7 Rules for Surviving a Recession

When recessions loom, it’s time to take stock of your business. Frankly, a recession could be the best thing for your business – if you’re in that position, congratulations. If you’re not, keep reading.

From layoffs to pivots to generating momentum, history has shown us there are ways to navigate a recession successfully. Pete Smith from Meaford Group knows this path all too well, having seen multiple crises and recessions during his tenure in leadership at IBM and PeopleSoft and as an advisor to start-up CEO’s. Speaking with Peerscale, he shared his seven rules for surviving a recession – and why you should hide cash away no matter what. 

1 – Never do more than one layoff

Not all companies need to do layoffs in recessions. But if you do, never do more than one. Layoffs are soul-crushing for everyone involved. 

“Doing more than one layoff during a recession kills your credibility,” said Smith. “The only exception is another catastrophic event no one could have predicted.”

Unfortunately, this may require cutting deeper than you have to. For example: if you are at 100 people and financial projections say you can afford to keep 75 people, cut down to 70 or even 65 people. 

  1. Market opportunity: You can afford 75 people, but the market opportunity may have shrunk to a point where you only need 65. 
  2. Breathing space: Your projections could be wrong – give yourself breathing space. 
  3. Momentum: If you cut a little deeper up front, you can start hiring again sooner – that creates positive forward momentum in the company.

2 – Worry about survivors

“You have to take care of everyone involved in a layoff,” said Smith. “But you especially have to take care of the survivors.” 

You should support employees that are laid off, but your key priority is the people left over. They are likely feeling gutted for having lost their colleagues and friends, are concerned about the security of their own jobs, and are now worried about all the extra work that they’ll have to take on post-layoff.

That means you need to:

  • Ensure all survivors have valid, fulfilling work to do. 
  • Provide an open opportunity for employees to offer solutions, ideas, suggestions, and take leadership on what is the priority work that needs to continue to be done. 
  • Give as much support as you can – including your own time – to reorient everyone’s energy to getting through the crisis. 

This will require incredible transparency from you as a leader. Your survivors deserve to know the gravity of the situation.

3 – Reduce operational debt 

“Every organization takes shortcuts, makes mistakes or knowingly ignores things for the sake of urgency and to capture opportunity during the good times,” said Smith. “Recessions provide a great reset button.”

In particular, look at: 

  • Tech debt: Fix bugs or corners previously cut. 
  • Operational debt: Eliminate and streamline obsolete processes. 
  • Product / service analysis: Now’s the time to cut underperforming or out of scope products or services. 

“If you’ve already cut deeper than you needed to, chances are these streamlining steps will come as a welcome relief,” said Smith. “They will help you stay leaner, longer. That increases your chances of survival.”

4 – Let employees drive change

You picked your survivors because of their ability to change, adapt, and handle harsh truths. Give them the dignity of sharing those truths and then give them the opportunity to drive change. 

  • Have an ‘ear to the ground’ feedback loop with employees to get a clearer view of what’s going on. 
  • Always be open to hearing ideas and suggestions from employees. 
  • Be a vocal champion for ideation, creativity, and stepping up – recognize the behavior you want to see. 

This may be tough for a leader if you’re not used to being totally open, but it’s the only way that your team will trust you.

“Transparency also helps you identify those that don’t want to be there anymore,” said Smith. “People may choose to leave in tough times or after layoffs. It is not what they signed-on for. This is natural, and the more honest you are, the faster this process goes – letting you get back to business with a committed team.”

5 – Don’t stop promoting or giving raises

It’s easy – and tempting – to use recessions as the time to put promotions and raises on hold. Don’t do this.

“If you’re giving someone significantly more responsibility and holding them accountable to higher performance targets, they deserve a raise or promotion,” said Smith. “If you’re doing salary cuts across the board, apply that cut to the new salary.”

A good litmus test between “we’re all in this together” versus unfairly denying a promotion is accountability. For example, an employee is asked to take on additional initiatives. If they are only being held accountable on a best-effort basis, that’s about picking up some slack and being a team player. But if that individual is being held accountable for the success of an expanded scope of initiatives, that’s a promotion.

6 – Save some dry powder

Opportunities can come to your business at any time – even during a recession. You need to be ready to take advantage of those opportunities.

Examples of dry powder:

  • Money: Cash in the bank for a strategic hire or purchase. 
  • People capacity: Know what can be scrapped or delayed to quickly move on a new opportunity. 
  • Process capacity: Check that you can easily drop a new opportunity in the mix without breaking your systems.

Done well, dry powder is a huge momentum generator that can lead to morale improvements, more meaningful work, and a quicker recovery.

7 – Ask what goes bad if you don’t do something

“While it’s helpful to think of what benefits you get from an initiative, it’s absolutely critical in a recession to look at the other side of the coin.” 

As you assess any opportunity or decision, ask yourself two questions:

  1. What good things could happen if we do this initiative?
  2. What bad things could happen if we don’t do this initiative?

By asking both questions, you may uncover key priorities. For example, you may be choosing between two initiatives. Using only question 1, you notice that initiative A has a massive potential upside, whereas initiative B has a limited upside. But upon asking question 2, you realize that you might lose your top customer if you don’t do initiative B. Suddenly, prioritization gets a lot easier. 

Survival is about being nimble

Ultimately, your ability to survive a recession is about your ability to take advantage of opportunities as they come. Treat your team like adults and support them where necessary, and you’ll have a team that is ready to jump. Treat people poorly (those gone or the survivors), and you’ll sow the seeds of resentment that destroy your credibility. 

While COVID has some unique features to it, the good news is that every recession has a few common threads. Looking at past recessions, these 7 rules proved time and again to be the common ground of all survivors. While there are no guarantees in business, apply these rules and you’ll give yourself the best possible shot. 

Pete Smith

Managing Partner, The Meaford Group

Peter is a senior executive and operator with extensive global experience that includes a track record of managing organizational change, resulting in growth and increased profitability in the technology industry. For the past 14 years, Pete has led his own consulting firm, The Meaford Group, which provides business advisory, coaching and training services to founders and executives of emerging software companies. Prior to that, Peter held management and executive positions at IBM, PeopleSoft and Information Resources.

Peter received a BASc in Systems Design Engineering from the University of Waterloo, a MBA from the DeGroote School of Business at McMaster University and is a Professional Engineer in Ontario. He is a advisor to the board of Peerscale as well as a former Corporate Director at Headcount Corporation, gShiftLabs, Vana Workforce (acquired by FinancialForce), CSDC Systems Inc, Grantium (acquired by CSDC Systems) , the Georgian Peak Club and the Georgian Peaks Foundation and was on the Board of Advisors at Sametrica. Peter was also an Executive-in-Residence at the Innovation Factory from its opening in 2011 until 2016. 


Posted by: Chris Rasmussen | In: Contribution Blogs
Tags: Recession

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