Investor for 10 years running. He said about the yield curve, “Yes, the curve hasn’t inverted, but I suggest that there’s no absolute need for an inversion to precede a recession.” According to Ader, various pressures on the long-term bond rates could cause the long-term yields to stay slightly above short-term yields, and thus, it’s possible we won’t have an inversion, but we could still have a recession.
Making economic predictions is notoriously complex in nature. When it comes to making key decisions for RocketSource and for my notable clients, I’m not ready to bet my marketing dollars on what’s happening with the yield curve alone. I rely on a slew of factors. The flattening yield curve is just one data point that’s caught my eye but there’s so much more out there.
In some cases, the lagging indicators in a post-boom market can actually become leading indicators that end up fueling other economic data. For example, I often look at the price-to-earnings ratio (P/E ratio) as a means of anticipating what will happen economically, especially after notable IPOs—when VC-backed private companies end up going public. That’s because people buy stocks based on a company’s predicted future performance rather than past sales. Therefore, the stock market can sometimes signal whether the economy is strong or on the decline. Another take on P/E is when valuations are way too frothy to be sustained.
Consumer spending is another indicator that tends to move in tandem with business success, so I also look at its various tendencies as it pertains to human behavior–specifically, the real estate market. If investments are declining, it usually means consumers’ confidence is declining too. People hold on tighter to their money because they’re looking for more stability or liquidity, and thus, aligned with other leading factors, could denote a recession might be on the horizon.
Macroeconomic insights, such as the flattening yield curve, p/e ratio, and reduced consumer spending trends and changing behaviors are just some of the indicators that can serve as arrows in your quiver. You can pull these out at any time when deciding on your next strategic move or planning your recession business strategy–and you can use them to back up your ideas when presenting to your peers and executives. It’s how to determine when to go full throttle and when to pull back or even when to pivot.
Now we know you’re probably trying to get a grasp on the yield curve and the impacts it could have on your business, but let’s pause for a minute. These insights might not be as foreign to you as they seem. You see the impact of these economic fluctuations in your daily life whenever you open up your mutual fund statements, or when you look at mortgage rates and consider whether it’s time to buy a new home or refinance your current one. Just like they translate into your personal life, they can also translate into your professional role. When you know what these headlines mean and can pull together data points to support your assumptions, strategies, and plans, you’re better equipped to position yourself as an exceptional leader among your peers.
Building the Framework of Your Recession Business Strategy
Dollars don’t infinitely go up. Keeping an eye on the economic landscape and analyze what’s ahead for you and your consumers can help you know where to spend and when to pivot. Both as a leader in your company and as a consumer, you want to know where to go and how to adjust your spending so that you can be as profitable as possible. That’s where having a solid framework makes a lot of sense. When you take a step forward, you don’t want to feel as if you’re stepping in mud. You want to plant your feet firmly on a solid framework and walk with confidence knowing that the preparation you did yesterday will enable you to do a better job tomorrow. Part of that preparation is skilling yourself up on how the economy impacts business and market cycles.
There’s a book on my shelf that I pull down before and during every recession. It’s called, “Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles” by Joseph H. Ellis.
In this book, Ellis argues that it’s not a lack of data that’s the problem when it comes to predicting the economy—it’s a lack of a framework for interpreting the data correctly based on context and research. Too many businesses rely on one-off data sets handed out at the beginning of each week to make pivotal and potentially life-altering changes. These one-off data sets fail to give context to what’s being presented. They fail to tell a bigger story about what businesses can do to come out on top.
For example, so many senior levels teams I work with (barring the financial dept.) tend to only look at their direct spending budget on a quarterly basis. They’re so driven and focused on the now, they tend to not think macroeconomically about what’s happening in areas like the bond market and what the hiking of interest rates could mean for their future budgets. Because of this, they struggle to see the bigger picture of how they’re allocating their capital and it’s even more complicated when their north star metric(s) and key KPIs are so top level (i.e. Revenue growth) that the metrics don’t give the deepened predictive insights the company really needs. Because of this disconnect—which could be the result of organizational silos—leaders end up investing in the wrong things and failing to invest in the right things and especially in the areas that will set them apart when the economy takes a turn for the worse and on the flip side when the economy is poised to roar out of a recession.
