17th April, 2020
In this article we look at what businesses did to get through the GFC of 07-08 and how they can apply to your business during COVID-19.
Travel, hospitality and events were among the first industries hit, but it’s likely there won’t be any business that will get through untouched by the COVID-19 pandemic.
It’s almost certain that we’ll be facing a global economic downturn – one which some economists are suggesting could be even worse than the Global Financial Crisis of 07-08.
But a recession doesn’t mean total destruction and, it also brings opportunity. Here, we look at some lessons that came out of the GFC and how they might be applied today.
Plummeting revenue and rising redundancies feel stressful and hard, but it’s worth keeping things in perspective. By and large, most businesses will get through a recession with something left over to rebuild.
According to Shamubeel Eaqub, economist and RNZ contributor, a recession behaves differently to what most people imagine.
“The number of business failures may rise a touch. But the real impact is from fewer new businesses starting up. New jobs in new businesses don’t materialise. During a recession people become more careful, take fewer risks and delay making decisions.”
He suggests we should rename a downturn as ‘paralysis’, not ‘a bonfire of businesses and jobs’. Most businesses and workers got through the GFC.
In New Zealand, the unemployment rate rose by only 3.5 percent.
Australia fared better, with a rise of only 1.75 percent, while the UK’s unemployment rate was at its worse in 2011, rising 2.7 percent over five years.
Plus, we’ve never before seen government stimulus and wage subsidies to help businesses survive this crisis.
So a recession may not be the disaster you’re worrying about – and, as we’ve seen in the past, it can make for some exciting changes.
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“Never let a serious crisis go to waste…it’s an opportunity to do things you think you could not do before,” — Chicago mayor Rham Emanuel.
The GFC created a swell of innovation and we can expect to see that again as companies adapt to a fast-changing landscape.
This push for innovation will help businesses survive, and for some it will be the catalyst for huge, market-changing growth.
The 2007-2008 crisis created massive shifts in the way people worked and did business: Uber, Airbnb, Square, Slack and Dropbox all launched during or just after the GFC.
Today, businesses are already pivoting: e-commerce stragglers are rushing to digitize, while others are moving their model online. For example, science educator Nanogirl created a digital platform in three days.
Some businesses are changing tack with their offerings – Spiffy, on-demand car cleaner, is now sanitising premises, Burberry is making hospital gowns and masks, and Dyson has created the Dyson ventilator.
And while many of these businesses will go back to normal post-coronavirus, an important few will find that this was the best thing to ever happen to them.
So, with a new perspective on what the recession can bring, here’s what we can learn from past economic downturns.
There’s money and consumer need out there, you just need to work out how to win it. Your opportunity might be in a new target audience – socioeconomic, ethnic or community groups that you haven’t yet tapped.
Could you look outside your city or country to broaden your hunting ground? Is there opportunity within your business – does your model need tweaking?
Learning from Lego: During the GFC, Lego’s profits grew by 63 percent – an all-time high. And Lego is hardly a must-have item for struggling households.
The biggest factor? They launched in Asia and built their sales in Europe.
If there’s one thing you can be sure of in a recession it’s that people are stressed – and will jump at anything that seems like it’ll make their lives better.
The most obvious thing to offer is a way to save money or get more value.
Joy and ease are also in shorter supply – could your business be part of bringing some of that? What other new challenges are people and businesses facing that you could help solve?
Learning from GroupOn: GroupOn launched in November of 2008, and simply exploded. GroupOn solved a problem for both businesses and consumers. It was a crucial marketing tool for struggling businesses and gave their customers access to goods and services they felt they otherwise couldn’t afford.
When people are out of a job or laying off staff, they’re constantly making tough choices about what is truly essential and what they can live without. If you can offer a way to achieve the same goal for less money, you’re onto a winner.
Perhaps your model is slicker and therefore more cost-effective, or you can develop a DIY version of a more expensive service. Or, maybe you can see an entirely new way of getting the same outcome.
Learning from Netflix: Netflix started as a mail-order DVD service and didn’t become the powerhouse it is today until the GFC. Their model meant they could offer a cheap-as-chips alternative to satellite TV and they grew their subscriber base by more than a third in 2008.
Pivoting to an online offering, tweaking existing equipment or building an entirely new digital solution can create efficiencies and reveal new sources of revenue.
Technology has a huge role to play in toning down the COVID-19 crisis negatives and scaling up the positives.
While external marketing and messaging pivots are the most visible of these, getting your internal business management systems connected could make your ability to adapt so much faster.
Integration, where there was none before, could dramatically improve your efficiency, save costs, improve customer service and unlock critical business intelligence.
Learning from an HBR study: A 2010 review of 4,700 public companies showed that those that came out of the GFC in front had focused both on new offerings and reducing costs by improving operational efficiency.
So now could be the time to investigate integrating or updating your business management software so when the economy does bounce back, you’ve got a head start on your competition.
Rather than listening to doom-and-gloom headlines, focus on staying agile so you’re ready to adapt to a changing world.
Go looking for new opportunities, offer innovative alternatives, and above all, leverage technology to make your business faster, more efficient and more cost-effective.
While nobody can predict how long the pandemic will last and how large the impact will be on the economy, the one common lesson we can take from all past recessions, is that businesses will adapt and survive and that eventually the economy will recover.