The drastic economic impact created by the pandemic will be felt for quite a long time. Businesses have shut down en masse, skinning alive certain industries and leaving millions of the global workforce, out of work. America reported having almost 40 million people, which is more than a quarter of their workforce, file unemployment claims after the pandemic forced the closure of businesses.
As we face these terrible prospects and the unknown financial realm ahead of us, many people have started reflecting on the most major economic meltdown in recent time, the Great Depression of 2008. Although the recession period spanned from December 2007 to June 2009, it took several years for the economy and the employment scenario to get on its feet and stabilise to normal levels. It marked the largest economic crisis we faced in our lifetime.
Wise people are aware of the fact that those who cannot learn from the insights provided by history are doomed to repeat it. Regardless of what the future holds for the economic ecosystem, the business community needs to take a deeper look at the resilient businesses who managed to weather down the storm in the past as well as the failures. Here are some of the lessons that we learned from the 2008 recession that still hold true in 2020:
1. Diversify your consumer base
One of the most common suggestions from financial planners to people managing the stock markets efficiently is to possess a diversified investment portfolio. In layman’s terms, it means to have a potpourri of investments in different sectors and fields, which simmers down the potential for a financial distress phase that originated from a failed asset or risk. This analogy is also true for businesses and the customer bases they cater to.
If a company has only one or two variants of customers, it can be a risky venture in the long run even if the company attains success for a certain period. It is best to possess diversified income streams and cater to various sectors and various types of customers. That way, businesses won’t cease to exist when a segment of customers disappear all of a sudden.
2. Strengthen your operation mechanisms
Another crucial factor for which businesses withstood the 2008 economic meltdown is that they possessed an iron-clad operating system. This doesn’t just originate from the franchisor but also possessing franchisees who effectively implement the same. These are the people who have a deep understanding of how the figures work and how to operate a business efficiently.
This is the exact reason why franchisees with strong operating mechanisms survive major economic downturns while weaker establishments with little to no expertise on market dynamics plummet catastrophically. It is not just about implementing the system but having people in place who have good knowledge about that system and can execute it seamlessly.
3. Cash is king
It is normal to use debt to get into a business and it is quite a common practice. However, entrepreneurs should remember to preserve cash and try to reduce the burden of debt as fast as possible. Too much debt leverage in an economic meltdown has disastrous repercussions.
The only people who survived the recession in 2008 were those who did not have a pressing debt burden upon their shoulders. When a business owner makes cash, one of the things they should quickly and efficiently reduce their debt load.
4. Be prepared for everything
We cannot predict the future down to the t, but we can derive insights from the past and take necessary actions to fight whatever situation is thrown at us. Those who went through the Great Depression a decade ago and are struggling now due to this pandemic should find solace in knowing that come what may, there is always a way out and things will gradually improve. The key is never to get complacent and give up thinking about what lies in the future.
Business owners should be ready for what is coming next, even if they do not have a clear idea of what lies ahead. To a certain degree, they need to be worried about the uncertain realm so that they never get comfortable in their current position. It is important to have a contingency plan in place and work flexibly when the time comes to respond to a situation.
To quote Warren Buffett, one of the world’s most renowned industrialist, “Someone is sitting in the shade today because somebody planted a tree there a long time ago”. The current economic situation is where businessmen should plant the seeds of future opportunities. These opportunities might appear to be far-fetched now, but the benefits will be reaped if the sapling that grows from it is carefully and consistently nurtured.
There are plenty of valuable lessons that we learned a decade back. It is important to reflect on the examples for the companies as they fight through the current economic situation.