Recession, Regression and Pessimism Porn

With the G20 summit having set the stage for a collective response to the economic crisis, the main concern of businesses owners in the UK is whether they can do something quickly to stop the rot.

Leaders have to respond to the systemic failure of the financial system, the consequent decay in consumer spending, and a fall in industrialised world trade. However, these problems are symptoms not the cause.

Arguably, the biggest barrier to recovery is a deep-rooted pessimism among UK business executives that government solutions will not work or take effect too late to prevent a further downturn.

What leaders must demonstrate is a belief that the end is in sight, after all, we know there will be an end, and few people are suggesting that it is beyond 2010.

It is no longer just the lack of credit that is keeping CEOs awake at night; it is pessimism about the future. Many credit-starved businesses have gone bust, and those who have survived have a fear of borrowing cash that no amount of quantitative easing will fix. Furthermore, the global drop in trade has meant that many businesses need or want less credit. The main issue is that low confidence is halting investment and causing consumers to retreat, fuelling the economic crisis.

Take the UK Government’s £75bn quantitative easing action. In normal times this would cause a significant flood of credit, boost inflation and ‘heat up’ the economy. In the current situation none of this may happen because no one wants to borrow money so readily. This is an upside-down recession, affecting the financial community first and causing consumers to react and regress.

Many people are better off than a year ago, with low interest rates, reduced mortgages in many cases, and falling retail prices, but they are still retreating from the economy until the storm blows over. They are staying indoors watching and listening to the news with a fascination usually reserved for car crashes or porn addicts.

Whatever the final outcome of G20 there are things that small businesses can do to prepare for a bright and confident future:

Review the way business is resourced

This is a good time to look at resourcing. Staff may have been thinned out or even removed totally, but a skeleton team should be kept in place to respond to and exploit the upturn. Outsourcing is a good option. Outsourcing costs are currently down and they represent scalable, variable costs. Many suppliers are keen to build relationships and will work on reduced costs. There are companies that are turning down offers of free work from suppliers, which is madness.

Externalise

The current crisis has caused a great deal of internalised thinking; but companies should be far more externally focused. They need to study market trends, understand changing customer expectations and look at what competitors are doing - and be prepared to 'steal with pride'. They need to be creative.

New ideas should be tested on customers. If the advertising and marketing spend has been cut then other, cheaper methods of staying in touch with customers must be considered. Mail shots e-newsletters and more PR is a must. Advertising can be expensive, but communication need not be. Customers will be re-assured that a business is still there and is energised.

Invest in products and services

Businesses may need to cut back on R&D, but this is not the time to stop. They need to use the information gleaned from external research to understand new market opportunities and where investment should be made.

Short- to medium-term expenditure should be prioritised as long-term spending can be put on hold until things pick up. Another idea is co-developing products and services with other organisations and R&D can be outsourced too. There are commercial and academic organisations that are good centres for development.

Change the psychology

It can be a fight out there, but leadership must maintain focus and morale. A motivated organisation is an effective one. Business owners need to show belief. The team needs to be focused on creating opportunities in a positive working environment that believes the recession will end soon. People should be involved in future plans and in developing strategies. These are all positive psychological actions that will prepare the team for economic recovery.