How to survive the tough economic cycles

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Back in 1992, when a friend of mine decided to leave a very successful career in the financial services industry to establish a furniture removal business, I queried this bold step. His response was simply: “Because people are always moving – when times are good they move into bigger premises, and when times are bad they move to smaller premises, but they are always moving. It is effectively a recession-proof industry”. He has since grown his business into one of the largest and most reputable transport, storage and logistics companies in South Africa.

Every industry has its cycles – whether related to weather and seasons, fashion and trends, product life cycles or just the macro economic cycle in general. Cycles are a fact of life, and one which many entrepreneurs accept as a “necessary hardship”, and simply try to survive these inevitable downturns by sustaining their off-season periods with the proceeds of their profitable, in-season periods.

These cycles can be soul destroying, watching hard-earned profits from the good times being used to simply keep the business alive in the bad. Existing at the whim of a cycle is also a severe inhibitor of potential growth.

While nobody is suggesting that entrepreneurs all abandon their vision and change industries, it can be extremely useful to consider what to do differently in your own businesses, to cater for or capitalise on the slower trading periods.

Opportunities

A healthy business philosophy is that “opportunity lies in every problem or challenge”, and the secret is to look at these challenges differently:

  • If your business caters for a summer lifestyle market, what could you add to your offerings during the winter months? Likewise, if you are unable to adjust your offerings, could you shift to markets in warmer regions that would welcome you during these periods?
  • If your business sources imported products or components and is being adversely impacted by the exchange rate, consider the possibility of reversing this impact by calling in a process re-engineer to reduce these costs, or even consider off-setting the forex impact through exporting.

Ask hard questions

If you face similar challenges some critical thinking and hard questions may be necessary:

  1. What is the underlying factor in the market cycles? Are the cycles in the market due to my product appeal (if you sell swimming pools), or client financial cycles (everyone is broke in February)?
  2. Given the above – how can I adjust my product offering to match this – can I sell pool covers in winter or can I package my February deals in a more appealing way?
  3. What other markets (local and cross-border) would buy my products during these slow periods?
  4. What other strategies can I use to generate income? Can my infrastructure (e.g. vehicles, equipment and machinery) that is sitting idle during the slower periods be rented out to sustain return on investment?
  5. Could I offering a “managed service” including employment of critical staff as well? Could I collaborate with another business to add a unique offering during the slow periods? What about creating a special price for fresh chicken with a bag of charcoal or some spices?
  6. What strategies could I use to reduce my overheads? Can I sub-let my premises (or part thereof) during the slower months?
  7. What strategies could I use to improve cash flow? Can some of my contracts can be pre-negotiated (e.g. lease agreements) to match my economic cycles? Note the word pre-negotiated… Avoid waiting until a crisis to run to the bank for a loan rescheduling! What annuity revenue could I generate to secure a more consistent income stream? For example, instead of selling chlorine to pool owners could I provide a 12-month pool cleaning service on a retainer?

Brainstorming sessions involving diverse opinions is an invaluable exercise in instances like these.  This should ideally involve the input of others – your mentor, your colleagues and peers, friends and family, and even speaking to some of your customers and prospects (nothing like hearing it from the horse’s mouth!).

My friend, like any successful entrepreneur, didn’t have it easy in the beginning – stepping out of the luxury of his air conditioned corporate office with a secure income. He spent his early days, weeks and months carrying heavy furniture up and down stairs,  and all the other rigors associated with the job, until his business could afford to employ staff. But he stuck to it, did the hard yards and slowly built a great business where he is back in an air conditioned office – but this time it is his own!

About the author

Kevan is an accredited business coach and trainer. His primary focus lies in performance coaching, where he assists individuals and teams to elevate their workplace performance both for personal satisfaction and company growth. Kevan has had a diverse and successful career that ranged from sales and management to leadership positions, both within the corporate environment and his own businesses. Visit his website or look for him on Linkedin and Twitter.