Just three short months ago, the idea business owners would be struggling to navigate a recession in early 2020 seemed far-fetched. Markets were at record highs, unemployment at record lows, the prospects for creative independent eyecare businesses had seemed bright.
But that was before our current state of stock market instability, political conflict, trade wars and a virus that didn’t even have a name in January entered our lives and turned the world upside down.
Now, in place of seemingly never-ending growth we may be looking at a sharp, painful contraction.
In most respects, the outlook now appears to be the opposite of what you may have expected as 2020 arrived. Sales could fall, interest rates rise, banks could cut off credit, supplies may become disrupted, some of your trusted vendors may disappear.
But it is often during recessions that the seeds for future success are sown. It is rare that the marketplace that emerges after a slump is the same as before. In a similar vein, the counter-cyclical nature of business success — the best times to advertise are when your rivals aren’t, the best time to ask for a loan is when you don’t need it, the best time to hire is when the economy is weak — supports launching significant initiatives or program changes when the outlook is least rosy.
To be sure, economic good times are, well, great. Customers have jobs and cash to buy your goods and pay for your services, banks have abundant capital to lend at low cost, there’s money to invest in new inventory, take on new staff, maybe invest in a little vanity project. There’s no pressure to try new things, get rid of underperforming assets — you don’t even have to be the best in your marketplace to make a healthy profit.
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And that’s the problem with good times. You get sloppy. And when market conditions change, you’re in no shape to deal with them.
For anyone who ran a business during the Great Recession, the memories are unlikely to be pleasant. In 2009 alone, more than one million companies filed for bankruptcy. Recessions are particularly tough on small businesses. But recessions rarely persist past a year. If you can keep an eye on the horizon, there are always better times ahead.
Downturns are also rarely similar. While it’s true Wall Street always seems be involved somehow, the triggers are manifold; sometimes they are the result of an external shock (a virus that emerges from a provincial Chinese market), and sometimes it is something homegrown (an asset bubble like the dot.com crash). The only honest thing that can be said about the next recession is that we’re likely just entering the thick of it.
A natural response to a downturn is to “batten down the hatches,” focus solely on the problems in front of you and wait for things to turn around. But such inaction can often be the riskiest response to an economic crisis. And it wastes the opportunities that emerge: the chance to challenge old ways of doing things, to leverage the misfortune of weaker competitors, to prepare for a changed marketplace.
In the following pages we offer tips collected from your fellow ECPs, business books and business schools for a rapid but measured approach that will put you in a position to take advantage of an economic slowdown.
With agility, skill, courage and a little good luck, you may be able to emerge from this dark period stronger than ever and one day look back at 2020 as the start of a new period of sustained growth for your business.
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We wish you the best.
01
ACT EARLY / ECPs who survived, even thrived, in the last downturn say reacting before rivals gave them an edge. It was one of the lessons Dr. Minh Ta of Specs Appeal in Decatur, GA, said he learned from the 2009 recession. “Be ready to maneuver fast,” he said. A 2019 analysis (invisionmag.com/042001) of over 5,000 listed companies across the last four business cycles supports Ta’s belief, finding that those that acted early ahead of a recession enjoyed a six percentage point leap over their competitors as measured by total shareholder return. For smaller companies, the advantage is likely to be much bigger given the market share that becomes available as rivals hunker down, rein in their efforts to win new customers and take a day-to-day approach to dealing with the slump.
02
ASSESS THE RISKS / Among the first steps for a company to take in a challenging economic environment is to assess its vulnerabilities. Consultancy Recession.com offers a free, 20-question “Recession Readiness Assessment” that allows you to see how your business is placed should a downturn happen. You can take it here: invisionmag.com/042002.
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DON’T CRASH THE COMPANY / Rebecca Henderson of Harvard Business School likes to remind her students, “Rule one is: Don’t crash the company.” That means, don’t run out of money. Small companies with high levels of debt are vulnerable in downturns. In a 2017 study, Xavier Giroud (of MIT’s Sloan School of Management) and Holger Mueller (of NYU’s Stern School of Business) found that the vast majority of businesses that were shuttered during the Great Recession had become highly leveraged in the run-up to the downturn. To keep up with payments, companies with more debt are forced to cut costs more aggressively, which can impair productivity while also leaving them little room to act opportunistically. Worse, it can result in owners “borrowing” from the business to meet personal obligations. If you are going to survive a recession you need to take steps to reduce your debt obligations now while times are good.