What Ellis presents—and what I’m a huge advocate for in all of my consulting work— is visualizing datasets over longer time frames. When it comes to recession business strategies, plotting out year-over-year insights can yield better strategies and ideas than plotting by quarter. This approach helps to draw out seasonal effects and smooth over those clunky monthly averages, so you can see relative changes over time. It also enables forward-thinkers to prepare for massive growth when the timing is right. It’s an excellent way to push out of stagnant or declining growth charts regardless of what the economic backdrop looks like.
Tapping into these economic-driven insights apply to a company as a whole. Marketers are more apt to understand how to react to signs of change in consumer spending and allocate spend in the right ecosystems, the right touchpoints and make partnerships in areas that specifically hedge against a drop in leads, nurtures or conversions. Product Managers learn to iterate on products in a way that rivals don’t see, keeping the company more competitive and certainly more aligned and more attuned with their cohorts. This approach is not department specific. It’s for every leader across the organization.
People drive the economy. It’s people who spend and it’s people who choose not to. It’s people who decide to hit the brakes on spending, which ultimately is what impacts the economy. One of my favorite videos about the economy is one by Ray Dalio. In it, he presents a simplified view of the economy but reinforces the idea that it is driven by people. The video is 31 minutes long so I won’t blame you if you don’t want to watch it all now, but it’s a nice primer as you wrangle all of the macroeconomic changes happening today. For the sake of this post, here’s my takeaway from Dalio’s video and why I bring it up: While doing an in-depth analysis of the economy, the key to understanding it is to remember what too many forget—the economy is not some autonomous mysterious entity separate from us and people as a whole. The economy is made up of and driven by people just like you, with motivations just like yours. Deals made between businesses are really deals made by people within those businesses. That’s why having vested relationships with employees, partners, and consumers is so paramount to growth. That personalized vesting coupled with a curious understanding of how to put all the little pieces of a larger puzzle together is so critical that it’s a part of our HR process at RocketSource. Perhaps that’s one of the core reasons why we have clients all over the world and yet, we’re still a small firm capable of doing big things.
You can see now that having a recession strategy doesn’t mean having a simple backup plan for when revenues taper off. It means having an established, reliable framework that withstands any economic backdrop for extracting insights from consumers and macroeconomic trends along with your internal data, such as your customer journey analytics. The framework that answers this lofty demand, and that I have used to grow numerous businesses, is StoryVesting.
StoryVesting: A Framework for Every Economic Backdrop
Dips are not easily forecasted–even when you look at leading indicators like the yield curve. When the economic and stock market cycles go in a downward motion, no one gets a free pass. Out go the pay raises, job security, relocation packages, budgets and in comes a loss of revenue and momentum. This standstill is what scares so many CEOs – and rightfully so. To keep your business on track, it’s critical that you align the two core groups of people in your business—your employees and your customers—before recession hits. That concept of alignment is the foundation of my StoryVesting framework.
StoryVesting is the data-driven, customer-centric framework that I’ve used for years to grow my client’s businesses and it’s the one we teach in our workshops, as well as to every new employee who walks through our doors. It’s based on predictive consumer psychology and infused with humanized data. This intelligent growth and innovation framework lets you understand where shifts need to happen, where opportunities are being missed, and how to mitigate risks associated with economic downturns. We’re solving complex problems with this approach and recessions are no exception.
Until now, I’ve hit you hard with economics, but this isn’t a post on macroeconomic theory. Yes, looking closely at economic drivers can help inform how close we are to a recession, and what consumers are thinking and feeling as a result. But if you set up your business the right way, you won’t have to excessively worry about many of the notorious repercussions of a recession, like plummeting revenue charts, slashed budgets, or newsworthy layoffs. You can watch the news, hear about leading indicators like the flattening yield curve, and still breathe easy knowing that your business will not only survive but has the potential to thrive during a recession, regardless of when or where it happens. I might add that a little worry is healthy—but excessive worry is paralyzing to you, your teams and to your organization as a whole.
Whether the recession hits next week or next year, you’ll never be remiss by preparing.
You can see then that the question isn’t whether to have a recession business strategy. The question is what can your organization do TODAY to pull through the recession, so you’re not left fumbling when the next one hits.
How to Work On Your Recession Business Strategy Before the Economy Tanks
In my experience, the old adage about failing to plan is planning to fail holds true. That’s because a brand’s ability to successfully navigate an economic downturn will depend on the work that has been done leading up to it.
