Let’s talk about the “R” word. Just mentioning it in passing has the potential to make even the most seasoned sales professional nervous. Whether or not you think we are in the middle of one today or sometime in the future, basic economics teaches us that what goes up must come down and that an economic downturn is inevitable. For those that have gone through recessions, this may conjure up some unpleasant memories.
So, the question you should be asking is not if you should be doing something about it, but instead what steps you should be taking to help your teams prepare during an uncertain economic climate. These periods of slowed growth also present unique opportunities for well-prepared companies to take advantage of the turmoil and gain share. Companies that take an aggressive approach to capitalize on opportunities unique to recessions are more likely to capture outsize gains leading up to, during, and in the years following a recession.
In this article we explore the challenges that come with selling into a slowing economy, the biggest mistakes to avoid, and the best practices to help your teams survive and thrive in the future.
It’s an unfortunate fact that recessions tend to come with some challenges that your teams will need to be prepared to address. The level of impact to your business can vary depending on your industry, size, and even location, but all companies should expect new challenges when selling during a slowing economy. The companies that can understand these challenges and plan ahead to address them are the ones that are most likely to weather the storm successfully. Below we look at some of the most common challenges businesses of any size face in a recession:
As economic growth slows, consumers and businesses become wary when it comes to spending or investing in your product or service. Your business will likely find it more difficult to generate its usual sales so you’ll need to adjust accordingly.
Extending Sales Cycles
Depending on your industry, you may still have healthy audience interest but each sale could take longer to win as your buyers become more cautious. A decision that used to take only a few weeks could easily become a few months and involve many more stakeholders in a tighter economy.
Your customers are likely feeling the pinch too. Whether you sell to consumers or other businesses, there are some customers that are likely to cancel either as a cost cutting measure, or because they simply can’t afford you anymore.
Supply Chain Interruptions
Economic slowdowns also tend to create challenges for industries with rigid supply chain requirements. A slight change in credit or inflation rates may not seem like much to the average consumer, but can be detrimental to commodity-dependent and price-sensitive industries.
Shrinking Internal Budgets
A common course of action during a recession is to reduce spending and maybe even cut costs. Whether you think this is right or not (we’ll get into that later), the expectation to do more with less is a common reality for many leaders in a tight economy.
Difficulty with Forecasting
All of this volatility in buyer demand, supply of goods, credit, etc. will make it extremely difficult to project outcomes. Many leaders just simply don’t know how things will shake out or when things will improve so planning and adapting for the future becomes an extremely challenging task.
Mistakes to Avoid
Whether you’ve been through a recession in a leadership position before or the next economic crisis will be your first, it’s always good to remember the lessons learned from the past. Avoiding these critical mistakes can be the difference between successfully navigating the challenges ahead, or setting yourself up for even more challenges in the future.
It’s natural to be worried about how a recession will affect your business, but becoming reactive or making knee-jerk decisions may actually be worse for you in the long run. Take a deep breath and take control. Use your resources to see the bigger picture and make smarter, more informed decisions. Lean on your team and trusted advisors to figure out the optimal way forward.
Don’t: Delay or Freeze Essential Hires
One of the most common ways companies react to recessions is to cut overhead by delaying important hires or not backfill key roles. This may look better against the short term balance sheet, but the work still needs to happen. Missing headcount starts to tax other team members and unassigned responsibilities create bottlenecks that will have a negative impact elsewhere in the business.
Don’t: Cut Commercial Budgets
One of a company’s biggest investments is in its commercial team. Sales and marketing are the lifeblood of your organization, particularly in a climate of economic uncertainty. Ironically, budgets for these teams are often one of the first things to be cut when things get tight. But, research shows that companies that avoid cutting commercial budgets during recessions typically recover faster, and in many cases stronger than before.
Don’t: Slash Prices or Discount Too Deeply
As opportunities for new sales become harder to come by, you may feel the need to offer more incentives to ensure you get the win. Some discounting is normal, but it’s a double-edged sword that can destroy profits and require you to do more work for less money. Know what your limits are and set strict guidelines for your team to follow.
Don’t: Chase Every Lead
In a tight economy, you may be tempted to work on deals that wouldn’t warrant your time or attention in a normal situation. At the end of the day, these types of deals are still a bad fit so wasting time and resources on them aren’t likely to help in a meaningful way. Ensure you have a strong ideal customer profile (ICP) and clear process for qualifying leads and be prepared to stick to your guns.