04
THINK LONG TERM / Smit, the McKinsey executive, says the key thing to do when a complex, changing event like a downturn hits is to stay calibrated and keep an eye on the long term. “To date, there’s no recession — even the big ones — that has lasted longer than one or two years. So good times will come. In the recession, the response is, you go crazy. Cut, cut, cut. But don’t forget that the actions you take toward the future in a recession are as important as the actions that you take to respond to the unique event taking place. Holding that calibration is very difficult. Profit margins of companies are not that big. So in a recession, it will look very ugly very quickly. Ugly makes you respond with ugly, while the beauty is ahead, or the prosperity is ahead.” And even as your earnings may decline, it’s important to maintain standards, adds Jenna Gilbertson from McCulley Optix Gallery in Fargo, ND. “Offer great service, and if they can’t afford you at the time, they will be back when times are better because they remember how well they were treated.”
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05
ADDRESS THE STOCKDALE PARADOX / Author Jim Collins coined the term “Stockdale Paradox” to describe the balancing act between blind faith and the acceptance of reality that is needed for a business to survive harsh conditions. Optimism alone is fatal. Admiral James Stockdale, who endured seven years in a North Vietnamese POW camp, inspired the thought in Collins when he described to him how the first to perish in detention were those who clung to hopes of quick freedom. Ask yourself if there are problem areas of your business that are out of your control and which you are refusing to accept.
06
Shorten planning cycles / If you normally meet once a year or every six months with a board of advisors to assess strategy, aim to meet quarterly. If your small, nimble practice already meets with advisors quarterly, aim to meet monthly. “Focused reporting and effective forecasting are critical to both effective planning and day-to-day management, particularly in a downturn,” notes the PWC guidance sheet. In the short term, the consultancy recommends focusing on a limited number of key performance indicators. “These measures should be transparent, unambiguous and easily understood with a focus on cash generation.”
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FOCUS ON GROWTH / A business truism is that you can’t cut your way to growth. In the Harvard study of the small minority of companies that achieved double-digit growth in downturns, the authors found that yes, they pursued efficiencies, but the most important driver was revenue growth, which accounted for nearly 50 percent of their increased shareholder return — twice as large as the impact of cost reductions. “Downturns make growth more difficult in the short term, but they should not undermine the potential for long-term growth — unless leaders starve their companies of the necessary investment,” they write. Even at the depth of a downturn, the vast majority of working-age Americans will still have a job, will still buy things and require services. “While you want to look for cost savings wherever possible, you can’t lose focus on business development. No matter what the economic conditions may be, there are always opportunities to grow sales,” says Rick Leibowitz, regional director of New York’s North Country SBDC.
08
DEVELOP ALTERNATIVE REVENUE STREAMS / While you don’t want a new line or service to take time and money away from what you do best and/or damage your brand and reputation, some form of diversification is important, especially into market sectors that are staples, counter-cyclical, or otherwise escape the brunt of a recession. “We are also doing what everyone should do when a recession is imminent — making sure we are up-to-date on our contracting and credentialing with all government-sponsored health plans (particularly Medicaid and VA Choice plans). Folks with free healthcare will ignore economic slumps and keep getting their eyes checked regardless,” says Pend Oreille Vision Care’s Heller.
09
KNOW YOUR CREDIT RATING / A blemish on your credit rating can sometimes take years to correct and make borrowing much harder during a slump. With good personal credit, you’ll stand a much better chance of being able to borrow at good rates. This helps if you want to refinance when mortgage rates drop, which usually happens during downturns. At the same time “review any personal guarantees on company debt and work actively to reduce them to zero,” say the advisors at Recession.com.
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HOPE FOR THE BEST, PLAN FOR THE WORST / Sketch out at least three scenarios — a modest downturn, a more severe recession, and a full-blown depression. “Be sure to confront head on what you see as the worst case,” say Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen in their article, Roaring Out Of Recession in the Harvard Business Review. For example, what effect would a 20 percent decline in sales volume and a 5 percent decline in prices have on your overall financial performance? “You may be surprised to find out that, even in the case of a still-healthy company with operating margins (before interest and taxes) of around 10 percent, such a decline in volume and prices could turn current profits into huge losses and send cash flow deep into the red,” they write. Harris Decker of Eye Designs of Westchester in Scarsdale, NY, endorses that approach: “Never take what you have today for granted. It’s always tougher ahead than it may appear.”
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CHOOSE THE CORRECT LEGAL DESIGNATION / Be sure your business and its assets are protected. Becoming an LLC or S-Corp doesn’t automatically remove the risk. Keeping insufficient insurance can be a disaster, exposing your business to a range of legal issues.