“Recession is opportunity in wolf’s clothing.” —Robin Sharma
A sound recession business strategy isn’t a list of tactics you can pull out of a hat as soon as the economy turns. It’s a comprehensive plan which includes proactive analysis and a strategic response to the economic backdrop you’re given. Very few companies do this, and that’s why so many are put through the wringer when a recession arrives.
One of the core components of that plan is empathy. You’ve probably done some type of empathy mapping exercise in your organization before where you plot out what you anticipate your customers are thinking, feeling, saying, or doing. You probably also wrote out some of their common pain points and motivations. This is a good start, but at RocketSource, we take this exercise many steps further by adding employee insights and metrics to the equation.
The first thing you’ll notice that’s different about our empathy map is that there are two circles instead of one. That’s because there are two cohorts of people who are vital to your business’s success—your customers and your employees. By focusing on both cohorts, you can get a better understanding of what your team needs in order to better serve your consumers.
We also came up with 16-data points that signal how well you’re aligning with your employee’s and customer’s needs and then plotted them on radar graphs, making these big, lofty concepts more data-centric and quickly understandable. Here, you can plot out your data and quickly see how effectively your organization is meeting people’s demands. We go through how to do this in detail in our workshops. That’s because we’re firm believers of using data to validate assumptions and ensure that your perspective is accurate.
Perspective is an important element here that’s not often talked about in business strategy but it should be. Without seeing the big picture, you could miss a substantial opportunity. With the wrong perspective, you could misunderstand your employee and customer’s needs, sending you in the wrong direction. To get a better understanding of just how important perspective is, take a look at this 30-second advert from The Guardian.
By gaining the right perspective using the insights data provides you, you’re in a better position to operate a more “intelligent” operation–one that directly hits at your business’s why and your customer’s why. The better you align these two whys, the more poignant you can be with how you address your consumer’s concerns. Take your sales scripts as an example. Leaving your customer support team to wing it on the phone with customers is dangerous. Instead, you want your team to take a strategic and empathetic approach when addressing the people who are deciding whether or not to buy from you. Remember, people buy from people, so having your team operate out of a place of empathy means you’ll increase the chances of winning your customer’s hearts, minds, and wallets. To do this effectively, you should have sales scripts that match the empathy map you have in place for each cohort. That means having multiple sales scripts in place–one for each cohort–and a well-trained team on how to use the scripts most effectively.
Taking an empathetic approach and digging deep to uncover what your consumers want from your brand will help you not only survive, but also thrive during a recession.
Take Lego as an example. The toy industry was hit hard in 2008 and 2009, despite it typically being thought of as a recession-proof industry. While most toy manufacturers were scraping by in 2009 following a slower-than-expected 2008 holiday season, Lego’s profits went up by a third.
Why did Lego trend upwards when the other major toy manufacturers sales fell or leveled off? The company did a good job of reacting to what consumers really wanted—toys with longevity. Lego understood that parents had limited disposable income and focused on promoting the durability of their classic colorful toy blocks. By gaining this insight, they were able to fine-tune their messaging and product to give their buyers exactly what they wanted—longer-lasting toys.
Again, getting this deep on understanding the buyer’s needs is hard. So often, we’re married to what we do for a living. If you’re anything like me, a self-proclaimed workaholic, you live, eat, and breathe your life’s work. This type of relationship with our job makes it hard to see the forest for the trees. We can’t innovate, invent, or improve because we’re stuck with our noses too close to the grindstone, making it impossible to see new opportunities and listen effectively to consumer demands.
There are many data collection, mining, and modeling methods you can use to gather these insights. Or, another faster way of uncovering potential opportunities is to get an outsider’s perspective by investing in assessments from a third party. I’m the founder of an innovative consulting and services firm, so I obviously have motivations to recommend assessments. But looking at it with 100% objectivity, you can hopefully see how a third party’s assessment benefits businesses and allows a new outside view. A good assessment won’t just act as a springboard for new ideas, but will also lay out your end-to-end customer journey in such a complete and overarching way that you can better identify areas where you can be more empathetic with your business strategy. When economic catastrophe eventually strikes—and it will strike again—you’ll be better equipped to weather the storm.
How to React Strategically When a Recession Hits
Every company, no matter how successful, faces strategic inflection points sooner or later—moments where momentum slows and key decisions have to be made in order to continue growing. I touched on these strategic inflection points in my post about the S curve of business. When you have a moment, I encourage you to read that article. For now, here’s the gist: To push your way through those moments where growth stagnates, you must pull on the right key levers to strategize, deploy, and ultimately propel your business upward again.
