Entrepreneurial resilience - surviving a recession and thriving in 2022 - Emptor

No one knows for sure what will come next in the economy, but it’s a good idea to be prepared for what might happen. Whether we’re headed for a change in the economic cycle or continued inflationary trends, now is the time for businesses to take action and implement business resilience that will prepare them for success in the years to come.

In the post-pandemic era, after two years of COVID-19 and lockdowns in different waves around the world, an unprecedented impact has been left on the business world. We are entering a slowdown driven by the rise in gas and diesel prices, and Russia’s war in Ukraine, with geopolitical conflicts, debts and inflation painting a complicated picture.

The landscape requires businesses to take a proactive stance in the face of macroeconomic challenges. It’s time to make key moves that will allow resilience points to develop:

Financial resilience

• Businesses must distribute their financial goals in the short, medium and long term.
• They must have a strong and sufficient capital position that allows them to withstand drops in revenue, face rising costs or credit problems.
• Resilient companies can and should achieve higher margins by increasing their revenues more than cutting costs.

Operational resilience

Resilient companies maintain the production capacity that allows them to pivot to meet changes in demand or remain stable without operational interruptions, without compromising maximum quality.

Technological resilience

Companies that invest in a solid, secure and flexible tech stack, maintain and make use of high-quality data, interpret it to make decisions and avoid biases, see an increase in the quality of their products or services and in their supply chain.

Organizational resilience

They can and should attract and develop the best talent in critical areas for their constant growth, protecting key positions. They deliberately recruit with the intention of having an organizational culture of excellence that charts a growth plan within the hierarchical structure.

Reputational resilience

They align values with actions and words, from employees, customers, suppliers, investors and society in general with social responsibility. Business resilience demands a solid mission and purpose that guides actions, and are consistent in its pursuit.

Business model resilience

Resilient organizations develop business models that can adapt to radical changes in customer demand, the competitive landscape and technological changes.

A McKinsey & Company research shows that the actions companies take now could make the difference between leaders and laggards globally. Therefore, it is essential that leaders take the right steps.

Businesses face this uncertainty with different levels of preparedness and health. Most fall into one of four categories:

1. Healthy and prepared: These companies are in good shape to weather an economic recession, developing business resilience with solid balances and diverse businesses. They are also proactive, periodically stress-test their plans, and make necessary adjustments.

2. Not prepared but healthy: These companies have solid finances, but have not done the work to identify areas of vulnerability and develop contingency plans. As a result, they could be caught off guard if the economy worsens.

3. Sick but prepared: These companies are already struggling, but have taken steps to address their weaknesses. They may not be able to avoid a recession, but they can minimize the damage by ensuring their operations are as effective and efficient as possible.

4. Sick and unprepared: These companies are in the most vulnerable position, with little financial cushion and no plans to weather an economic storm. If a recession hits, they will struggle to survive.

What is the best way to prepare for an economic recession and develop business resilience?

Here are four steps leaders can take:

1. Review your business model: In good times and bad, it’s important to periodically review your business model to ensure it remains relevant and effective. This is especially true in the rapidly changing current economy, where new technologies and trends can disrupt even the most established businesses.

2. Strengthen your balance sheet: A strong balance sheet is essential for navigating an economic recession. If you’re not in a position to take on debt, now is the time to focus on building up cash reserves.

3. Identify areas of vulnerability: Every business has weak points, and it’s important to identify them before they become a problem. Stress-testing your plans can help identify potential issues and develop contingency plans.

4. Make efficiency a priority: In a recession, every dollar or peso counts. Now is the time to optimize your operations and ensure you’re as efficient as possible. Reducing costs without sacrificing quality will be essential for weathering the storm.

By taking these steps now, you can position your business for success regardless of what the economy presents. While no one can predict the future, there are steps businesses can take to prepare for an economic recession. Reviewing your business model, strengthening your balance sheet, identifying areas of vulnerability, and making efficiency a priority are good places to start. By taking these steps now, you can help ensure your business is ready for whatever the future holds.