At this point, it’s pretty hard to ignore all of the signs that point to a major recession.

Opinions vary as to its length and severity. (For the record, I think it’s going to be a whopper on both counts.) But the fact is, it’s either here or coming soon. So the only question is, what do you do?

Not what do you do about it – unless you’re the Fed (in which case: Thanks for reading, Mr. Bernanke!), that part is out of your control. Rather, the big question is: What do you do in it?

Let’s review: a recession is defined as two or more consecutive quarters of negative growth. Typically, that’s exemplified by falling sales, but sometimes it’s accompanied by inflation, and this is going to be one of those.

Here’s why:

• Worldwide consumption of raw materials is rising, especially due to demand from surging young economies in places like India and China. [Interesting factoid from The Economist: China consumed 80% (!) of the world’s copper production in 2007.] Even though those economies will suffer somewhat from the recession in the US, their internal economies are still growing strongly.
• The Federal Reserve will need to keep interest rates as low as possible as a result of the mortgage and housing situation, which means that the dollar will continue to be weak against other currencies. (While the dollar remains a solid “safe haven” currency, low interest rates push overseas investors to look elsewhere for better returns, which will reduce demand for the dollar.)

These two factors – rising commodity prices and a weak dollar – will cause the price of almost everything to rise, even in the face of falling demand.

In practical terms, this means you’ll be under pressure from employees and vendors seeking higher compensation, while facing resistance from customers when you want to raise prices to offset those rising costs. Bottom line, your bottom line is what gets hammered. As does everyone else’s – which is where opportunity lies.

Here are ten things you can do so that you come out of the recession stronger than ever.

1. Focus on your existing customers – Figure out how to keep them. Remember, they’re under the same pressures you are. Make sure you’re the one they want to do business with when things get tough. But don’t make the mistake of becoming their bank by extending too much credit.
2. Make sure you know your best customers, and that they know you care about them – Who, specifically, is your buyer? There’s an old expression in sales: “know your customer’s shoe size.” It’s always a good idea, but especially in an uncertain economy. If you sell to other companies, you need to understand them at the individual level. Communicate frequently, but take the time to make your communication relevant and interesting.
3. Make sure you keep your best employees – Remember, they’re feeling the pinch, and will be tempted to look for a better job if they can find it.
4. Prune your payroll – This is the time to look hard at all of your employees. Know in advance who you want to keep (and who you have to keep), and who you can (or should) let go.
5. Conserve creditworthiness – Just like you don’t want to be your customers’ banker, don’t get into the position of being overextended with vendors, especially the ones you really depend on. This is often the opposite of what your instincts are – we all think our key vendors need us, which is true right up until they decide they can’t afford you as a customer. If you have to stretch payments, do it with ancillary vendors, and don’t wait for them to call you – tell them that you’re going to pay them later than you think you can, so you then pay them sooner than you said you would.
6. If things are tight, pay off all the little bills first – You’ll spend as much time and energy answering calls from the little guys as you do from the big ones. And remember the old adage: “If you borrow $1,000 and can’t pay it back, you have a problem. But if you borrow $100,000 and can’t pay it back, the lender has a problem.” Your bigger vendors will work with you – they don’t want to lose you if they can help it. So pay off the little guys, and then communicate with the big ones openly and frequently. And pay something – it shows good faith, and makes it harder to cut you off.
7. Invest in systems – It may seem like a strange time to be making investments, but in fact it’s the best time, for two reasons. First, you’re likely to be a little less busy than normal, meaning that it’s a window for you and your staff to evaluate and deploy something. And second, good systems will help you pay better attention to your customers while getting more from your employees. Big companies have done this for two decades, and it accounts for most of the increase we’ve seen in productivity over that period. (In case you were wondering, I recommend NetBooks.)
8. Dump slow-moving inventory – This is always a good idea, but at times like this it’s essential. It doesn’t help you to have money tied up in things that aren’t selling. You’ll need that cash for more important things, so dump it! If you can recover your costs, great, but don’t sit on it – it isn’t going to increase in value! I’ve found that the best thing to do with slow-moving inventory is to offer it at a deep discount to the customers who have bought it in the past. They’ll appreciate it, and you’ll get the cash!
9. Make friends with two banks – They’ll be feeling the pinch, too. Remember, they make money by making loans. So develop good relationships with people who can lend to you in at least two banks. Make sure they understand your business, and keep them informed about what you’re doing to navigate the recession. Then, if you hit a rough spot, or an opportunity crops up, you’re more likely to have quick access to debt.
10. Be ready to acquire – There will almost certainly be opportunities for you to expand via acquisition as your competitors fall. In many cases, you can cherry-pick, snapping up customer lists or accounts along with key employees rather than whole companies. Be sure to network constantly, so you’re aware early when competitors are having a hard time.

Difficult times call for difficult – and creative – measures, but they’re also great opportunities if you plan ahead. Think of them as the rapids on the river of business life – everybody’s going to get wet, but some people will have a great time!

This entry was posted on Monday, March 24th, 2008 at 5:27 pm and is filed under Revenue, Operations, Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.