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KEEP YOUR VISION FUZZY AND YOUR PRIORITIES CLEAR / Donald Sull, a London Business School professor, recommends “active waiting.” Contemplate alternative techniques, explore likely scenarios and focus on general readiness. This is a time of threat but also opportunity. “Keep your vision fuzzy and your priorities clear,” Sull says. “Maintain a war chest and battle-ready troops. Know when to wait — and when to strike. When you grab an opportunity…amass all your resources.” At the same time, continue making routine operational improvements such as cutting costs, strengthening distribution, and improving products and services. “Though mundane, these initiatives foster efficiency, which can position you to snatch a golden opportunity from rivals’ jaws,” Sull says. In the case of Heather Harrington of Elevated Eyecare in Denver, CO, those improved efficiencies included an inhouse edger. “Tougher economic ties are unfortunately happening all across the board,” she says. “We are trying to cater to a softer budget by bringing in an edger in the house to keep costs down for everyone and that has worked really well.”
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BRING IN A PRO / A qualified strategic planning consultant will do a full analysis of your business and help you identify and understand areas of weakness and opportunity, setting you up to take full advantage of any change in economic circumstances. A similar option is to “rent a CFO.” In addition to providing financial advice and business connections, an experienced CFO can help give your business a reality check without adding to your long-term payroll. These people are not cheap —in some cities, a part-time CFO can cost at least $1,000 a day, or about $180 an hour, so ask to do a quick interview with three and go with the one that you feel most comfortable with.
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SECURE CAPITAL BEFORE YOU NEED IT / The best time to apply for a bank loan or a new line of business credit is when you don’t actually need it. “Loans were much harder to obtain after 2008. Ask for cash when you don’t need it to plan ahead,” advises Dr. Selina McGee of Precision Vision in Edmond, OK.
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KEEP STAFF IN THE LOOP / A recession is hard on everyone, and while it can have a damaging impact on morale, you need your employees to be more productive than ever. The key thing is to accompany any change with an explanation of what makes it necessary and what effect it will have . This is rooted in psychology: We react negatively to unexplained events. The effect is so strong that it is better to give an explanation they dislike than no explanation at all, provided the explanation is credible. When it comes to internal communications, your mantra should be “Simple, concrete, and repetitive.”
By the 10th time you say it, staff will conclude you really mean it. Get employees involved in policy choices as well as tactics and implementation — asking, for example, if costs can be cut 15 percent without layoffs.
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Build a war chest / Steve Nelson of Eye Candy Optical in Westlake, OH, has no doubt a slump is on the way. But he’s almost looking forward to it. “We are going to have a recession. It is just a matter of when. The real answer is you must have your business costs in line and be ready to adjust on the fly. You actually build your business for tough times.” To do that you need financial reserves, to support peace of mind and to take advantage of opportunities. Small businesses are advised to have at minimum a cash reserve equal to no less than three months of standard operating expenses. “To look forward to a recession, you want a disproportionate amount of cash on hand so you can buy things on the cheap,” says Jonathan Slain, a Cleveland-based business consultant who specializes in providing advice to entrepreneurs looking to “rock” the next recession.
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KNOW WHERE YOUR $$ COMES FROM / Be it a good or bad economic period, you should have a thorough understanding of where you stand in terms of your current financial numbers, as well as projections for the future. Expenses obviously need to be scrutinized and revenue flows should get priority. But it’s equally important to understand which areas of your business drive the most value, says Tim Raiswell, VP of financial services firm Gartner’s. “In the middle of a recession, you may find yourself forced to cut costs in smaller windows of time like days or weeks, instead of months or quarters.” This may lead to hasty errors, many of which can be avoided if you start preparing now. One particular area for ODs to watch is insurance plans. “If you aren’t making money on certain plans (i.e., if you’re panicking every time a patient leaves post-exam without buying hardware), then drop those plans,” says Jen Heller of Pend Oreille Vision Care in Sandpoint, ID.
18
MANAGE INVENTORY / One of the greatest hazards facing small businesses during a recession is being caught with extensive back stock that is sitting dead in the back room. Now is the time to reassess your inventory management and tracking systems to find ways of reducing slow-moving goods — the truth is, if it’s not selling now, it will never sell in a recession. A leaner inventory will also give you greater flexibility if the economy slows, allowing you to respond to changes in the market quicker and with minimal loss of investment capital. Consider also what lines might work well when times get tougher for consumers. Nancy Revis of Uber Optics in Petaluma, CA, recommends always having a line or two that is under $200, adding that TOMS has done really well for her store. “And be sure to have a sale case that you advertise often. I mention it in every email blast.”
