It’s not a matter if, it’s simply a matter of when. Despite the record-breaking and robust economy, 
there will be another recession. It may come before the election of 2020, or it may come after. But it will surely happen. For those who haven’t been through a recession, it’s usually not a fun thing. It requires strong business acumen and enhanced decision-making skills to survive.
A recession is defined as a period of economic decline typically occurring when the Gross Domestic Product (GDP) contracts two consecutive quarters or longer. The GDP is the sum of all the products and services produced in the economy. When economic production goes down that means people are buying less and if people are buying less, the economy stalls. Unemployment goes up, wages are stagnant, retail sales decline, and there is less capital available for growth.
During the last three significant recessions in the United States, most economists could point to distinct contributing factors that spurred the recession:
|
Date |
Time Since Previous Recession |
Cause |
|
July, 1990 - March, 1991 |
8 Years |
Oil price crisis |
|
March , 2001 - November, 2001 (8 months) |
10 years |
Dot-com bubble burst + 9/11 terrorist attacks |
|
December, 2007, - June, 2009 aka “The Great Recession” (1 ½ years) |
6 years |
Sub-prime Mortgage crisis |
It’s been over 10 years since the last recession and as of today, there are a few things to keep our eyes on in terms of catalysts to the next one:
- The “self-fulfilling prophecy” theory that occurs when people (especially politicians) start saying thing are too good and the sky is going fall for no reason other than it’s bound to happen eventually anyway. Businesses start getting worried that everyone thinks it’s coming so they slow down for no reason other than the fear of fear.
- Geopolitical issues being driven by increased nationalism. While tariffs and sanctions may be the right thing for the long term, they are definitely not good for the short term and could trigger a global recession.
- Changing consumer lifestyles. Today’s young generation is waiting a lot longer if at all to get married and have children. Buying cars and homes is not what drives them. They are much more socially and environmentally conscious. The old economy may not be ready for the new consumer and that overlap could cause a recession.
Skills Needed
In many of our Business Acumen training engagements using digital business simulations, we teach participants some of the skills needed to weather a recession. Here is an overview of the critical learning from a “Recession Business Simulation” that are applicable back in the “real world”:
Stop hiring incremental positions
Most businesses spend about 65% of their revenues on salaries. When times are good, may companies hire a few extra people to develop future talent and to ease the burden of existing employees so they don’t have to work too hard. When a recession hits, one of the first things to do is stop hiring the “extra” nice to have people. If the recession gets really tough, then the bottom 10% might be exited.
Focused innovation
When times are good, companies can afford to spend a little more on R&D and take greater risks in terms of experimentation. When things get tough, companies must continue to invest in innovation but must make it very focused on the core solutions that will drive the future business. Having the right skills to understand the best return on investment is critical.
Strengthen the value proposition
When times get tough, competition gets fierce. It’s critical to strengthen your chosen value proposition to customers and make sure you are the absolute best at what you do in your market. There is less room for ambiguity and no options for being more than one thing to different customer types.
Sharpen the Marketing and Sales Message
When things are good, it’s easy to fall into bad practices like having multiple marketing campaigns, different messaging for the sales team, and the willingness to try new things before the previous business strategy has run its course. In tough times, organizations need to sharpen the marketing message and make sure the message is crystal clear.
Invest in enhanced talent development
Some business leaders think that when things get tough, the first thing to go is training. That’s the worst mistake a company can make. When things get tough, you need to double down on training to give your people the skills they need to get through the recession and to retain and attract top talent.
In summary, there are ways to prepare and get through a recession. It just takes some enhanced business acumen skills and practice to do it.
