In 1930, during the Great Depression, construction began on the Empire State Building. Thousands were out of work, money was tight, and the economy was in freefall. But the project pushed forward. Why? Because the developers had a clear plan, flexible funding, and a laser focus on efficiency.

Economic downturns don’t have to bring your business to a halt. For well-prepared companies, recessions can be an opportunity to tighten operations, build loyalty, and come out stronger on the other side. This article walks through how to assess and manage the external risks to your business – so you’re not just reacting, but building with confidence, no matter what the forecast.

As a business leader, one of your primary jobs is to manage risk. Risk is everything (both inside and outside of your control) that you need to manage to ensure success. This article focuses on the risks that fall into the inside of your control bucket.

None of us can adjust the timing or severity of an economy-wide recession. But we can control how we strategize and act to ensure that we are building a recession-proof business proactively.

Uncertainty is constant, but *can* be managed. We will start by covering how to manage business risk factors proactively and then tie this into recession-proofing levers.

Proactively manage your Risk Factors

A recession-proof business is not a certainty, but rather an ideal to strive for. To focus on what recession-proof means for your specific business, work through these five steps:

1 – Identify Risk Factors

Key Question: What are all of the assumptions I am making about my business?

This is an exercise where we are striving for quantity. You want to create a long list to get everything out in the open. Yes, some risk factors will be much more important than others but think of this as your opportunity to get a fuller idea of your business’s risk profile.

A few assumptions you may be making about your business:

• Our customers love us and will never leave.
• Despite some uncertainty in the market, we will hit this year’s revenue goal.
• Our next product launch will be a guaranteed success.
• We’ve identified key talent and have properly incentivized them to stay and build their leadership career at our organization.

2 – Prioritize Risk Factors

Key Question: Of my list of assumptions, which are most likely to kill my business if I am wrong?

You have your long list of risk factors, now order them by priority. The ones that will be most severe should rank at the top. Depending on the complexity and stage of your business, aim to have a prioritized list of 5-10 risk factors.

3 – Monitor Risk Factors

Key Question: What metrics or indicators do I need to keep an eye on for my list of assumptions? How often do I need to do a pulse check?

A crisis does not come out of nowhere. It starts as an issue, grows into a problem, and escalates into a crisis.

What metrics are you keeping your eye on? These could be metrics like revenue, net promoter score (NPS), and employee retention. How often are you reviewing these metrics? Depending on priority, this could be weekly, monthly, or quarterly.

4 – Plan for Risk Factors

Key Question: If one of my risk factors were to worsen, what’s my plan to manage against this?

The saving grace with risk is that a lot of the damage can be prevented with proper planning. Map out different bad to worst-case scenarios and ask yourself: What is our team’s response?

If we are using revenue as our metric to monitor, we may ask how we will respond to scenarios such as what we do if…

1. We lost our biggest customer.
2. Revenue falls 10% or more.
3. A new competitor emerges that is stealing our business.

Recession-proofing means that you fully understand that these risk factors will worsen from time to time, and instead of being surprised, you are proactively putting together a prevention and response plan to have ready.

5 – Manage Risk Factors

Key Questions: Now that we are in crisis mode, what actions are we taking? How are we getting ourselves out of this mess? What is the next small step forward?

If you don’t like change, you aren’t going to like extinction either.

It’s not a matter of if, but rather when we find ourselves in crisis mode. This is where the first four steps give you a more solid foundation to actively manage risk.

When you are actively managing risk factors, it’s important to:

• Have a clear understanding of what the problem is and how you will specifically solve it.
• Communicate clearly and often with your stakeholders (executive team, employees, investors, customers, etc.)
  • This is what we know.
  • This is what is and is not working.
  • This is what we will do next.
  • This is when I will have another update to share.
• Have one clear owner for each part of your response plan.

Recession-proofing levers

We cannot choose when a recession impacts our business, but we can choose how we show up and respond. I’ve worked with many executive teams to identify the levers they have to steer their business through a recession.

Grow Revenue

Do a full audit of your revenue strategy and analyze every single tactic you are currently running. A recession-proof business can hone in on a sales strategy that is comprised of tactics that are profitable, predictable, repeatable, and scalable.

Go through each tactic and treat these four themes as filters. If the answer is yes, move on to the next theme. If at any point the answer is no or unknown, ask yourself: How can we test and de-risk this cheaply and quickly?

Cut Costs

Start with getting your numbers in order and running a trailing 12-month profit & loss statement. Go through this line by line and ask yourself:

1. Where is my biggest source of spending coming from?
2. What are my recurring expenses?
3. How can I get creative about managing my expenses?
4. What can I negotiate?

For the last question, everything is negotiable. You just have to be creative enough. For example, you may be able to negotiate payment terms for various bills or have employees trade in salary for equity. If you don’t do this exercise and ask, the answer will automatically be No.

Focus is a Superpower

Businesses typically don’t starve.

They drown trying to boil the ocean and take on too much.

 A recession is a great opportunity to focus on what truly drives your business forward. This will mean that you may have to make tough decisions like pausing R&D efforts, delaying product launches, or doing a hiring freeze.

A note on people

Layoffs should be a last resort.

You got your business to the level of success it is today because of your people. Now is the time to continue to develop your team, as they will be the ones to get your business through the storm.

Effective Executives find a way to make their business thrive, even during hard times. A crisis is not something you want to waste, as, when handled correctly, it can be a driver for innovation, creativity, and reinvention.

How we can help

Let’s circle back to the anecdote we opened with. Not only did construction of the Empire State Building start during the Great Depression, but it was also completed in a record-breaking 1 year and 45 days under budget and ahead of schedule.

To recession-proof your business, you need an understanding of risk and the levers within your control to prepare proactively before, execute impeccably during, and build upon new momentum after.

If you are wondering where to start, reach out directly to us through our contact form. Our Executive Performance Coaches have seen a lot, and we can work with you directly to build a recession-proof business that will thrive for many years to come.

By: Max Polec