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CAREFUL TAX PLANNING / It is important not to lose sight of the importance of careful tax planning while dealing with the management challenges presented by a downturn. While still ensuring that your organization remains fully tax compliant, it should be possible to improve your cash flow position by reducing or deferring tax payments. Opportunities here would include making maximum use of losses in calculating Preliminary Tax Payments and ensuring that all available deductions are being claimed. At a more strategic level, falling asset values can also be taken advantage of for crystallizing losses and tax-effective succession planning.
20
SHOW COMPASSION / Jerald Greenberg, a management professor at The Ohio State University, found fascinating effects on employee theft rates at plants owned by the same big corporation when it came to announcing pay cuts during the last recession. At a plant where a curt explanation was given, the rate rose to more than 9 percent. But at a plant where management’s explanation was detailed and compassionate, it rose only to 6 percent. (At a third plant, where no pay cuts were made, the rate held steady at about 4 percent.) Greenberg’s interpretation is that employees stole more at the two plants where cuts were made to “get even” with their employer, and stole the most at the plant where managers exhibited a lack of compassion because they had more to get even for. This suggests that compassion from a boss adds corporate value —in good times and in bad. What’s more, it’s free.
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TRUST IN SOMETHING / Trust in something … be it God, your gut, destiny, life, karma, whatever. You need something to keep you going when times are tough and your brain is telling you: “This is nuts!” How? Just trust. Steve Jobs, who was no stranger to the lows of business life, claims this way of thinking was central to his success. “It has made all the difference in my life,” he said in his Stanford Commencement Address in 2005.
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TWEAK YOUR SALES APPROACH / Train your staff in dealing with price-conscious buyers. Teach them to welcome price objections, which show the customer is interested, but also hint that you haven’t answered all their concerns. “People of that time [the last recession] still needed the services we had to offer. They just wanted to see the value more,” says Ann-Marie Weaver of Optimal Eye Care in Lewis Center, OH. “We continue to follow through with that thinking today. Some people do think there are tougher economic times ahead so we instill the value of the goods that they are receiving.”
Be aware though that a price really can be too high. Make sure you have price points that are friendly to those feeling the pinch. At the same time, never refrain from showing an item because you assume that a customer can’t afford it.
Desperation can make salespeople pushy, and that only drives customers away. Tell your staff to take it easy, that slow times should be considered a relationship-building year (the pent-up demand is growing), and that good times are on their way. (And that ironically might help their sales today.)
23
ASK, WHAT’S THE WORST THAT CAN HAPPEN? / Feeling anxious? Add some ancient perspective. Seneca’s Letters From A Stoic is essentially a training manual for answering one question: What’s the worst that could happen? This helps because specific fears are more manageable than vague ones. Another lesson from the ancients — worry only about what you can control. It worked for Travis LeFevre’s grandmother, who owned Krystal Vision in Logan, UT, back during the last recession: “She says the best thing she did was worry only about what you can control,” says LeFevre. “So if another recession happens, I’m planning to … keep learning new ways to help our clients.”
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DON’T CUT ADVERTISING / It seems logical to reduce advertising and promotional expenditures during a downturn: People aren’t buying, so better to hunker down and wait for the good times to return. But such an approach leaves a void in the market, says Williams. If your competitors are cutting back (or going belly up) you can actually get a boost in the effectiveness of your advertising because your “share of voice” just got bigger, he says. “All things being equal, if you have fewer competitors barking on the airwaves, your ad will do a better job of ‘branding’ your business in the minds of consumers as the first place they think of and feel best about, when the need for your product or service arises.” Williams recommends monitoring your competitors’ advertising. If they’re cutting down, seriously consider increasing your ad budget and hitting harder. (Advertising also becomes cheaper during a recession.) Consumers are also restless and looking to make changes in their buying decisions. You need to help them find your products and services and choose you rather than others by getting your name out there.
25
SEE PROBLEMS AS CHALLENGES, NOT THREATS / Shawn Achor, the Harvard professor-turned-consultant and author of The Happiness Advantage, did a study of bankers right after the 2007 crisis began. He found most of them were incredibly stressed and their productivity slumped as a result. But a few were happy and resilient. What did those bankers have in common? They didn’t see problems — even industry collapse — as threats; they saw them as challenges to overcome. “What these positive outliers do is that when there are changes that occur in the economic landscape, they see those changes not as threats, but as challenges.” Such behavior can be taught and employees can be made to view stress as enhancing, a challenge instead of a threat. Achor’s work with the bankers resulted in a 23 percent drop in their stress-related symptoms and produced a dramatic improvement in their levels of engagement at work as well.
