“Close scrutiny will show that most “crisis situations” are opportunities to either advance, or stay where you are.”
Maxwell Maltz, an American author
Recent years have been marked by chaos and unpredictability: the Covid-19 pandemic, the war between Ukraine and Russia, the conflict between Israel and Palestine, and the economic crisis. These things can make people feel unstable, especially business owners, who feel like they can’t control their businesses. Over 4,700 SMEs and intermediate-sized enterprises went bankrupt in 2023. Though many reasons could have contributed to their failure, the crisis had an immersive impact.
Read more about how crises affect companies and how big companies survive recessions.
However, within every crisis is an opportunity for growth and resilience. We have analyzed how companies have navigated past crises to distinguish the 10 best strategies to thrive during a recession. These strategies aim to develop adaptability to challenges that arise unexpectedly and lessen the level of anxiety you may have as a business owner. From financial management to healthcare, these strategies offer a roadmap to navigate crises with poise and purpose.
What Causes a Recession?
Let’s start by defining the term “recession.” It’s a significant decline in economic activity. It can stem from various factors that put pressure on the economy. Knowing the causes helps predict and mitigate the impact of downturns. Here are some key contributors.
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Overheated economy
A recession can be caused by an overheated economy, which occurs when demand exceeds supply. The result is inflationary pressure and excessive consumer spending fueled by easy credit and speculative investment. Eventually, prices rise too quickly, and central banks must raise interest rates to cool the economy.
Example: The United States experienced an overheated economy in the late 1990s. It was fueled by the dotcom bubble, a rapid rise in the valuations of US technology stocks caused by investments in Internet-based companies. This led to rising share prices and rampant spending. The US Federal Reserve raised interest rates to burst the bubble, and a recession followed.
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Tight monetary policy
Tight monetary policy is a measure central banks take to reduce the money supply and inflation. This usually entails increased interest rates that remove the incentives to borrow money and slow economic activity.
Example: After the 2008 financial crisis, the Federal Reserve, the European Central Bank, and other big banks pursued tight monetary policies. This helped alleviate the pressure of inflation and stabilize the respective economies but also led to a growth slowdown and caused a recession in some countries.
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Debt crisis
A debt crisis occurs when a country or entity fails to pay off its loans, losing investors’ support and triggering an economic recession. Factors that may cause a debt crisis are a country’s excessive borrowing, poor financial policy, or a series of external shocks.
Example: The Greek debt crisis began in 2009 due to excessive government spending, corruption in the tax collection system, and the decline of the world economy. As Greece failed to pay back its high debt load, it lost investors’ confidence, skyrocketing the interest rates and leading to a record economic recession.
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Trade wars
A trade war is when countries place tariffs and other trade barriers that restrict international trade and affect the economy. This cause of recession usually arises due to conflicts over trade practices, intellectual rights, and threats to national security.
Example: The most recent trade war, which began in 2018 between China and the United States and involved the imposition of billions of dollars in tariffs, was detrimental. Specifically, it was about the increase in the price of goods, unstable supply chains, and unclear expectations regarding the shape of trade relations. As a result, both countries experienced weak economic growth, which was also damaging for the rest of the world.
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Wars
Wars, whether civil or international, can lead to a sharp decline in the economy. The destruction of infrastructure, the reduction in the capacity of production facilities, and the loss of the ability to trade and attract investment all have a critical long-term impact on economic activity.
Example: The wars between Ukraine and Russia and Israel and Palestine have caused the entire world, analytically, a lot of problems. For instance, according to the World Bank, poverty in Ukraine soared from 5.5% of the population to 24.2% in 2022. Economic losses are immense, as the countries are to cover the costs of reconstruction, lose payment routes, and finance mounting debt.
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Pandemics
The recession can also be caused by pandemics like COVID-19. They have severe economic implications because they block supply chains, decrease consumer spending, and cause high levels of uncertainty. Lockdowns and social distancing aimed at stopping the further spread of the virus are enough to cause extreme and sudden economic implications.
Example: The COVID-19 crisis emerged at the end of 2019 and spread worldwide. In 2020, the world’s collective gross domestic product (GDP) fell by 3.4 %. Lockdowns and severe travel limitations, followed by a decrease in restaurants and other businesses caused mass dismissal, supply chain breaks, and a collapse of purchases among citizens, placing many states in a recession. Nevertheless, big companies like Apple and Tesla not only managed to overcome the challenges of Covid-19 but also contributed to the fight against it.
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Oversupply
Oversupply is excess goods or services relative to demand, causing prices and profits to fall and economic stagnation. This can be triggered by overproduction due to technological advancements or changes in consumer desires.
