How business and startups can survive adverse economic conditions
No doubt, when the economy slows down, small business owners can struggle to keep up. Entrepreneurs are finding it very difficult to achieve all their objectives at the same time while battling economic challenges. Economic policies, growth, inflation, development, and many other factors, all impact the way entrepreneurs do business.
Entrepreneurs are challenged to plan for and be ready and able to respond to new policies and economic activities as they change over time to meet the different economic conditions.
Periods of recession can undoubtedly, and easily result in business failure. A recession is generally accompanied by decreasing incomes, limited spending, and business closures.
Generally, businesses ultimately fail because they become insolvent. This means that they are unable to pay their debts. Entrepreneurs need to find creative strategies for survival that they can quickly implement for sustainability, during a recession or at least, increase their chances of survival, instead of failure.
Individual economic issues have varying effects on businesses and most new entrepreneurs are left “hanging by a thread”, while seasoned entrepreneurs work their way around the system, and their business, at least, survives an economic downturn. It is important, therefore, that entrepreneurs consider their ability to comfortably proceed in business, should the economy become tight.
How Can Startups Prepare and Survive Inflation and Other Economic Conditions?
New entrepreneurs must seek to first understand the market in relation to the economy they are in. Not every market is viable and factors affecting demand must be carefully assessed, to work out how a business would cope, should the demand curve shift adversely.
An entrepreneur can, for example, look at interest rates. High-interest rates tend to control inflation. Both people and businesses borrow less and spend less. However, high-interest rates, though a means of controlling inflation, can have some negative effects on the market. Consumers are discouraged and they spend less. As a result, businesses will decrease output and there is the possibility of job cuts.
High-interest rates can also lead to higher exchange rates and contribute to higher prices in export markets. Entrepreneurs who find themselves at a disadvantage because of this economic shift can employ alternative actions to help them cope. These can include:-
-Having austerity measures in place;
-Focusing on increasing sales in the home market if they are also engaged in exports;
-Finding cheaper suppliers:
-Evaluating and eliminating excessive debt;
-They can try to pass on the charges to customers through this must be regulated;
-Requests can be made to lengthen the repayment period and sign long-term, fixed payment contracts;
-Startups who import can purchase low-cost imports.
Economies can move quickly from a boom to a slump and startups should be aware of the conditions not only associated with growth periods, but also the conditions that the economy drifts into during a slump. Businesses should be aware of the elasticity of their products or services. Ideally, entrepreneurs should conduct worst-case scenarios as part of their Market and Commercial Feasibility studies to see how viable their product or service is. The demand for some products in the industry remains largely unaffected by changes in the economy. The same goes for decreases in consumer incomes. Some products will simply continue to be in demand, for example, basic food items are always needed.
Successful entrepreneurs embrace the opportunities that a recession brings. This is how we grow. We see the market/industry now, as a chance to influence this change and bring about creative and diverse solutions to customers’ pains. New pain points are inherited in a recession, so there are lots of opportunities if entrepreneurs can identify those pain points and solve their customers’ problems.
A tough economic climate might mean that some startups have to do more than just cut some costs and wait it out. Some businesses may be forced to completely change their strategy and business model in order to manage and barely survive the recession. Whatever the climate throws at you at this time, your response as an entrepreneur should be to adjust and do so quickly. Make changes quickly because a recession is all about survival of the fittest. Businesses that fail to adopt new structures, policies etc, at this time, so as to take advantage of what the climate brings, fail, and they fail fast. The entrepreneurial system is filtered during a recession and only the strong survive. As hard as it may be, new systems should be devised, new policies put in place, decisions should be made quickly, and changes should be implemented with the same fervour as when the business first started.
Economic uncertainty on a global scale means that changes are taking place across the globe and not just in the economy you are in. An entrepreneur who fails to move in the direction of this change misses out and is left behind.
Understandably, a startup’s initial reaction might be panic. And of course, most people are still hesitant to change. What’s harder for some businesses, is that some austerity plans would include hurting and disappointing people, but your business has to survive. However, confronting this change head-on and being transparent, could steer the business in a new and exciting direction, perhaps one never before thought about, had this change in the economic climate not occurred. Seeing change as an opportunity for advances can prove fruitful for businesses that can implement strategies to deal with the change effectively and efficiently.
Contingency plans and austerity measures are needed to help businesses remain dynamic and competitive during a downturn. Also, startup business owners may use an economic downturn to re-evaluate business targets, to allow quicker adaptation to their changing environment and hence to remain profitable in adverse economic conditions.
Author: Cherise Castle-Blugh
About Cherise Castle-Blugh
Cherise Castle-Blugh is the founder and CEO of The Timely Entrepreneur TM, an entrepreneurial development, a self-guided organization that creates the resources and puts forward the necessary “soft – skills” to allow entrepreneurs to succeed in all areas of their startups.
Cherise Castle-Blugh is the Author of THE TIMELY ENTREPRENEUR & Best Selling Author of the book “Startup Legalities” – Book 3 in The Timely Entrepreneur’s Grow Your Business In A Snap! Series. She is a key Educator in the field of Business and Entrepreneurship.
Cherise has dedicated 25+ years to helping businesses achieve and protect their success, specializing in leading new businesses in transition or startup phases and helping them create sustainable, functional, operational, and financial growth.