With recessions, strategic inflection point strategies look a little bit different. That’s because recessions drastically impact the whole economy, forcing many companies into an inflection point at the same time. Consumer spending drops, the markets go crazy, and companies react by panicking.
“I’ve heard there’s going to be a recession. I’ve decided not to participate.” —Walt Disney
Walt Disney got it right. Just because there’s going to be a recession again doesn’t mean you have to participate when it hits–and by planning ahead you won’t have to. By aligning your brand with your ideal customer’s wants and needs before, during and after a recession occurs, there’s no reason to panic when economists speculate the implications of the flattening yield curve.
This panic is why during a recession most of the headlines you’ll see are about layoffs, bankruptcy, high-interest borrowing, reduced venture capital funding, and more doom and gloom—but this doesn’t have to be the case for every organization. There are a lot of success stories that come out of recessions as well.
Look at what happened in the car industry as an example. They were hit hard twice—in the 1990 recession and again in 2008. Prior to these recessions, the Big Three—GM, Ford, and Chrysler—held some of the industry’s top spots for sales. But as soon as the economy started to decline, so did sales. These three manufacturers started closing manufacturing plants because of declining sales numbers. Here’s a shudder-inducing sales chart from GM to give you some insight into what they were up against and why the U.S. government stepped in with a taxpayer-funded bailout loan.
Now, at the same time in the early 1990s, Toyota’s story looked dramatically different. Not only was Toyota not closing their plants, they were opening new ones. Production continued to grow during the recession in the 1990s and beyond. According to Yukitoshi Funo, head of the company’s North American operations at the time, “Toyota’s market share goes up during downturns.” In 2002, their sales rose by 4.6% over the prior year—that was the same time that the Big Three’s sales were falling.
But this success wasn’t exclusive to Toyota. Other Japanese automakers were also able to contribute to a growing trend that occurred simultaneously during the recession.
The reason Japanese automakers were ramping up production while American ones were slowing down boiled down to the positioning and focus. GM, Chrysler, and Ford were largely known for assembly line efficiency, while Toyota and Honda were considered superior for their durability and quality. Consumers overwhelmingly chose cars with quality because they knew these vehicles would hold their value longer than their American counterparts. This wasn’t an accident. Japanese manufacturers made a strategic choice to align with the customer’s durability concerns.
Many companies today have the same problem GM, Chrysler, and Ford had. They simply don’t have the right combination of talent, know-how, and foresight to accurately forecast and prepare for recessions based on consumer insights. When they find themselves in those forced strategic inflection points due to a recession, they falter rather than push through successfully. That’s because this stuff isn’t easy. As I mentioned earlier, there isn’t a simple hack or checklist to help you stay ahead of the competition and anyone who says differently is selling something. Still, there are ways you can simplify the complex to make it more manageable while mitigating risk.
I’ve built companies throughout recessions. I’ve experienced the pit in my stomach at night as I scroll through the Apple News app on my iPad. I’ve been through the fears associated with these economic slowdowns and emerging out of them, I’ve found three things that help keep the growth machine moving in the right direction with momentum—even when consumer spending slows—1) cutting back on R&D and reallocating, 2) looking to strategic acquisitions and acqui-hires, and 3) refining the 3Ps around Customer Experience. Let’s look closer at each of those.
1. Reallocate Funds From Research & Development to Customer Experience
Product innovation can tear your profit margins apart—especially during a recession. As you saw in the Lego and car manufacturer examples, consumers look for longevity and proven durability during a recession. New product developments just can’t deliver enough of a promise for consumers to buy with confidence, so sales continue to slump. So where do you invest in growth if it’s not on product innovation? Experience.
“Welcome to the new era of marketing and service in which your brand is defined by those who experience it.” — Brian Solis
Gartner has long said that customer experience is the new battlefield and we wholeheartedly agree. And still, 87% of customers think brands need to put more effort into providing consistent experiences, according to ZenDesk and LoudHouse. Customer experience (CX) initiatives drive revenues and build customer loyalty. This is the premise behind the rather sharp looking bowtie funnel I designed.
