How to make money during a recession
Well, it’s that time again. People are worried about a recession.
Strange, because according to the US Department of Labor, the unemployment rate is at 4.4%. For historical perspective, ten years ago (April 1997) it was 5.1%. It rose to a high of 6.3% in June of 2003, and has been falling ever since.
Average hourly earnings have risen from $12.29 in January of 1997 to $17.10 as of January 2007.
How do I know people are worried? The phrase “How to make money during a recession” has started to become more common again in my search term results. Plus, the bigger companies have stopped spending while they wrangle over budget cuts. And entrepreneurs are focusing more seriously on making more sales.
If we do have a recession, what will happen? What typically happens in all recessions?
- People spend less vigorously than they did before. When you think of their buying process (something we do just about 24/7 around here), what happens is they apply more scrutiny to their purchases than they did before. They are especially reluctant to make big and risky purchases.
- People think “maintenance” rather than “expansion.” The entrepreneur who wouldn’t hesitate to buy a new piece of equipment or software decides it would be better to wait. The homeowner who has been thinking of getting the roof fixed decides to live with the bucket and the drip for a while longer. What was normally routine spending changes to carefully considered spending.
- Employees watch their bosses more carefully. The feeling is one of “tight” rather than “fluid” budgets. Employees spend much more time justifying expenditures than they had to before.
- CEOs hire people who are good at cutting costs. During long-term recessions, the finance people drive most decisions.
- The press is full of negative statistics, warnings, and dire economic projections. Everyone wonders: How long will this last? How much will it affect my investments? How cautious should I be? The overriding motivator will be fear, not confidence. The basic behavior pattern will be contraction, rather than expansion.
How you can swim against the recessionary current
It’s important to note that during recessions, even with all the “analysis paralysis” going on, people still spend money. The banks still process literally trillions of dollars every day.
What changes is what people spend their money on, how quickly they make buying decisions, and why they spend that money. The trick is to look for opportunities in the new setting. Don’t waste time cowering in a mental hole of denial, or waste time wishing things would go back to the way they were. Things never go back to the way they were.
Back when we were working in Silicon Valley, I remember one particularly long-lived tech-industry recession. While the rest of the marketing firms were laying people off, we had our best year ever.
By the time this one set in, I had developed some theories about recessionary spending. I applied those theories to our client acquisition efforts.
When people aren’t buying new stuff, what do they do instead? They focus on their existing stuff. They take better care of it, so it will last longer. They buy accessories for it, so they get more capability from it.
In the business-to-business, high-tech world, which was our specialty at the time, this meant that test equipment companies and peripheral companies would be doing well. They’d have customers who wanted to buy, and they’d be open to spending money to attract and sell to those customers. Our firm ended up with accounts in the test equipment and peripheral markets. We had a record-breaking year.
When things start to slow down, don’t obsess about what the economists are saying. They will come up with a reasonable-sounding analysis, but they haven’t a clue about what your customers are actually thinking.
Go straight to the source. Ask your current and prospective customers what they’re thinking. What trends do they see? How have their own perceptions changed? What are their needs, perceptions, and expectations?
Are people applying more scrutiny to their purchases? If so, what can you do to answer their additional questions? What are their additional questions? Which answers satisfy them? Figuring out how to answer buyer questions is a good exercise – no matter what the economy is doing – but it is especially useful in times of higher-scrutiny buying.
If people in your industry become more fearful, what is likely to happen? What would they be more likely to buy – and less likely to buy? An answer to this question might be: “They will be more likely to buy ‘smaller’ things rather than ‘larger’ things.” Can you repackage your products or services into smaller “chunks”? Can you make it possible for them to buy now, and pay over time? Can you find out how they want you to change your products or services so they are more affordable?
You will also want to be more careful with your own expenditures during a recession (see, this is how it all starts to snowball – but it’s reality, so we need to discuss it). One way to do this is to align yourself with vendors who are nice people. They tend to be kinder during times of tight money, and they will never waste your money, even when times are good. Greedy, nasty types, on the other hand, will do everything they can to bleed you dry. As you deal with them, you’ll be less productive – something you can’t afford even when times are good.
Avoid spending marketing money on dubious things that have little chance for return. You still need to spend to attract new business, but you’d be wise to drop those directories that have never, ever brought you a single customer. Focus on marketing efforts that can be traced to sales.
The last, and probably most important piece of advice I can give you is to follow every sale through to completion. You’d be surprised at how many people “assume” that people “aren’t spending” during a recession, causing them to stop pursuing a sale long before they should. I’m not talking about “persistence,” which usually means “pushing,” but helpfulness and patience.
People still have needs you can fill. They still will spend money. They just want to be more sure about who they give it to. Inside companies, they want to make sure no one can fault them for spending money unnecessarily or unwisely. If you are the helpful, patient person who makes it easy for them to get answers to their questions, they will want to give their money to you. Be more organized. Don’t let a single lead fall through the cracks. Keep focused on it until it either results in a sale or you are absolutely sure it’s a dead end.
Of course, you can always decide that this will be your best year ever. But that’s not enough. The way to make sure it happens is to put energy into understanding what your buyers want – in the new environment – and giving it to them.
When you do this, money will chase you, rather than the other way around.