The Necessity of a Counter-Cyclical Recession Response

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Are we in a Recession yet? After all, there’s plenty of good forecasters who are saying 2019 is the year.

Personally, I don’t buy into all the doom and gloom – there are also plenty of forecasters who have predicted 8 of the last 2 recessions! I’m much more practical – if there’s a small risk of a big economic downturn, what’s the simple thing I can do to make sure my business and I are ready to respond?

Sound helpful for you? Then watch this week’s episode where I walk through 5 of the most common mistakes founders and CEOs make with their business in a recession.

It turns out the natural reaction, driven by fear, causes an awful lot of the actual problems. Do the opposite (more or less) and you’ll be much better off.

Incidentally, most of these mistakes have corollaries in economic good times – that’s the time when fear shows up looking like greed, and businesses set themselves up for fragility and failure.

So whether you’re feeling sensible, or on top of the world, watch this week’s episode here.

Who is Jacob Aldridge, Business Coach?

“The smart and quirky advisor who gets sh!t done in business.” Back independent since 2019.

Since April 2006, I’ve been an international business advisor providing bespoke solutions for privately-owned businesses with 12-96 employees.

At this stage you have proven your business model, but you’re struggling to turn aspirations into day-to-day reality. You are still responsible for all 28 areas of your business, but you don’t have the time or budget to hire 28 different experts.

You need 1 person you can trust who can show you how everything in your business is connected, and which areas to prioritise first.

That’s me.

Learn more here. Or Let’s chat.

Transcript

a few weeks ago I talked about thedifferent types of recession some of thelead indicators that you might want tokeep an eye out for because even thoughAustralia hasn’t had a recession for ageneration there is one coming it willbe here inevitably and the best businessleaders are the ones who are preparedand ready to respond I promised in thatvideo to talk through some of thedifferent ways to plan and to respond toa recession now ultimately the responseyou need will depend on your businessand exactly what type of economiccircumstances are going on which type ofthose three recessions you endure butit’s important to understand the commonreaction that people have even CEOsexperienced business leaders when arecession arrives and if you can fightagainst some of that common reaction ifyou can act in a counter cyclical naturewhen you respond it with your businessthen your business will respond betterand may even come out ahead as a resultof that recession there are five keyrules most common mistakes andopportunities in a recession I’m gonnawalk through each of these very verybriefly the first is around timing ifyou think if the economic cycle ishaving four phases there’s a downturn adrag at the bottom where people areunsure there’s a release where theconfidence comes back into the marketand then there’s the ultimate upswingall the way up to the boom at the topmost CEOs are implementing businessstrategies that are one phase behindwhere the economic cycle is and wheretheir business needs to be so during adownturn they’re often stillimplementing the boom time strategiesthe things that worked when the goingwas good and those things are not goingto work when circumstances change thisis why I often say it’s important tohave a recession plan not a big detailedthing but just a plan that sits in yourbottom drawer or into your strategy fileon your computer so that you can pullthat out and circumstances change andrespond fasterso be where the market is where it’sheading not one step behind the secondand you might want to watch blackboardFriday’s episode 13 where we talk aboutrisk profile in more detail and in thatI encourage you especially if you havebusiness partners to set a risk profilefor the business for example seven outof ten what happens during a boom isthat naturally our risk appetiteincreases it’s why everybody floodedinto Bitcoin in 2017 because it feltlike it was going to go up forever so wethrew caution to the wind and took arisk when a recession occurs theopposite takes place our risk appetitewill often decline and so you can findyourself as a business leader bouncingback and forth between a higher risk atlower risk which means you lackconsistent leadership now while thingsare still going strongly is a great timeif you haven’t already to work out whatthat risk profile is for your businessand to stick to that if there’s a boomcoming in your industry don’t takeunnecessary risks that don’t match thebusiness and similarly when that nextrecession arrives don’t pull back scaleback wind power just because of yourfear understand that what is risky whatis a seven out of ten in a recession maydiffer but stick to that objectivewinding up an unwinding this is a commonmistake I saw a lot when I work withbusinesses in the UK during the globalfinancial crisis the Great Recession isthat naturally if we think of that GreenLine as revenue and the red as costswhat can happen is during a recessionour revenue plateaus or declines but ourcosts are still there including a lot ofour fixed overhead staff premisesthe natural tendency that I see is forbusiness owners to wind back the costsjust to meet that revenue to bring backto break even having to sack staff sucksI’ve done it myself and I’ve worked withclients we’ve had to do it on ascale it is a terrible experience onethat I recommend every business owner gothrough because boy does it motivate youand so I can understand why businessowners only want to pull it back tobreak even and not further that’s acommon mistake because what you need inthe business what you need to beinvesting in during a recession is thatfuture growth and you can only do thatif you have free cash if you only bringthe business back to break-even thenyour cash reserves are going to dwindleand you are not going to be there andready for an opportunity which will comea-knockin even if it’s just at that nextrelease point you need to unwind furtheryou need to create that buffer forinvestment in your business because ifyou keep investing then you will comeout faster and stronger fourth of fiveand a very very simple one to understandbut again one of those emotionalreactions that we have that leads to aninappropriate response how big are youthinking I’ve heard it said that theentrepreneur is a micro biologist and anastrophysicist you’ve got a look at thebig picture and you’ve got to understandthe nuances of exactly what’s happeningon the ground in a burn time wenaturally think big we take more risksand we think big during a recession wepull ourselves back to micro and we’retrying to work out how we can save 6p8on pencils counter-cyclical means you’vegot to do the opposite so during a burntime make sure you’re still keeping aneye in your business on some of thosesmall things don’t let fat grow intoyour business that will set you upbetter for the recession ahead and whenthat does occur when there is a downturnkeep thinking big keep your eye on thebigger picture and what you need to bedoing and investing in today to keep thebusiness getting there these are justcycles they will pick up again you willpick up if you’ve continued to investand look ahead and finally the lastthing is understanding the differentsectors different industries differentbusinesses go through different economiccycles Australia that hasn’t had arecession since the early 90s is a veryvery different case study fromsomething like the US or the UK and Isay with the frowny faces here spare athought for all of Australia’sinsolvency lawyers who’ve had tostruggle and endure an entire generationwithout a good wipeout to fill up theircoffers it’s a little bit of a joke andno one should really feel sorry forlawyers but different industries as told

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