26
DON’T WASTE THE OPPORTUNITY FOR CHANGE / Substantial competitive opportunities await the leaders who can also keep one eye on their long-term transformation agenda. As economist Paul Romer once said, “A crisis is a terrible thing to waste.” Downturns can shine a spotlight on the long-term health of a business, revealing vulnerabilities that might not have been as visible in good times. You should aim to use the downturn as an opportunity to create a sense of urgency within your practice, to drive the large-scale change necessary to succeed in the future. Keep in mind that an economic crisis often marks an inflection point: The world after it is unlikely to resemble the one before it. When you get a moment’s respite, you need to be thinking about how to remake your business to cope with the “new normal.” “During recessions, cash isn’t king; innovation is king,” says marketing expert Roy Williams, author of The Wizard Of Ads, adding that the companies that adapt and shift resources the quickest will “crush” slower but more capitalized companies. “Trying new and different things is risky. But not nearly as risky as maintaining the status quo, crossing your fingers, and hoping that the economy will turn around,” he says.
Dr. Melissa Tauriac of Identity Eyecare in Las Colinas, TX, says she is already seeing that change. “Yes, we are seeing signs. In our market a major private optometric practice group sold to a large conglomerate, MyEyeDr, changing the perspective drastically on private offices. Insurance reimbursements have decreased and primary care optometry is being attacked on all sides.”
27
HAVE A SHOPPING LIST / “History shows that the best deals are made in downturns,” writes David Rhodes and Daniel Stelter, senior partners at Boston Consulting Group, in their paper Seize Advantage In A Downturn. To capitalize on opportunities, they recommend closely monitoring the financial and operational health of your competitors. Liquidation sales of everything from equipment to inventory become more common. Great human resources also become more available. Develop a plan of action to utilize the cash you raised from selling your junk inventory while you are still calm and objective. The trick is to create this plan now. Adds Smit of McKinsey, “If some other player moves a little oddly, that’s a time for you to snatch assets, snatch people, and take a proactive stance, which is that a crisis is truly an opportunity.”
Dr. Tina Smrkovski of Reed Optical in Claremont, NH, says this was true in her case. “The recession made it easier to find and retain great staff. We were able to provide a great patient experience.”
Of course, keep in mind, you’re not doing this because it’s cheap, but because the asset has become available. For potential hires, for example, make a habit of touching base with them quarterly and letting them know all the cool stuff you’re doing. So, when a recession does hit, if they’ve lost their job, you will be their first call.
The same goes for staying in touch with banks. “When banks foreclose on your competitors and sell their assets for pennies on the dollar, unless you have relationships with banks, and you’re one of their first calls, the cheap assets will be sold to someone else,” says Recession.com’s Slain.
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HAVE A PLAYBOOK / “You need a playbook in the event a downturn happens, with some scenarios on how it might happen, and say, ‘OK, this is the script that we’re going to work off. We will modify it based on what really happens,” Sven Smit, a McKinsey senior partner, told the McKinsey Podcast. In a set of guidelines (invisionmag.com/042003) for businesses dealing with a downturn, PricewaterhouseCoopers suggests posing these three questions to yourself to understand the true impact of a slump on your business based on how your customers and competitors might react:
- How will our clients behave — will they trade down to the cheapest model, purchase less often, or seek a substitute product or service? For ECPs, those questions might be: Will they purchase more online? Will contact lens patients go elsewhere for their backup pairs?
- How will our competitors react — will they change their product offerings? Seek to maintain volumes by cutting prices (particularly optical chains that tend to fight on price)? Or seek alliances to reduce market competition?
- What do we need to do well to minimize the impact of the downturn on us — play to the strength of our existing customer base rather than seek to expand? Focus on those customers most likely to thrive in difficult times? Revisit our pricing policies? Seize this opportunity to grow?
For Bob McBeath of Edina Eye in Edina, MN, his experiences in the last recession taught him that the answer to many of these questions is to play to your strengths: “Do what you do best and don’t fall prey to others’ pricing strategies. Promote value in product and expertise.”
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GO FOR SMALL WINS / The organizational theorist Karl Weick showed in his classic article Small Wins that when an obstacle is framed as too big, too complex, or too difficult, people get overwhelmed and freeze. Yet when the same challenge is broken down into less daunting components, people proceed with confidence to overcome it. As you lead your team through a stressful period aim to give them a flurry of little things they can check off as they make their way through their work. It dramatically lowers people’s collective anxiety, enhances their collective energy, and gives them confidence that the hard tasks, too, can be handled.
