Recession Realities

 

 

Many pundits are forecasting that we are heading into a recession.  Without commenting on the veracity of their claims, let me share a few facts.

1.    Since 1950, North America has experienced 11 recessions as defined by successive quarters of negative GDP. Therefore we experience one about every 6.5 years.  With that level of frequency you would think that business leaders ought to have some idea about how to respond.

2.    The average recession lasts about 11 months, but the median is closer to 8 months. Why then do these same leaders react like ‘chicken little’ and believe that the sky is falling in?

3.    If it does happen, this recession will be unique in that it will occur during a period in which both employment and interest rates are at or near historical lows.  Granted, inflation is higher than it has been in years but these same economists state that this is a short term blip and not a systemic situation.

Against this background, how should leaders prepare and respond?

1.    Do not…let me repeat; DO NOT…start laying off personnel.  In a market where staff shortages seem to be the norm rather than the exception, why would your first response be one of eliminating your most important asset?  You have invested heavily to recruit or retain, train and equip these assets and they should be the last, not the first casualty.

2.    Seriously examine your ability to sustain your business for 2-3 quarters of declining revenues of 5%.  If your bottom line is so fragile that this puts your company in a perilous situation, I suggest that your problems are much bigger than facing a recession.  Revenue-and profit-declines are not new to the business cycle and your plans should always have some room to respond without it being a crisis of survival.

3.    COVID taught us some important and painful lessons, not the least of which is how to be creative in times of uncertainty.  With COVID we had no idea of the timeline or the severity of the impact on our businesses.  But recessions are actually more predictable as the timelines noted above have proven.  For most businesses the impact on your bottom line will hurt but it will not be fatal.  Ride it out, tell stakeholders to be patient, and come out the other end grateful and ready to seize the opportunities that always follow.

Start now to examine your business.  It should be structured to withstand tough times and to prosper in the good.  A knee jerk reaction to changes only means that you are structurally inept and that is never sustainable.