Example: In 2014, the global oil market was oversupplied as countries such as the United States and Saudi Arabia raced to meet their burgeoning demand wells. Countries such as Russia and Australia, which were previously major exporters, were thrown off. Reduced demand caused prices to fall drastically.
Now that we’ve examined the key factors that cause recessions, let’s explore strategies to emerge victorious from the crisis.
10 Strategies to Survive the Crisis
Although companies invest a lot of time, money, and other resources in crisis prevention, in reality, there is no way to prevent a crisis. Crises can and will occur again and again, and they can come out of nowhere and negate all these extensive preventive measures. In such cases, the focus should shift to the basic education, learning, and socialization elements to overcome challenges quickly.
The following 10 strategies will help your business maintain the resilience to anticipate, adapt, and evolve from a crisis without becoming overwhelmed:
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Cultivate Transparent Communication
You should use all available channels to make statements, update action plans, praise high performers, highlight success stories, and share developments. Active listening is also critical to building relationships with stakeholders like employees and customers. Consistent, accurate, and regular communication with all stakeholders is the key to success in turbulent times.
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Forge Robust Stakeholder Relationships
One of the most critical contributors to long-term success is building and maintaining close relationships with customers, suppliers, investors, and other stakeholders. These relationships are like strong pillars; they provide much-needed resources, help, and cooperation, especially in times of crisis survival.
For example, statistics show that companies with strong customer relationships perform better than their competitors, as loyal customers make repeat purchases and refer others to the company. Likewise, a study by Bain & Company shows that a modest 5% increase in customer loyalty leads to additional profits of between 25% and 95%.
Similarly, strong connections with suppliers create a reliable supply chain that ensures minimal disruption and quick responses to unexpected challenges. These connections become clear in times of crisis survival. Loyal customers, for example, are understanding of payment facilities and allow the business to remain open as they can pay early for urgent orders. Supportive suppliers will strive to meet the demand for orders to avoid production delays.
Equally, investors will withdraw their support in the face of a crisis. On the other hand, strong ties mean that the community believes in management’s ability to steer the company through the storm. Therefore, these parties often offer financial support to help the company overcome uncertainty.
To maintain these partnerships, companies must develop a shared sense of respect and trust. This can be achieved by actively engaging stakeholders and asking for their input while openly committing to common goals and principles. When disaster strikes, such investments allow companies to emerge stronger, with a loyal customer base, a strong supply chain, and sustained investor support.
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Analyze and Learn from Past Crises
The company should analyze historical crises to draw lessons from them. The company should conduct a post-crisis analysis to understand how the crisis was managed, what actions were ineffective or lacking, and what strategy was effective. The company should use the lessons learned to optimize crisis response mechanisms and update contingency plans.
Research shows that the lessons learned from past crises play an important role in the outcome of future crises. For example, a Harvard Business Review study found that companies that proactively studied recessions and took specific protective measures fared significantly better in subsequent recessions. Similarly, studying past protective measures can help a company survive recessions.
By using the evaluated data, companies can protect themselves against future attacks and minimize damage. Therefore, the costs outweigh the benefits of the crisis; at the same time, the company can become stronger and more agile.
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Seek Professional Guidance
In this context, assemble a group of trustworthy, competent, and creative people who can tell you different aspects of what is most important and should be a priority right now. Regular discussions with these groups allow you to find the best solutions to your problems. Besides, hiring an IT outsourcing team is a good way to involve experts with their unique experience in your business.
For example, Berytech has a large number of seasoned experts who know their way around emergencies, including a range of legal advisors, investment consultants, financial planners, risk management coaches, and business coaches from whom you can call upon to help your organization.
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Strengthen Financial Reserves
There is a well-known saying in the business world that “cash is king,” a fact that becomes even more evident in tough economic times. Building and maintaining an emergency fund is crucial to managing your finances, especially during economic downturns. Your cash flow is your lifeline; members must work diligently to keep the pump primed.
According to a Federal Reserve survey, for example, around 40% of small businesses are unable to set aside funds for unforeseen expenses. Furthermore, during the 2008 economic downturn, many businesses failed, while companies with sufficient cash liquidity not only survived but emerged in a position to benefit from great business opportunities.
Properly managing your cash flow and developing contingency strategies will minimize the likelihood of liquidity crises under challenging times. Also, ensure an optimized receivables and payables policy is in place, various funding sources are available, and cost reduction and optimization strategies are developed. By doing this, the company will have a sufficient cash reserve to withstand unforeseen circumstances and prosper in the future.
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Establish Crisis Management Protocols
Prepare for upcoming crises by developing a crisis management plan that values procedural clarity over a catalog of risks. Identifying all potential threats beforehand is impractical, but having a process in place is vital. Implement a structured approach by assigning roles and developing supportive processes. Then, facilitate sound and quick decision-making in times of need by ensuring clear lines of communication.