Best Practices/Lessons Learned
Preparing for a recession requires discipline and rigor. Solid preparation lets sales leaders move forward with confidence, ready for whatever comes their way. Below is a short list of the tried-and-true methods that past leaders have successfully used to help prepare and navigate through a choppy economy.
Do: Seek Out Advice
There’s a lot of smart people out there monitoring things in your industry so you don’t have to go it alone. Below are some tried-and-true tactics to help you stay on top of broader trends and events as they unfold.
- Trusted Resources: Find and subscribe to any thought-leaders, publications, associations that track and report on industry trends.
- Build an Advisory Team: Create a team and have them focus on trends they are seeing inside the business and in the broader market. Schedule a recurring discussion with this team to share feedback, develop insights, and collaborate on solving problems.
- Track Competitors and Customers: Set up Google alerts for your top competitors and customers to get early warning for any potential issues that may impact your business.
- Talk to your customers especially and ask what they’re seeing – are they changing their forecasts, spending habits, looking to downsize, etc.
Do: Focus On Finances
One of the most mentioned (and unexpected) benefits of an economic downturn is that it forces companies to tighten their belts, financially speaking. While we don’t recommend being overly-reactive or making knee-jerk decisions when it comes to your finances, some steps should be taken to make sure your business remains healthy during recessions.
- Focus on cash flow: The difference between the companies that survive a recession and those that don’t? Focusing on cash flow. So, first thing is to monitor cash flow and make sure you have enough money coming in to cover expenses. Cash flow is king in uncertain times so shore up the receivables you have out and the potential sales you have coming in as quickly as possible.
- Find out what “bad” looks like: Before things get really bad, find out exactly what “really bad” looks like for your business. Start with your cash flow forecast: your projected sources and uses of cash (we suggest 13 weeks!) Test worst-case scenarios with cash flow forecasting to find out exactly how bad a recession your business is built to weather.
- Trim the fat (keep the muscle): Earlier in this article, we said to not delay important hires or slash commercial budgets. This doesn’t mean that you shouldn’t adjust finances at all, it just means you should focus on finding cost efficiencies in non-critical areas of your business. Hold off on hiring non-essential hires, delay expensive side projects or investments, and eliminate waste from underutilized or underperforming areas.
- Adjust expectations: Now that you have a firmer grasp of what your financial situation looks like, the last step is to recast your objectives for the near and medium term. That pre-recession goal that took weeks to prepare? Probably not relevant anymore. It’s important to give your team a realistic and achievable goal to ensure your team feels empowered and focused on attaining success.
Do: Create Sales Efficiencies
One of the shortest ways to navigate a choppy environment is to utilize tools and processes that help you get the most out of your existing team. The first step is to understand where your issues and opportunities for improvement are so you’ll need to ensure you have the ability to see and measure your team’s performance. Once you have that covered, you can begin working on ways to help your team be more effective.
Do: Invest in Sales Training
Training your team to win regardless of conditions is key. Give them the skills and techniques to focus on value and the things they control so the fear of the unknown doesn’t turn into morale issues or excuses that lead to poor performance. Train them to address economic concerns with potential customers and bring up difficult topics headfirst by positioning your product or service as an antidote against a potential recession.
Do: Evaluate Your Tech Stack
You may or may not be surprised to learn this, but recessions actually encourage the adoption of new technologies across all industries. When your commercial engine is healthy, your focus is just to keep things running smoothly but this “if it ain’t broke” mentality goes out the door when your teams are struggling. If you’re already going to be making some changes with your team, you might as well look into adopting new technology as well, right? If you are in the market for some new tech, make sure your investment is worth the effort. Focus on these questions to ensure you come out on top during your buying process:
- Does this help me today? Work with your team up with a list of objectives and criteria that are must-haves and nice-to-haves for where you are today. Stick to these during your evaluation to avoid sales and marketing distractions.
- How does this scale? Make sure you don’t get stuck in a solution that you’ll outgrow and need to replace in the near future. Look for limitations, discuss capabilities you can grow into and make sure the system is robust enough to handle your future workload.
- What’s the expected ROI? Companies with nothing to hide will be very forthcoming with this and will be prepared to back it up with customer references and case studies.
- How will you be supported? Nothing worse than buying an expensive new piece of tech only to find that you weren’t given enough support to be successful. Try to find out what the experience is like in the first 30 and 90 days and beyond.
- Two birds, one stone? The best case scenario is to have one solution solving multiple challenges that makes another system redundant. Consolidating your tech stack is a great way to save some money and create a better overall ROI.
