The financial media are in a tizzy.
The latest predictors are showing the US economy may be headed for a recession. After ten long years of economic expansion, it looks like the party is coming to an end.
As a business owner, this impacts you in a very real way. As a leader whose job it is to care for those who work for you, the thought of a reduction in work and the potential of layoffs is miserable.
Considering you know the names of the family members relying on the income provided by employment at your company does not make it easier. And you realize the impact of a job loss to a family can be devastating.
The worry can put knots in your stomach and cause you to lose sleep.
But don’t let it.
Economists are worried because the yield curve is inverted.
Wall Street watches bonds as a potential leading indicator to stocks. The yield curve, the various yields along each denomination of time, is normally positive; investors generally want more yield for locking up their money for longer. But when investors fear interest rates may head lower due to a recession, they bid the yield on the long-dated bonds lower than the short term bonds to lock in the maximum yield thereby creating an inverted yield.
If you stay up at night fretting about this you probably work in finance. If not, you probably don’t care.
After all, isn’t this created by economists?
And haven’t they predicted exactly 475,896 of the last 3 recessions? Needless to say, this threat due to an inverted yield curve could just blow over.
Recession, Don’t Bother Me
Recessions are scary stuff but a normal part of the economic cycle. As the economy changes it moves through phases of growth, usually faster at the beginning before sputtering and tailoring off just before an economic contraction.
And contractions are not pleasant.
In a contraction, the value of assets declines so people experience the opposite of the “wealth effect” when they don’t feel as rich. Therefore, they don’t spend money freely. Stores, restaurants and companies are forced to right-size their workforce and lay off workers. The chain reaction continues spiraling downward until finally the economy hits the bottom and starts to slowly reverse the trend and grow again.
Here are four steps to take as the US potentially enters a recession.
1. Look for ways to make your business leaner before a recession
Everyone knows what happens in a recession. Businesses trim the fat and look for ways to do more with less. Products promising to reduce financial and human resources are researched and employees of a company collectively pull together to make their business as streamlined as possible.
Why would you wait to do this?
A well-managed company does this regularly. Software to save time, money or both, right-sizing roles for employees and outsourcing low-value services are ways to make your company more efficient and more profitable. As Jack Welch said, “Don’t manage; lead change before you have to.”
2. Focus on the Circle of Control
Stephen Covey, the author of the revered book Seven Habits of Highly Successful People, distinguishes between the Circle of Concern and the Circle of Control. Since a recession is terrifying and also exponentially beyond the control of any one person, this falls into the Circle of Concern.
Concerns are what the news media loves to focus on. Terrifying events and one-off fluke events that are too overwhelming for even the most prepared person. They are good for ratings.
Unlike the Circle of Concern, your Circle of Control is much smaller than what you merely worry about or ponder. These are things you can actually influence. Decisions you can make that impact you or other people directly and immediately. If you are having trouble distinguishing, ask yourself what you can do about it, write them down and identify specific steps you can personally take to impact those worries. If nothing, spend your time on the list that can be impacted.
3. Own your business and your decisions
As a business owner, you already know the buck stops with you. In your business, good decisions are rewarded with revenue and bad ones see that revenue leave. So you probably don’t need to be reminded to take ownership of your decisions…but its good to be reminded of something obvious sometimes.
4. Create products now solving future problems
People buy solutions, not products. As the pain increases in peoples’ lives, the solution or reasoning behind the solution needs to change. Higher priced products may not sell quite as well. Is there a lower priced product you can offer with great margins? Creating the product before a recession means you will be early to market if a recession materializes.
In a humanitarian relief situation shortly after thousands are shaken from their daily routine by an outside force such as an earthquake, hurricane or tsunami, people take stock of their lives and are generally more open to change. The force and trauma of pain causes self-reflection leading people to new thoughts, new actions, and new rhythms.
Recessions are often pain catalysts for businesses.
The challenge is to make the change before the pain.