If you run a business of any shape or size, an economic downturn is possibly the last thing you need. A recession usually means that businesses contract, or, worse, go bankrupt as the economy recedes.
In the UK, business insolvencies already hit a 13-year high in 2022, with 5,629 insolvencies in the second quarter of the year, according to figures from the Office of National Statistics. Many might rightly wonder how it’s possible to either grow a small business in a recession, or expand a small business in times of crisis, but these tumultuous conditions might give rise to a numer of unique opportunities.
The challenges in running a business during a recession
Perhaps the most significant challenge for businesses during a cost of living crisis is the decreased demand for their products or services. Maintaining a steady flow of business is important but managing declining revenue for the products you need and the goods or services you sell is the biggest pain point for businesses of all sizes during tough economic times. Indeed, a business’ customers are likely trying to manage just the same, according to Michelle DeBella, chief financial officer at JumpCloud.
“At the same time, you have to support your staff and help them to be effective and productive in their jobs – and that may need investment,” DeBella says. “Providing a great working environment is an essential requirement here, as it helps to let your employees know how much you value them and their work.”
There’s often a catch-22 situation facing small and medium-sized businesses (SMBs) during a downturn, adds Anastasios Papadopoulos, co-founder and CEO at IMS Digital Ventures. This is the need to invest to stay afloat, given the limited budget for investment. Decision makers will be looking at their profit and loss (P&L) statements to see where they can cut costs or where they need to reallocate the budget. All the while, they’ll be under pressure to continue investing in digital transformation efforts that are crucial for long-term growth and survival.
“Many SMBs recognise that investing in tech is a form of future-proofing, and will need to think carefully about how they audit their systems and consider streamlining their tech investments to maximise their return on investment (ROI) and optimise their ecosystem,” he says.
Talent and skills are at the heart of business growth
One of the biggest opportunities during a recession is investing in fresh talent for your business. “There are often shining lights in companies that struggle in a downturn,” says James Welch, chief Innovation officer at Embryo Digital. “Without being predatory, when they do make themselves available, it is an optimal strategy to pounce. Without a downturn, they may never have thought of leaving their company, so it becomes an opportunity not to miss.”
He adds the other main opportunity is when 80% of businesses in a sector will 'batten down the hatches' your business can be part of the 20% that pushes on through with lots of guile and effort. “You can be in a much different place when a downturn is over. I am seeing this already happening in a few sectors that I monitor,” says Welch.
Indeed, on the flip side, hanging onto staff can be a challenge that needs to be overcome. Dominic Bourquin, partner and head of Tax Consultancy and Corporate Finance at accountancy and business advisory firm Monahans, says that grappling with talent and skills shortages is a problematic pain point for so many businesses in the current market.
“While it may sound obvious, it’s integral that employers work hard to retain staff,” he says. “Not just because replacing a key senior member of staff can cost up to 200% of that person’s salary, but because your people will be the reason your business gets through the next phase of recovery.”
Bourquin adds that businesses need to listen to staff concerns and find compromises. “While salary will always be the obvious solution to recession worries, practical benefits, a meaningful culture, and an employer that cares also make a huge difference.”
Strategies for growing a small business during a recession
Sanjay Aggarwal, the founder of Liverpool-based food company Spice Kitchen, says as a business owner in the food sector, his approach during economic turbulence has been to focus on the growth of the company rather than contracting it. “I’ve been told on many occasions it might not always be the wisest move, but, for me, the best way to be resilient against an economic downturn is to get out there and sell,” he says.
“While everyone in the market is focusing on fear and contraction, it can be a real challenge to swim against the tide and invest, but it’s a strategy that has worked for me in the past. Because even though there's a recession, there’s still plenty of people spending and plenty of opportunities to be had.”
Growth during a recession can also come from making your business the most memorable in its category, advises Jason Ball, founder of B2B marketing agency Considered Content. “There are a couple of really good reasons for this,” he says. “Firstly, when buyers start buying again, they tend to shortlist the brands that are best-known. We call this 'mental availability’ and it ties to a basic fact that, as buyers, we tend to over-value companies we can remember easily.”
Another strategy is to pay attention to ‘weak signals’ – an early warning sign of a low intensity that indicates an important trend or event – defined by the American economist Igor Ansoff. “Identifying and recognising signals is a window into the future, to see what’s coming moments before anyone else does,” says serial entrepreneur and philanthropist Alexandre Mars.
Michael Schrezenmaier, CEO Europe at SumUp, meanwhile, says that one thing to keep in mind is that that other small businesses are struggling, too, and a recession can offer an opportunity for these companies to band together and offer support. “Whether this is advertising your small business through a business operating in another sector – or working together on new deals for customers – collaboration between SMBs can offer a key support network in the challenging conditions of recession.”
