The forecast from the bank of England was pretty dramatic yesterday with the worst recession in a generation predicted by the end of the year. This video talks about why that isn’t necessarily a disaster and what you can do to prepare your business for it.
Should you be worried about the coming recession?
If you’ve been watching the news, Bank of England released their forecast, showing us that they’re expecting this country to be in a recession by the end of this year. With the increased interest rates, it’s got a lot of people worried. From what we’ve seen before, a recession means there’s less money being spent and some people become a lot poorer. But what you’ve got to remember is some people get a lot richer as well. What I want to cover is, should you be worried about it?
The answer to that question is no. If you look at some of the previous recessions – like the one in 2008 – essentially the world’s GDP shrunk by about 1%, and compared to the Great Depression of the 1930’s where the world’s GDP shrunk by about 15% where you’ve still got 85% left. Obviously, the upcoming recession isn’t going to be anywhere near as severe as that. Even if it is worse than 2008 (let’s say it shrinks by 2%) well, you’ve still got 98% left.
Recessions affect everyone. What I’m actually saying is although that 2% could consist of most businesses failing, there’s still going to be a lot of money flowing around the economy. The real impacts of the recession aren’t necessarily through a loss of value, they’re based on how people change the way they do business.
The Upcoming Recession
What happens is, everyone gets a lot more worried, recognising this means you can do really well in a recession. Everyone in a business can worry about their cash flows because it’s about this collective mindset of scarcity. There’s less of everything to go around, so people start becoming a lot more conservative in the way they do things. So, businesses where they would’ve bought big ticket items before now are looking to acquire the same things, but with the flexibility to pay over longer periods of time.
One thing to be absolutely certain about is everyone is going to want more value for the money they spend. We will not stop spending money. Instead, there will be a demand for more value on the money that is spent. That’s an amazing opportunity for businesses. In the past, businesses that haven’t understood how to add that additional value have suffered in a recession. So, how can you add value?
Lower your prices and have the same processes, with the same amount of stuff. So relatively, that’s adding more value. But the problem with that is when the recession is over, you end up in a position where you can’t increase those prices again. Quite often, a lot of those businesses really struggle and die off after the recession or near-end of it. So, reducing your prices is not a good way to add value when people are panicking.
What you’ve really got to do is you’ve got to start focusing on who your customers really are. A business that looks after everyone and does something generic, or oversaturated, will find it really difficult to specialise. If you can’t specialise, then the only way you’re going to add value is by reducing prices; which will destroy your margins, and eventually staff will leave. You have to find a type of customer, or an area, where you can add a lot of value to. This should come from a place where you really understand your customers, and you enjoy working with them. When you do that, you’re in a position to create an amazing solution for that customer.
A Signature Solution
The combination of working with customers that you really understand, and the efficiency within your business, you will find that you get these great synergies within your business. In the end, you end up reducing your cost. So really, you should only be worried about the recession, if you’ve got a sort of ‘me too’ type of business. Look at the business down the road, identify any differences between you and them. When the only thing you recognise is the pricing, then that will be the only thing it will come down to.
But, we are not in a recession just yet, you’ve still got time before all the attention to this kicks in; you’ve got time to readjust your business model and be really specific about who you help and the solution you provide. When a recession kicks in, people are going to pay more because you’re giving them something they can’t get anywhere else.
Whatever the solution is, think about how you’re going to make it more affordable in time when cash is restricted. If you are selling a big ticket item at the moment, then go down the route of how you’re going to help people finance it. Are you going to do that out of your own pocket? Are you going to have to partner up with a asset leasing company? Or, if you’re providing a one-off service at the moment, how are you going to turn that into a subscription so people just pay less money. The way people want to pay for stuff also changes in the recession; they need more value and they need to be paying for it in a different way to before the recession.