I’ve dug in deep on this in my post about the bowtie funnel, so if this is new to you, I urge you to read this post and learn more about each of these stages. When you focus on delivering superior customer experiences at every stage from awareness to brand ambassador, you invest in bolstering your loyalty loop.
Your loyalty loop—the holistic view of your marketing funnel–is the key to keeping customers aligned with, coming back to, and raving about your brand regardless of the economic backdrop. Investing in both customer acquisition along with customer retention will optimize your business for growth, even when consumers are more hesitant to pull out their wallets. The key to doing this is to deliver a stellar experience—not some shiny new features on your products.
2. Look for Strategic Acquisitions or Acqui-Hires
This might look like an odd suggestion after sharing the Hewlett Packard example above. It also might seem like a risky venture to take during a time that’s traditionally all about mitigating risk. But, when done right, strategic acquisitions can have a tremendous impact on an organization during a downturn. The key word there is strategic.
The larger companies get, the more they rely on strategic mergers & acquisitions to grow. A McKinsey analysis found that between 1999 and 2010, 75% of the top 500 companies used active M&A programs to grow, and 91% of the top 100 companies used M&A for growth. This was certainly true of Verizon and Alltel.
In 2008, in the middle of the recession, Verizon Wireless made a famous strategic acquisition. Verizon bought Alltel for $28.1 billion. The strategy behind it was to become the largest Internet provider in the United States, bumping AT&T out of the top spot. The move proved to be a good one as the cell phone service provider continues to see upward momentum even a decade later. As apps became a normal offering and more people started buying smartphones, Verizon saw the demand for more cell phone data. They made the decision during the recession to plant themselves at the top of the carrier list and deliver that data through their strategic acquisition.
Acquisitions tend to decline during a recession. The Verizon acquisition of Alltel was unique and for the most part during the 2008 recession, we saw a decline in this business strategy. Still, a global study by Towers Perrin and Cass Business School found that businesses that made strategic acquisitions during 2008 and 2009 tended to outperform their competition in market valuation. The reason was businesses were able to pick up better deals, which in turn gave them better returns. David Hinkel, Senior Consultant in Towers Perrin’s M&A practice, shared in his final analysis, “companies that are good at deals are always hunting for opportunities, and have systems and processes in place to move quickly for the right purchase. Repeat acquirers get better returns because they are resourced well, are flexible enough to react, and are clear about what will work strategically and culturally. That’s the recipe for success to which all companies need to aspire.”
The key here is to take a proactive stance instead of a reactive one. Be on the lookout now for businesses that can push your company further and when the timing and pricing are right, acquire.
3. Refine the 3 Ps of Business
Slowing R&D and making strategic acquisitions are helpful but you can’t afford to ignore what’s happening at the core of your business. One of the most fundamental steps in ensuring your success before, during, and after a recession is to focus on what I call the 3 Ps of business—people, platforms, and processes.
No matter what the economy looks like, you should be constantly perfecting the way these work together. In recessions, however, they’re even more critical to your ongoing success. Let’s take a closer look at each of them.
A study by Harvard Business Review analyzed 4,700 companies that went through the most recent recessions. In it, they found that companies who focused on cutting their workforce only had an 11% chance of achieving breakaway performance coming out of the recession. Their explanation for why makes sense—laying off employees lowers morale. And when morale plummets, so does your team’s ability to feel vested in your business’s why.
As leaders, it’s critical that we keep in mind the people we’re leading. They aren’t cogs in a machine but rather young driven talent, or senior employees itching to remain relevant. They’re people striving to achieve success just like you and me. And also just like us, they make mistakes and are wrong at times. Taking an empathetic response during those times can strengthen their feelings of investment with your company—especially when it feels like everyone around them is crying out that the sky is falling. Your understanding of what they’re experiencing can be just the inspiration your team needs to stick around and help push you through the economic downturn.
Never forget the value of your most vested employees and customers… they’ll propel you out of a recession. –Buckley Barlow
To demonstrate the importance of vested employees during a recession, let’s look at Office Depot. During the 2000 recession, they cut their workforce by 6% and tried to make up for the lower headcount by offering incentives to boost sales. It didn’t work. Growth fell to 8%, compared to the 19% growth they were experiencing pre-recession. They bled talent and thus, they stifled the momentum they’d worked so hard to build in the marketplace.