Statistics highlight the importance of readiness in crisis management. The Disaster Recovery Preparedness Council noted that only 25% of companies have thoroughly tested and implemented disaster recovery plans. As such, companies need to integrate crisis preparation initiatives to counter potential disruptions.
Coordinating team members through individual responsibilities and support hierarchies ensures a structured response. Assigned platforms for crisis communication enable fast decision-making through prompt dissemination of information.
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Leverage Technological Advancements
Technology has the power to transform your business in unimaginable ways, making processes more efficient, reducing costs, and strengthening your competitive advantage. Whether you invest in software upgrades and cutting-edge equipment or engage in a digital transformation project, the possibilities created by technology are limitless. Studies show that companies that focus on innovation during a recession perform 10% better than companies that do not innovate and by more than 30% in subsequent years.
Instead of significantly cutting your technology budget, make solid investments that set your business up for future growth. You can invest in software systems, state-of-the-art equipment, and a new app or website design that makes your online presence and user experience unforgettable. Realize technology’s capability to enhance internal processes as well as external customer experiences.
Digital transformation projects and investments in technology that enable remote work, e-commerce, and seamless collaboration are important. Training staff to master this technology instills a culture of agility and preparedness for financial crisis survival. One of the best technologies to invest in is artificial intelligence. Learn how Alibaba, Amazon, and others use AI.
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Nurture a Growth-Oriented Mindset
During challenging moments, people naturally seek leadership for direction and justification, and in the face of a global recession and universal incompetence, they need a stronger minister than ever. It is essential to restore the four primary behaviors of great leaders to survive what is happening: humility, vulnerability, servant leadership, and courage.
No one has all the solutions. You should be open to input and cooperation. It is important to be transparent about your inadequacies. Assume responsibility for taking care of your support staff. Be a tale of valor and inspiration to follow through the challenges.
You should recall the first basic knowledge of the Great Game of Business (GGOB), “If I don’t inform my people, someone else will.” The world is inundated with illiteracy, which leads to dread. Encourage a growth mentality in your network. Your staff should have the information they need to focus on your needs. Restrain your large brain to endure clear and coherent mutual understanding during times of financial crisis survival. Encourage your staff to embrace crisis as an opportunity to discover, innovate, and thrive. While everyone else is scared, your team will be ready to confront the challenge.
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Prioritize Employee Well-Being
Your HR team is your most valuable asset. You should invest in them even during a recession. You may invest in training, professional growth, and development initiatives, or you can adapt flexible work arrangements.
However, most importantly, you should make your HR staff feel appreciated for their hard work Statistics show that companies that invest in their people during a downturn are more successful at retaining top talent and surviving in the long term.
When a crisis strikes, admit that your company is built primarily on the people who work there. You have to put more effort into support measures for your team. Check your employees’ mental health, provide flexible working solutions, and maintain a positive organizational climate that helps people build resilience. The distribution of responsibilities between employees can diversify and reduce stress levels. By implementing appropriate retention and team management systems, you can lead your organization to success.
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Maintain Agile Adaptability
According to a Deloitte survey, 93% of executives and 88% of employees have indicated that flexibility is important to survive in the rapidly changing business environment. Harvard Business Review statistics have shown that adaptable firms are 6.7 times more profitable than those less flexible.
Crises may be a massive challenge, but they may also provide prospects for growth and development. When businesses and business owners have strong links and a proactive crisis management retort, they can survive and even become more resilient.
Strategic planning also means remaining flexible in the face of resistance and being determined to constantly improve. When companies change and adapt to circumstances, they are more likely to reap the rewards and achieve what their goals. Entrepreneurs and companies need to be resilient, adaptable, and ready to face adversity.
Wrapping Up
In this blog post, we dove into the causes of economic recession worldwide and provided a list of 10 strategies to thrive during the crisis. Although no one is safe from challenges caused by recessions, companies can tackle them with the given strategies. Following these recommendations, businesses and business owners ensure adaptability to unpredictable circumstances as they have comprehensive guidelines on what to do in uncertain times.
The journey through crises is not a mere test of survival but an opportunity to thrive, grow, become more resilient, and ultimately transform. Investment in technology, crisis preparedness, the adaptive leadership model, and attention to employee well-being and support all create a foundation to navigate the challenging times with grace and solidity.
Crises always pose uncertainty and disruptions but are equally a time of great innovation and change. So, never surrender the lessons gained, develop a company culture of rapid adaptation, and uphold a relentless pursuit of excellence even when it all falls apart.