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Tuesday / August 16.
HomemibusinessThe Five Mistakes of a Recession

The Five Mistakes of a Recession

Recessionary times normally surprise most business people. It is almost like the recession sneaks up on them and creates the surprise. Very few businesses in the world have themselves financially and strategically set for a recession before it arrives.

There are five common mistakes made by business people when they implement the consequent change in strategy and adjustments to the business to cope with the economic environment. In outlining these, we hope that it helps you to avoid these common pitfalls and use them to your advantage.

Mistake 1:

Timing There are four stages to every economic cycle:

  • Down – as the market heads south into a bear market;
  • Drag – as the market bounces off the bottom but drags out in a flat period
  • Release – the market spikes downward initially and then releases into a new period of growth;
  • Up – the market moves into the new bull market.

More commonly than not, business owners are implementing strategies behind these cycles instead of getting in front of them. The opportunity rests with being able to see when these cycles come into play in an economy and investing in our businesses accordingly.

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“Watching these cycles is critical to achieving timing of individual business strategies.”

Mistake 2:

Risk Profile Risk Profile is a measure of how willing an owner/management team is to taking business risks. What typically happens is the owner/manager reduces their risk profile through a recession.

This puts them into the spiral of ‘sell low, buy high’ – and creates the mismatch of timing mentioned above. Measuring a businesses risk profile and adjusting tactics accordingly is what enables a business to grow quickly when coming out of recession – the ‘buy low, sell high strategy.’

Mistake 3:

Wind/Unwind When a business is in growth mode we describe this as ‘winding up’ – think of a bicycle winding up to gain speed. When a recession hits businesses start to ‘unwind’ – think of slowing that bike down; you have to put the brakes on.

When the market turns most owner/ managers still have their foot on the brake, operating their businesses in the ‘unwind’ modality. And with a low risk profile, they are reluctant to take their foot off the brake until there is lots of proof that we are genuinely out of recession.

Problem is, by the time there is plenty of proof that we are out of recession and it is safe to invest again, the opportunity is gone as the market will have already picked up 30 per cent to 50 per cent growth in the initial stages of the new cycle.

The opportunity is now – at the bottom of the cycle.

Mistake 4:

Macro/Micro During boom times business managers tend to focus on the bigger strategic plays available to them; mergers, acquisitions, new markets, new branches/outlets etc. It is what we call macro strategies.

What is forgotten during these times is micro – all the detail that keeps a business lean and efficient. You can hide these mistakes during a boom period as the growth will hide them. So during boom times micro is the blind spot in a business.

The opposite is true during recessionary periods. Owners tend to get dragged back into all the detail of the business and become very micro focused. This means that the alignment of the detail to the macro strategies and visions is often overlooked. Businesses come out of the recession in one piece but not aligned with the growth strategies. They then waste 12 months plus aligning the business to grow – but the market is already growing – they miss the boat!

Mistake 5:

Industry Cycle And the last mistake is often linked to cycles within industries. Owners tend to get caught up in the conversations of ‘doom and gloom’ across the market and fail to watch the economic cycles within their own industries. Not all industries move with the same timing as the overall economy.

Watching these cycles is critical to achieving timing of individual business strategies.

Five common mistakes; easy to see when you are looking for them; easy to not see if you forget about them.

The Opportunity is Now.

Darren Shirlaw is the founder of Shirlaws, which was established in Australia in 1999, and now operates in the U.K., USA, NZ and Spain.

Darren is responsible for developing the unique business model and much of its IP. He has spearheaded the global development of Shirlaws and is responsible for the strategic development of the organisation. Today he still continues to coach clients, particularly CEOs of many household named companies.