Should I be thinking about scaling my business?
We are in a period that is unprecedented, unusual, and most undoubtedly, unpredictable. Probably, the most unpredictable economic period in modern times. However, in answer to the headline, I would say most definitely a very big and proactive do not delay, YES.
Now given we still have numerous sectors in a state of turmoil, you might say this is premature. Of course, it may be early for some as they prioritise trying to get back to trading with some form of normality. However, for many businesses, it is now the time to consider scaling your business and taking full advantage of what a return to growth could deliver. You cannot afford to underestimate your potential, and the increase will be significant for those that take the time to consider their strategies.
What is familiar with every economic downturn?
Having been a business owner for over thirty years, I have witnessed many economic downturns. Still, one common denominator with all economically challenging times is the significant growth and opportunity they provide. The economic downturn and subsequent recovery breed innovation, technology, services, products and markets.
This particular economic shift is even more poignant with technology needing creation to cater to a new way of working. Right across industry, businesses are having to adapt and become agile in their interpretations of how clients will want to engage and buy from them in the future. It is the perfect time to be inventive and proactive.
So, what should you be thinking about now?
Scaling your business should be firmly on your agenda. Remember, some of your competition will be disappearing and become an unfortunate victim of this economic crises. Indeed, it is also a time for new businesses to take a foothold and explore available market sector opportunities. We will undoubtedly see a new wave of start-ups in this period. There will be gaps in every market for those that are the strongest and most innovative to exploit and grab a more significant market share.
“I remember a conversation with an accomplished property developer who stated he was more profitable and successful throughout economic downturns and periods of recovery than in what we would call a consistent, stable and growing economy. He could buy land cheaper, and that enabled him to maximise profitability long-term. The important aspect for him was to use retained profits to invest well and manage his cash flow effectively. It was critical to be around still to take advantage and become an early entry when the economic situation tips towards recovery.”
What does the research say?
Following the credit crunch Harvard Business School in the US carried out some extensive research around economic recovery, and how businesses reacted to the worst economic downturn in living memory. The outcome of their year-long study was fascinating, and this is one of the few studies ever conducted that entirely focused on the reaction of business in a recession, and how they chose to make changes and set themselves up for recovery. Here are some interesting points from that research.
- 80% of businesses took longer than three years to recover to their pre-recession position
- Only 9% flourished after the slowdown and in the recovery period, expanding and surpassing their pre-recession position.
- Interestingly, firms that cut costs faster in a recession are less likely to recover than those who don’t
- However, those that boldly invest more than their rivals during a recession don't always fare well either.
- The post-recession winners are those that master the delicate balance between cost-cutting and investment, deploying defensive and offensive moves.
- Companies that invest in market R&D, explore new markets and focus on innovation are the most likely to survive, recover quickly, flourish and scale following an economic downturn.
The critical ingredient the research highlighted lay in how businesses deployed defensive and offensive moves effectively. Essentially, becoming more agile and able to react.
It is very much a natural process for any business owner to look at costs at these times, but not to cut costs that will restrict your natural ability to grow in a period of economic recovery. It is probably the most damaging statistic highlighted in the research, demonstrating 17% of business failures in that time, and a massive 80% of business taking longer than three years to recover to their starting positions.
The pandemic version of an economic downturn and recovery
This particular extreme and very transient economy has been a fast-tracked version of the infamous credit crunch. For that reason, and that reason alone, our focus, our actions and our senses will need to be heightened. We require that agility and to be able to react quickly. We need all the data, planning and understanding we can obtain. This economic downturn isn't like previous recessions with that rather flat and drawn out curve. The Nike tick has been used to example the shape of the economic impact. The upward trajectory after falling off of the cliff face dip is going to have fluctuations. However, I believe it will recover strongly for those who choose to make rational and wise decisions over the coming months.
Our agility and ability to become defensive and offensive has never been more critical. My advice would be to explore the rate reduction to reduce those costs but invest in the shop window to make sure it is that much brighter and more attractive. Improve your efficiency, be innovative, expand your marketing, and become even more focused with your sales.