The new year is supposed to be a beacon of hope for brighter days and even a cosmic kick in the pants to do better and strive harder.
So, what’s with all of this talk of recession?
Economists have consistently been warning of an oncoming recession sometime in 2023 and into 2024. Their forecasts are built on a plethora of data and economic indicators that are decidedly negative, in total, even though some countervailing data suggest a mild or even non-existent recession.
But the self-fulfilling prophecy all but guarantees a recession next year! Why? Because the combination of unrelenting media discouragement and mass layoffs at our largest companies – in response to a likely recession – go a long way to ensuring that recession will occur.
You see, when people start to believe that a recession is coming, they change their spending habits. They become more conservative with their money and less likely to make big purchases or other big swings at the bat. They freeze up. And this paralysis, fueled by fear, creates a ripple effect. Ultimately, businesses that rely on these consumers begin cutting back on expenses and laying off employees. And the cycle continues (and continues… and continues).
We’ve already seen the effects this year, as reduced business growth and rising labor costs prompted tech giants to institute mass, widespread layoffs, with many other companies following suit.
- Mark Zuckerberg’s Meta laid off 11,000 employees in early November, constituting an estimated 13% of the company’s workforce. The reasons cited included declining sales, a drop in ad spending, and competition.
- Layoffs at Twitter began shortly after Elon Musk took the reins and took the company private. Approximately 3,700 employees – nearly half of Twitter’s workforce – were let go, with Musk pointing to a daily $4 million loss as the reason.
- With shares down 18%, Amazon, too, laid off 10,000 employees – the largest drop in the company’s history – at a time when holiday expansion is typically the name of the game.
- FedEx froze hiring and closed more than 90 of its FedEx Office stores in September to take steps to fight revenue shortfalls stemming from “global volume softness.”
And the layoffs continued:
- Lyft – 700 jobs cut due to “probable recession.”
- Microsoft – 1,000 employees laid off, though less than 1% of the workforce.
- Peloton – More than 4,600 employees were laid off throughout 2022, altogether, following a rapid drop in sales after the pandemic-related workout boom.
Jeff Bezos, himself, has been warning consumers to “slow spending” and forego the urge of snagging that big-screen TV or a new car.
“Take some risk off the table,” he said. “Just a little bit of risk reduction could make the difference.”
That may be good advice for the average Joe consumer. But for entrepreneur Jack or Jill, history and a wealth of empirical studies demand a different approach.
We’ve said it before – and we’ll say it again. During economic shock – as we experienced at the start of the pandemic – the businesses that ultimately pull out ahead are those that resist panic and act boldly.
Now is the time to take a breath, calm our minds, and plan accordingly for the coming recession. Whether it comes about organically or because of the self-fulfilling prophecy of recession is irrelevant; what matters is its existence and your response to it.
How Businesses Can Prepare for Recession
- Specialize: Identify your unique value proposition and double-down on it. Uncertain economic times call for bold certainty. Identify what you do best and own it. Don’t try to be all things to all people. Economic studies and boatloads of anecdotal evidence make this recommendation very clear.
- Communicate: Shout it from the proverbial rooftops and ensure that your target markets know your specialty and how you can help them.
- Communicate: Yes, it’s worth repeating! In addition to telling your current and prospective customers about your specialty, they need to hear from you more often during a tough economy. Increased frequency and quality of communication – especially that is focused on them, not you – tells them that you are still here, you’re healthy, you’re unfazed, and you will be here well into the next economic cycle.
- Hold Prices Steady: Don’t drop your prices. Instead, hold them steady and add value for your customers. Yes, profit margins may suffer slightly in the short term, but your long-term strength, and therefore, market share will be all the better for it.
- Gobble Up: This is your chance to take not only market share from weaker competitors, but also talent. There has been a talent glut for the past couple of years. That pendulum will swing. Strong performers will gravitate to the healthier companies – pretty Darwinian, we know, but it’s true.
- Full Speed Ahead: Keep the pedal to the metal with regard to your marketing spend. The details might change, and you might need to reallocate from one area to another (for example, reduce branding to focus on search marketing), but overall, you should continue to invest in the business. We know (and love) lots of accountants and CFOs, but they so often give their clients the WRONG advice in times of downturn. Marketing spend is not akin to other expenses; history shows that it is absolutely an investment when done right.
McGraw Hill Research famously analyzed 600 companies between 1980-1985, which included the 1981-1982 recession. B2B companies that maintained or increased their advertising garnered significantly higher sales growth than those that didn’t. Results were not only applicable during the recession but the three years after it, as well! By 1985, the sales for companies that did not back off had increased a staggering 256%! In comparison, those who cut advertising experienced only a 19% increase.
The point? When you prepare and push onward – even in the face of the self-fulfilling prophecy of recession – you end up better than you were before. If you don’t, you will undoubtedly experience setbacks (and you might not even make it).
The future is bright for those who don’t back down. If you’re looking to reinforce your marketing efforts, our team is always eager to chat.
Duane Carey is the owner of IMPACT Marketing & Public Relations, LLC. He also writes a magazine column on business, economics, and public policy. Duane holds an MBA from Johns Hopkins University.