Bracing for a Recession: Lessons Learned From the Pandemic
Only just recovering from the uncertainty and disruption caused by the pandemic, companies are now faced with the gloomy cloud of a potential recession. Some employees are facing the potential of layoffs, as a number of organizations, particularly in the tech sector, announce sizable cuts in their workforce.
On June 14, the cryptocurrency company Coinbase announced it was laying off 18% of its full-time workforce (approx. 1,100 people). Several other companies, including ClickUp (7%), Loom (14%) and Bolt (33%), have also made cuts to their workforce these past few weeks — the latest of which is Netflix. The streaming company announced on June 24 that it was laying off 300 workers.
Such moves amid a labor shortage speaks volumes to the fear of a looming recession. Business leaders are bracing for a rough patch ahead, and many believe reducing labor costs, particularly amid rising wages, may help them navigate the uncertainty ahead. How have the lessons learned from the pandemic and past recessions shaped their thinking?
Braving Uncertainty in Times of Crisis
Companies have faced numerous adversities these past couple of years. From a pandemic-fueled lockdown that shuttered many businesses, to supply chain disruptions, a reshuffling of the workforce and record-high inflation.
These events didn’t have the same impact across industries. Some experienced unprecedented spikes in revenue and growth (think technology for instance, with the rapid move to digital and remote work), while others, such as travel and restaurants, suffered. Some say this resembled the effects of the financial crisis and recession back in 2008.
“The challenges I faced during the pandemic were very similar to those during the 2008 recession," said Trevor Larson, CEO of Orem, Utah-based company Nectar. "The main difference was that during the pandemic, there was more uncertainty about the future and how long the crisis would last.”
The degree of uncertainty today is, indeed, extremely high due to the number of variables at play. Being able to skate through these headwinds with limited damage requires agility and the ability to think through various strategies. Here are some lessons learned about how companies came out of the recession:
Diversified Portfolios
Recessions or challenging times typically require a change in approach, or at least the ability to pivot the company's service or product offerings. During the pandemic, for instance, some companies in the car rental industry pivoted into deliveries to deal with the reduced mobility and demand for rental vehicles.
According to Gergo Vari, the CEO and founder of Lensa, an HR and talent acquisition company based in West Chester, Pa., the reason was simple: Companies had to adapt their business models to deal with the times.
“I learned that you always have to be prepared for the worst and have a plan B,” Vari said, adding that diversifying the company's portfolio enabled multiple income streams.
The pivot may not always be obvious, but companies that succeed need to be flexible and open to change, think outside of the box and leverage opportunities that can help them stay afloat.
Related Article: Why Organizations Should Focus on Agile Rather Than Matrixed Teams
Acquiring and Nurturing Customers
In a recession, demand often drops, so companies have to ensure they remain visible and relevant to consumers to minimize the hit to the bottom line. Marketing plays a big role. Companies that have the ability to double down on their marketing outreach may find a winning edge.
Vari said to keep his business alive, he had to get creative with his marketing and really work hard to bring in new customers. But acquiring new customers during a recession is no easy feat, particularly when resources are tight. Focusing on retaining existing customers is as equally important — and at times even more critical to survival.
Learning Opportunities
A Segment report showed that customers spend more on brands that offer superior customer experience. They're also often willing to pay premium prices for it. Budget-constrained companies can focus on improving the customer experience by offering more personalized services and enabling better engagement.
"Make sure you know where your customers are and what they're doing," Larson said. "This means being active on social media, being present in the places they are and really understanding their needs and wants.”
Related Article: Why Organizations Need to Be Transparent About Layoffs
Cutting Operating Costs
The first step in bracing for a recession is to look at the money going out. Where can the business trim back? What can be cut or reduced to minimize losses?
“Your profit margins will reduce, so be prepared to deal with that. Make sure to cut down unnecessary costs and save up for trying times,” said Rowena Kelley, head of communications at New York-based Riskified.
A common cost-cutting strategy is to reduce headcount. In an inflationary environment like the one we're in, where wages are rising exponentially, it seems logical. But companies need to be strategic in the cuts they make. Some roles may seem redundant but in fact be essential in the current economic climate.
One way may be to consider which tasks can be automated — and accelerating the journey to implementation. Automation reduces operating costs and enables faster processes.
Related Article: Do Recessions Create More Resilient Workforces?
Developing a Sustainable Strategy
Companies need to have a backup strategy in place to handle any potential downturn and declining profitability. Having a contingency plan is critical today, considering the fast pace of transformation and disruption — not just from economic events but also from external factors like emerging technologies and shifting market dynamics.
Keeping a close eye on the company's cash flow, identifying new revenue opportunities, diversifying income streams, cutting operating expenses, automating as many processes as possible, and growing or building on existing customers are all significant strategies that can help companies survive challenging times.
About the Author
Kaya Ismail is a business software journalist and commentator with years of experience in the CMS industry.
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