On the other hand, Costco took a different approach. They were public about not laying anyone off during the recession. When asked why, CEO Jim Siegal said, “Our employees… deserve our loyalty.” That sentiment resonated with a lot of people–consumers and employees alike. Their sales proved that their investment in people was a solid one.
Take a look at this chart. Here, you can see the sales growth difference between Costco and Office Depot from the time the recession hit and beyond. A key part of Costco’s upward momentum was their dedication to their employees. Meanwhile, Office Depot continued to trend downward even after the economy improved.
This demoralization and struggle to regain vested employees are why I’m such an advocate for educating and rewarding your team through a recession. By investing in the people who make up your organization, you position your company to provide better experiences to customers. These experiences are what fuel growth during economic hardships.
Every time I see a recession on the horizon, I make sure I have a plan to scale up my employees in a meaningful and consistent way. It’s not a method of distracting my workers from the shaky economic times, it’s about planning for your growth on the tail end of the recession, and mitigating damage as much as possible during the recession. This tactic of training allows for that in a couple of different ways. By training, you show your employees that you’re investing in them, which makes them feel more secure in their roles despite the tumultuous economic surroundings. Training not only improves employee morale but also prepares your company to better regain strong momentum after the recession ends.
An educated workforce generates good ideas, can turn those good ideas into great products and processes, and is better equipped to make your customers happy.
You and your team must constantly equip yourselves with the brainpower to iterate and adapt to today’s rapidly changing market and to do that, you need to continue education. Education for employees, including yourself, keeps the focus on personal growth. This personal progress isn’t just valuable for your firm because of the new insights they bring back. It also builds self-esteem and spurs feelings of security in an otherwise insecure time. Consistent personal growth makes everyone—you and your employees—feel vested in your business’s longevity and success.
There’s no downside to making your employees better. I’ve seen the educational approach pay off in improved morale and better overall brand experiences, which is why I am such an advocate for it. It’s also why we’re creating specialized workshops and training at RocketSource. It’s a solid approach to empowering your team to plant their feet in your culture and align themselves with the goals of your company.
The platforms you use to do your work, gather insights, manage projects and sell your products, matter. These are the tools your team and your customers interact with daily, so they have a direct impact on the experience people have with your business.
How you gather your data and where you act on it can make or break your business—especially during a recession.
Before, during, and after a recession, you need to use, review, and—when necessary—switch the platforms you use. Every time you analyze your current tech stack, you’re looking for platforms that let your teams effectively communicate and collaborate, as well as platforms that let your consumers buy from you with minimal friction. Without the right tools in place, your business will have a harder time surviving when the economy slows down.
Let’s revisit the car industry as a good example of how platforms need to adapt over time. According to Google—a reputable source in my book–the average used-car buyer visited five to seven dealerships when trying to find the perfect vehicle. Now, they don’t even make it to two. That’s because consumers are using a new platform to shop for their vehicles—the Internet.
CarMax saw this new platform usage and understood the importance of meeting the customer where they wanted to shop—online. So, they adapted their website, personalizing all of the channels in their buyer’s experience. First, they innovated on their search functionality and figured out ways to use data to identify unique needs. Then, based on those insights, they personalized the messages their customers received online, on their mobile devices, and ultimately in-store.
By analyzing your internal tech stack and comparing it to the technology consumers demand, you can improve your the overall experience people have with your brand. It’s that experience that is paramount when consumer confidence is shaky and competitors are fighting for every consumer dollar.
Every time you take action in your business, you set a process in motion. For example, when someone signs up for your email newsletter, you send them the first welcome letter (if not, you should). Upon doing so, you’ve set a process in motion of nurturing that person towards a sale. When a customer orders a product off your website, you set another process in motion. A phone call to the support department is another.
Inside the organization, you have processes too. Marketing, sales, support, IT, and every other department all handle unique parts of the business differently. But here’s the thing—every internal process is a part of the greater sum of the end-to-end customer journey. That means that every process reflects back on your brand in some way. As you break away from thinking of these processes individually and more as a holistic experience, you can really start to gain momentum.
During a recession, your processes might need to shift. One company that recognized this need, and did well as a result, was Ford during the 2008 recession. Their success was much in part due to how they changed their operations during the economic slowdown.
