One thing that investors, financial analysts, banks, and the government don’t want to talk about is the dreaded financial recession. Most of you might recall what happened during the 2008 financial crisis and how major banks vowed never to repeat the same mistakes. Well, after 15+ years, we are once again heading towards the same events.
A financial recession inflicts significant damage on our savings, but there are businesses that thrive even during these times. It happened in 2008, and before that as well. How did they do it? What enabled a new company like Amazon to survive the Dot-com Bubble crash?
Therefore, in this post, I’ll outline the 5 simple ways to protect your business from a financial recession.
Disclaimer: All views are personal. This blog post does not aim to instill fear, offer investment suggestions, or provide advice on gaining or losing money.
(1) Income Diversification
Diversification is the secret-sauce of a very old yet successful business empire. You’ll hardly find any company who has remain dependent on just one product and stayed relevant in the industry. There are two basic reasons why a business chooses to diversify: (1) To mitigate risks (2) To increase revenue & market presence.
If you’re running a business for years depending on just one product, then you’re either (1) Lucky, or (2) FREAKING LUCKY. Yeah, because I’ve never heard a business that has survived for too long with just one product. Even companies like Apple, Microsoft, Samsung, and other big companies have diversified their income source.
Also, keep in mind the other side of the story… I read about this in Peter Lynch’s bestselling book, “One Up On Wall Street“. It’s the concept of Diworsification. Which means if you choose to diversify too much, it’ll become di’wors’ification. Too much products can spoil you company’s star(bestselling) product. You’ll be left with very little time and resources to focus on each and every product.
(2) Building Customer Relationship
Successful businesses know the value of customer satisfaction. When customer satisfaction is high, it becomes quite easy to retain them. In fact, if a business is good at retaining customers, they won’t need to push too much on marketing. A loyal customer base does “word of mouth” marketing for them.
Now, the real trick is to maintain this relationship strong. There were businesses who destroyed their years-old loyal customer base by taking odd decisions. Be it by not listening to the majority of customer base or abruptly increasing prices while decreasing product quality.
If your business has a regular flow of customers, it’s super-important to keep them happy while delivering the best you can. When you keep you customers happy, they won’t mind paying a little extra. In the previous major financial crisis (2008) Apple still sold about 11.6 million iPhones, which increased to 20.7 million in 2009. No, I’m not just making it up, this Statista report says it all.
Yeah, maybe your business is only 1% of Apple, but the rules still apply. Building Customer Relationship is a system, and systems fit perfectly no matter the industry and its size.
(3) Strategic Marketing
Do you remember HTC? Most of Gen Z might not know about this company, but for millennials, this name rings a nostalgia bell. HTC was one of the most successful Android mobile phone brand. Their products were often called the “Apple of Android” because of how high quality they were. Everything was perfect with that company. They were the leaders in innovation, experimented with new stylish design and they mobile phones were made of metal while Samsung phones were made of plastic.
However, they made a critical mistake. HTC did not focus on Marketing. Their brand tagline was: “Quietly Brilliant“. They took “quietly” too seriously and went completely quiet while Samsung introduced their Galaxy series and heavily marketed it. HTC is still present, but they are out of the phone business.
Apple and Nike are the classical example of the power of marketing. They know how to tell a story and win over new and old customers. Even Steve Jobs admitted this publicly that he was heavily inspired by Nike’s ads.
Hence, if you want to expand your business and keep it relevant, you need to spend money on marketing. Sure, you can make your products affordable and high quality, but without marketing, your business will always have a chance to lose its relevance.
(4) Smart Fund Allocation
Continuously monitor fund allocation and how much money you spend in your business. You have to decide whether it’s the right time to make a new investment or release a new product. Good Will is an important for your business too. Good Will is one intangible asset which you cannot buy, you gather it eventually by providing exceptional service to your customers. Surprisingly a financial recession is one of the best time to sprout Good Will. How? by (1) Not increasing your product prices (2) Not firing your employee (3) Focusing on customer needs.
Allocation of fund is also the hardest thing to do. One mistake and your entire business can tumble down. Because at the end of the day a positive cash flow is what matters. If your cash flow is in the positive during a financial recession, your business can weather any storm in the future. Amazon is one such example.
It’s okay if you’re not good with fund allocation in the beginning. You’ll learn eventually by personal experience and by reading finance books. Remember what we were taught in our childhood? Charity begins at home. Hence, to get a better understanding of fund allocation, you can start by making a Budget for your personal expenses. Budgeting will help you a lot, especially when you’re low on money.
(5) Cost Control
Managing cost during times of recession should be your prime focus. You cannot make silly mistakes and call it day because recession would catch up to your financial pretty soon. You can compare a silly mistake to a small hole in an overinflated balloon β It’ll burst before you know it.
Hence, if you want to spend money on your business idea, think twice if not thrice. These are some questions you can ask yourself to manage cost control:
(1) How much money is spent on salaries?
(2) Is there demand?
(3) Can you afford to lose money if something goes wrong?
(4) How will you manage loses?
(5) How will you allocate extra cash?
Of course, there are countless questions about cost control, but these 5 will set your pace. In the end, everything completely depends on how much you know and how open you’re to opportunities. Knowledge and real-life experiences sharpen your intuition which will help you while making crucial business and life decisions.