Embracing Uncertainty, again
Based just on the sheer volume of news articles out there today, it sure seems like we are heading into a recession. Don’t quote me on that, of course! But perhaps it’s better to be prepared and then surprised when it doesn’t happen than the alternative.
What will this potential recession look like? And how might it impact your small business? It’s time to start thinking about that – if you haven’t already.
The crazy thing is that many of the small businesses I work with have been entering a post(ish)-pandemic growth phase. They have been taking on new projects, hiring new employees and increasing the salaries of their existing employees.
So how to do you go from feeling like everything is looking up and you don’t have time to manage all the new work, to a potential scaling-down that might come with a recession?
Who wants to embrace uncertainty when we are just feeling like we are getting back to some semblance of normal? And how do we keep this from happening all over again if we do move into a recession?
The key is resilience.
What is resilience?
A recent Harvard Business Review article defines resilience as “the ability to thrive under change”. With that definition, any business owner who has actually been in business in the past few years with a global pandemic, low unemployment, supply chain messes and rising inflation is clearly resilient already. Way to go!
The more unpredictable the world around us is, the more important it is that we can be resilient. Consider all of the stores that had to pivot fast to offer online ordering and either shipping or some method for store pickup. Or the restaurants that had to add the capability for take-out and delivery of their menu. Not to mention the businesses forced to shut down completely! And then there were those that had to figure out how to allow employees to work from home or to manage a safe work environment when working from home wasn’t a possibility. And through all of this, these small businesses had to keep bringing in revenue to survive, despite all of the challenges placed in front of them.
We all already deserve a hearty slap on the back and perhaps a giant trophy for our hard work over the past couple years.
Why is resilience important now?
Now that we ‘survived’ the global pandemic, how bad could a little recession be, right? Well hopefully that’s the case. But it’s likely also a good idea to spend some time thinking about how your business could be impacted by a recession.
For example, if you’ve been thinking about expanding or buying equipment or real estate, you are probably already seeing the impact of rising interest rates. Hopefully, you’ve got access to a line of credit or other loan options with a decent interest rate locked in.
Consider other indicators of a potential recession. What if we see a downturn in new home construction? Is that an indicator for your industry that sales might slow? What are some leading indicators for your business? Do you pay attention to the stock market? The consumer price index? Perhaps the number of new businesses started, or the average number of overtime hours?
We all learned how interdependent small businesses have become on other businesses in the past couple years during the pandemic. Take those lessons learned and think about how you might prepare in the future. Do you need to keep more parts or supplies in stock? Should you hire independent contractors rather than employees if you have a current surge of work?
How can my business be more resilient?
Many people consider resilience to mainly be a way to protect against immediate risks, like a loss of sales or employees. Or perhaps a way to ensure that your company isn’t negatively impacted by supply chain issues or cybersecurity threats.
Insurance, along with some company policies and procedures, can help address some of your key risks. Technology can help as well, with backups to your vital files. Also consider cross-training some of your employees so that you aren’t entirely dependent on one employee for certain tasks.
Another key step would be to ensure that you aren’t too dependent on any one customer. If about 80 percent of your revenue comes from one or two key customers, then if they cancel or slow down work, it will have an immediate impact on your business, your revenue, and your cash flow.
This is why it pays to have a longer-term perspective when evaluating the risk your business faces. Once something bad happens, it can be too late to respond. Start thinking ahead to try to dampen the risk of losing a key employee or a top customer.
The goal is for your company to be able to consider any potential downturns or disasters and have a plan in place to overcome each situation.
Plan for Bad Outcomes
One of the scenarios I’ve discussed with the small business owners I work with is the ‘hit by a bus’ scenario. Even if you are young and healthy, something could happen that might keep you from being able to do your job.
If you are out for an extended period of time, will your business be able to continue without you? Consider how this might work even if (or especially if) you are a solopreneur. What happens to your business and your clients if something happens to you? Does anyone besides you know what’s going on?
What plan do you have in place to keep things moving in your business if something happens to you? Or to one of your key employees?
The Harvard Business Review article recommends
- prudence, in planning for “downside scenarios”
- redundancy to ensure you are prepared for shortages in people, money, or supplies
- diversity in your products and business models to spread out your risk
- modularity, or loosely linked groups that ensure that the whole company isn’t impacted if one area runs into a problem
It’s equally important to be open to change, to be willing to adapt when circumstances keep you from continuing down your originally planned path.
Ultimately, you should aim to be more proactive than reactive when it comes to changes happening around you that could impact your business. Make sure you have policies and procedures in place before you need them. Perform regular backups of your data. Hire before your key employee retires.
But more than that, take the time to observe the world around you and consider how your business might change to adapt to a changing world. As small business owners, we have the ability to implement a change faster than big businesses can, with all their bureaucracy and infrastructure.
Think back to the time that you decided to start your own business. That was a big risk at the time! Sometimes, small business owners can get more conservative as they grow, happy to keep things ‘status quo’. However, when the world around us is changing, then perhaps it’s time to think back to that risk-taker you used to be.
What are some ways you can grow your business without taking on unnecessary risk? Can you grow with the help of some independent contractors rather than employees? Can you add additional services to your existing product or service sales that increase your customer loyalty? Now’s the time to do some brainstorming on growth potential.
Some experts think that a recession is a good time to start a business – so why not also consider growing your business during a recession? “When you start a business in a recession, it’s cheaper” and it also serves to “stress-test the quality of business early.” In addition, when we do come out of a recession “companies and consumers re-evaluate their purchases and are much more open to new ideas and new vendors.”
Keep an eye on how your competitors are responding to changes in the economy. If you are more prepared than your competitors, then your recovery will likely be that much better as well. This can become your competitive advantage over the other companies. Being prepared might mean you’re ready to make a leap into a new market, but it could also mean cutting costs fast if needed.
Finally, try to look ahead a bit. If you can survive this current recession period, then how might you grow your business post-recession? If you can cut costs and increase automation, or establish new relationships with key partners, then this places you at an advantage moving forward. Do some homework and take some calculated risks that help put your business in a stronger position.
Resilient entrepreneurs plan for failure – but also for success.
So much change is underway, it can be a challenge to keep up with it all. How will automation, blockchain, climate change, demographic shifts and other external forces impact your business and your customers? Join me to keep an eye on these topics and more, to prepare your business for a successful future. Start by subscribing to my free biweekly blog posts by email so you don’t miss anything! Or subscribe to my free weekly Five for Friday videos for news on signals of change.