Ford entered the recession struggling along with the other American automakers. Before 2008, they had recalls, safety issues, and slower sales. When their new CEO, Alan Mulally took over, things changed. In 2009, Ford posted a net income of $2.7 billion. In 2010, that went up to $6.6 billion, their highest earnings in more than a decade. So how did they fuel their growth? They changed their processes. They identified bottlenecks and eliminated them. They cut high-cost models from their production line. And they worked hard to revamp their image in the industry. They looked at the processes holistically and made changes for the better.
At RocketSource, we help businesses tackle these 3 Ps by optimizing them for growth in and out of a recession. We help companies shave down platform costs. We streamline bottlenecks in business processes. And, we help people skill up to become more empowered and vested in a business. All of this is done with one goal in mind—to deliver the best possible experience to both the employee and the customer no matter what’s happening in the economy.
Strategic Spending During a Recession
Each of these three factors–1) reallocating funds from R&D, 2) looking for strategic acquisitions or acqui-hires, and 3) refining the 3 Ps–have to do with one core thing: Knowing when to pivot on spending. And that requires you to be forward-thinking.
Cost-per-acquisition (CPA) goes off the charts during a recession because companies spend so much money to attract new customers. The companies that succeed during a recession aren’t necessarily making more money; they’re pivoting to become more pragmatic about how and where they spend their money. The question then becomes, how do you accurately determine when it’s time to start spending during and after a recession?
It’s incumbent on leaders to use data to find that answer. Specifically, we use correlation graphs.
As you map out your data points, you’re looking for a strong positive correlation between your pre-recession data and your current data. Take sales for example. If we measure pre-recession sales per cohort and then compare those measurements to current sales based on cohort, you can determine if both are increasing together (a positive correlation) and how strongly they’re aligned. Even a weak positive correlation might be enough to signal that it’s okay to pick up spending again.
By mapping these out against a Customer-Centric data mapping process, you are using data to get a clear indicator of your customer’s spending habits and behaviors given the current economy. You can then use those findings to run fundamental IRR analyses and determine how to allocate for growth.
The reason why tapping into your data is so important is that it validates your assumptions. It tells you if what you’re guessing based on the current economic backdrop is true. And nothing is more critical than ensuring that “gut-feel” is quantified across an agile, fail-fast mentality.
When you’re managing budgets to the tune of millions of dollars, think of it as if you’re a consumer trying to build personal wealth. You’d have to spend money on the right things at the right time in order for you to grow your net worth. To do that, you would watch the news and predict what your family’s household budget will look like a month, a year, or five years from today.
Business spending is no different. You have to pay attention to what’s happening economically to understand how consumers will react. Then, based on those insights, allocate your spending on the right channels, with the right technology, at the right time. Ultimately, when you go through this logical preparation and tactical execution, you’ll emerge from the recession armed with assets that’ll put you leaps and bounds ahead of your competition.
To illustrate this point, let’s look at Home Depot. Recently, they saw their stock tumble after reporting weaker than estimated sales. Many blamed the delay in the warm Spring weather, but there’s likely more to this story.
Millennials aren’t buying homes like generations have done previously. Boomers are downsizing. To top it off, consumers just aren’t spending as much as they used to. Zillow showcased a report that shows home sales haven’t bounced back to where they used to be before the 2008 recession.
Chances are, home sales won’t spike anytime soon either. That’s likely because the recession has started to creep back into the news and consumers are scared. They’re holding tight to their pursestrings remembering how painful the last recession was.
When the economy trends downwards like this, it’s a key indicator that it’s time to tweak budgets, change pricing models, revise loyalty loops, increase customer service and support, add additional technologies that’ll pull customers in and make the business more visible. This is a prime time for Home Depot to adjust their approach. For example, now, when consumers aren’t spending as much on home improvement and instead are hunkering down for a recession, they’re probably spending more time googling “do it yourself” than they are trying to update the look of their home. With that in mind, Home Depot might do better by promoting projects like pantry remodels over kitchen remodels. Or they might place a heavier emphasis on promoting their classes to appeal to consumer preferences for DIY projects in lieu of full remodels.
By analyzing the correlation between pre-recession and recession data points, businesses can get a better idea of when and where to pivot. In doing so, they’re better equipped to appeal to their customers fluctuating needs.
What Happens When you Emerge From a Recession With a Laser Focus on Customer Experience?
By becoming experience-centric today, you’ll be in a prime position to not only survive the economic downturn but come out ahead and armed with some strong assets under your belt. I’m not talking about assets like faster printers or a treadmill desk. I’m talking assets that will give your entire business a nice, gusty tailwind as the economy enters smoother waters. Let’s look at a few of the ones that are on the table when you put CX first before and during the economic downturn.