Do: Uplevel Talent
Mass layoffs have already hit multiple firms in the technology industry. While those job losses are tragic, there is an upside: Recruiting new sales people to join your organization now is easier. Even during a recession, people need to work and businesses still need people to show to stay in business. Plus, it has the added benefit of being good for the economy. According to talent acquisition experts, here’s a few ways to continue recruiting the people you need during a tight economy:
- Prioritize open roles: Identify and sort the open positions by level of importance. Mission critical? Full-steam ahead. Nice-to-have? Maybe hold off for the time being.
- Quality over quantity: With so many potential candidates to choose from, you can take your time finding the right people for your situation.
- Be ready to act: Other companies are on the hunt for good talent too so make sure your team is able and willing to get the deal done quickly when the time comes
- Set yourself apart: Communicate what you stand for and the value you can bring to the candidates. Job seekers may take a lower offer if they feel a better culture fit elsewhere.
Talent acquisition experts encourage businesses to carry on with recruiting of new employees and the proof is in the pudding! According to a Harvard Business Review survey, the majority of responding employers said that one of the most effective responses to the Great Recession was to hire top talent.
Do: Become Customer-Centric
It’s always important to remember that your customers are feeling the pain of a struggling economy too. They’re looking for reassurance that you are there for them and care about their needs. Being transparent, open, and honest with customers doesn’t cost you anything but will go a long way to creating a positive experience and a long-lasting relationship.
Why is it so important to focus on customers? For one thing, bringing on net-new customers can cost as much as 15 times more than retaining an existing customer. Combine that with the fact that existing customers spend 2/3 more and are 60-70% easier to sell to than new customers and you can see how your existing accounts can become a vital part of your growth strategy!
A lot of times what you’ll see are AR start to extend out because your customers are getting squeezed by their customers, etc. Look at AR and if your customers aren’t in communication with when they’re going to pay you that’s a red flag. What I’ve done in the past is keep in tight contact with anybody that owes you money and you have projects or sales within the pipeline and ask questions if they plan on continuing with the project or not. Basically a pulse on the market through the eyes of your customers. I’ve been blindsided in the past expecting my customers to tell me vs. me asking what’s going on. Here are some tried and true ways to active your existing customer base to win during an economic downturn:
Reputation and referrals: With customers more closely assessing who they do business with, ensuring your company’s reputation is positive becomes critical. Incentivize your customers that have had a great experience to give testimonials referrals, become referenceable contacts for new sales, and even provide referrals!
Move to the conversation: If you manage a recurring revenue customer base, it is critical that you invest time to get to know your customer’s business, their challenges and how you help them. Initiate conversations to ensure you actively know what is going on in their business proactively – don’t wait for those conversations to come to you. If they are going through a rough patch you can shore up your position with the customer or even present ways to help them solve these new challenges.
Empower your team: Teams that work with customers need to be well equipped & empowered to support the new requests that may come their way. Put together incentive offers (both for the team member and the customer!) to support saving customers that might be looking to cancel due to cost.
- Account or Service Holds – typically about 1-3 Month hold to support time for recovery.
- Right Size – have customers using services that they don’t really need? Perfect time to right size their account & recommend cost savings for them.
- Upsell Offers – ensure the team is equipped to capture customer growth!
- If not offers, knowledge. Take the time to educate your team on what is happening in your market. Train your team on talk tracks for tough questions that customers might have & how to clearly articulate the value that your product or service delivers for your customers.
Do: Seize the Day!
An economic downturn is the perfect time to double down on your competitors’ weaknesses and differentiate your product or service versus theirs. Prepare compelling offers to incentivize customers to make the switch or focus on the value your product or service provides in economically uncertain times. If things are going really well and you have the capital to reinvest in your business, consider taking advantage of these low prices by acquiring new assets on the cheap!
The steps you take to help your team prepare for an economic downturn will play a major factor in helping your company successfully navigate the uncertainty and outperform the competition. Here’s a few major takeaways from what we’ve shared:
- The best time to prepare for an economic downturn is when business is good. Get a plan together ahead of time to avoid having to react quickly when things start to slow down.
- If you think a recession might be coming, there are likely some early indications that you should start preparing: slowing sales demand, delayed/defaulting customer payments
- Adjusting budgets to reduce costs is healthy, but don’t go overboard. Avoid unnecessary cuts in your commercial engine and don’t be afraid to spend more if there’s opportunity to strengthen your team or position.
- A recession is a good time to reassess your IT needs. Since you’re likely going to be making changes already, try to find opportunities to consolidate vendors and level up your tech stack.
- Your customers are feeling the pain of a slowdown as well. Invest time and effort to make sure you are staying in front of potential customer issues and partner with them to solve their challenges.