As you adjust your spending and adopt brand experience (BX) initiatives during economic hardship, you will ultimately come out of the recession with a more loyal customer base. Lifetime Value (LTV) will likely go up and churn rates will likely go down. And, as customers emerge from the recession and start loosening their purse strings again, that loyalty gives you a head start on the competition.
With more strategic spending and a core base of loyal customers, you’ll likely also have more cash on hand and a strong credit balance while others around you are faltering. When the economy starts to rise again, you’ll be able to outspend the competition, giving your brand an even bigger advantage in the post-recession market, notably in areas around R&D.
Through all of this, as a larger company, you could see a bond yield rating lift with S&P or Moody’s Investors Service, making it easier for your company to secure much more capital.
These hypotheticals all sound well and good (and they are) but have any businesses actually emerged with business-building assets under their belt? You bet. In January 2008, Howard D. Schultz returned to Starbucks as CEO after an 8-year absence. When he did, he arrived at a company that was suffering. Only a month and a half after he took back the reins, profits had fallen by 28 percent. Pair that with the economic downturn, increased competition from low-cost competitors like McDonald’s, and consumers spending less on indulgent coffee beverages meant he was coming into a mess that needed to be cleaned up if it was to survive. His approach? Rebuilding the customer experience.
In the years before his re-emergence as the company’s head executive, Starbucks had opened up hundreds of shops around the world. This rapid expansion cost the company money, but the profits stalled out. People blamed the economy, but Schultz saw a different problem brewing. He sent a letter to his employees saying, “The company must shift its focus away from bureaucracy and back to customers.” He went on to say, “The company shouldn’t just blame the economy; Starbucks’s heavy spending to accommodate its expansion has created a bureaucracy that masked its problems.”
With this analysis, Schultz launched a new initiative. He turned the microphone back on the customers, asking them for their feedback. “My Starbucks Idea” was started in March 2008. The open innovation design invited customers to share their ideas with the company, giving them a voice and showing the coffee giant that their opinions mattered. Consumers jumped at this chance. 93,000 ideas were shared by 1.3 million people on social media. Their page views jumped to 5.5 million per month.
But gathering ideas to increase social media engagement wasn’t the end goal. Starbucks had to show they were listening to the customer feedback—and they did. They implemented many ideas including the option to pay via a mobile app, adding non-dairy alternatives, and rearranging their stores to have more comfortable seating groups. The changes were slight but the message was big. Starbucks was showing empathy to their consumers, improving their experience based on real feedback, and as a result, they emerged successfully from the recession.
This initiative wasn’t successful just because they got customer feedback and ideas. It was that they emerged from the recession with tremendous assets, like brand sentiment lift and brand recall rate.
When consumers have an exceptional experience with your company, they’re more likely to return, and as a result, your business gets equipped with some pretty attractive assets. As you prepare your recession business strategy, keep this in mind because CX initiatives are something you can start now and build on, regardless of when the next recession hits.
Where We Fit In
CX and BX initiatives are powerful—and it’s what we offer to our clients at RocketSource. We deliver all soft of 3rd party assessments, like innovation assessments designed to show areas where our clients can improve, just like Starbucks did with the changes that sparked their steep incline of growth. Our StoryVesting framework uses customer experience (CX) initiative data looping to pull out key growth insights, similar to the success stories we’ve covered in this article. Regardless of the economic backdrop and future forecasts, we help companies deliver experiences that customers won’t soon forget.
In the quest for a recession-proof business strategy, companies shouldn’t chase after short-term tactics that worked in another economic environment or are a knee-jerk reaction. Adopting a customer-centric approach through empathy is vital. So is adopting an internal people-centric approach to establishing, testing, and perfecting the 3 Ps—people, process, and platforms. In order to center your business on people, or to plan for how you’ll adapt when the next recession hits, you need to know where you’re at now. Getting an assessment from a third party lets you see an unbiased view of what your organization is doing well, where you can improve, and what needs to happen so you can avoid significant job and revenue loss when the economy takes a turn downward. With your innovation assessment in mind and key growth insights in hand, you are in a prime position to see serious growth.
Ready to take growth into your own hands? We can help kickstart your professional growth and team development to drive your organization to success regardless of the economic backdrop.