By Debbie Ogunjobi
THE situation the entire world finds itself in is not at all new, technology and interconnectivity of peoples and economies is what gives this particular recession the Armageddon factor. Almost every corner of the globe is affected and while the ricocheting affect will be felt for a while, it will pass, all recessions do.
While major economies have detailed and documented statistics of the time frame of most of their recessions, third world countries keep track by the effect on the lives of ordinary and average people. The first recognized recession in the history of Nigeria to most of us began with the austerity measures declared by the second democratic regime in the 1980s.
The stringent fiscal measures and mass retrenchments, devaluation of the naira laid the foundation for the decline of the middle class and while other countries recovered to a large degree, the young nation, despite the abundance of natural and human resources never quite got back on track to be the giant of the continent as was expected by the first world.
So this recession is not the first and will certainly not be the last.
As in all recessions, panic is natural and governments worldwide are trying to desperately drag their economies through in record time. While Nigeria was in the vice grip of the austerity measures of the 1980s, the USA was not spared and endured a grueling recession that lasted 16 months, Great Britain, Australia and other major powers also had their fair share of the pain.
Recessions are normally characterized by job losses, shrinking or no growth of the economy and a failure and outright collapse of financial institutions. Recession is normally cloaked under different terms, names or guises but be it the great depression, black Tuesdays, wall street collapse or stock market crash the reality is that a great number of people are suddenly thrown into severe financial crisis that erodes a standard of living to which they have become accustomed.
The result is a collapse of social, political and economic structures living the rich in as much pain as the poor. So where does that leave the average entrepreneur and even the very rich ones? In dire straits; facing economic ruin!!
No sane person can deny the reality of the recession, the question of the day is how do we survive individually and corporately? In a recession, the rules change. If you take a look at the biggest economies who have access to the sharpest minds, valuable data and reserves you will find one common theme: survival.
In a recession all you can do to ride out its wave is to survive. Despite the economies of Europe and the USA buckling under the weight of debt, the reserves are being expended into huge deficits just to maintain liquidity in their financial systems. Banks and other financial institutions are being propped up at all costs.
Prudence has been abandoned and spending their way out of the black into the red is the surest fire way to survive and they are surviving. The difference between the countries and the companies is in policy; the countries are injecting liquidity into their system while the companies are freezing liquidity by raising prices and slashing inadvertently their incomes.
That would make sense if the situation was normal but the situation is anything but!!!! In a recession you do not have the luxury of striving to profit by raising prices for goods and services. The only thing that will achieve is to alienate customers and employees, kill any goodwill and bring business to a standstill.
Except for the basic needs of shelter and food, everything else in a recession is a luxury and most people will lean towards doing without. Where they are persuaded to contemplate parting with what little they have, they will be very prudent and expect every consideration to the reality of their situation.
The job of the entrepreneur at this juncture is to reassess every aspect of the business and put structures into place to ensure survival of both the business and the goodwill it enjoys. Almost 90 per cent of the times such measures include slashing profits to a minimum or even selling goods and services at cost but these very measures painful as they maybe are the tools of survival for the entrepreneur.
While the pinch is being felt in every home and pocket including that of the entrepreneur, he must never lose sight of these simple basic considerations.
1. Can my customers absorb any increase in costs in my goods or services?
2. Are my competitorsâ€™ cheaper or giving better value for similar goods and services?
3. Can I maintain liquidity if I donâ€™t adapt to survival mode as against the profit at all cost mode?
If the answer to any of those considerations is yes, then itâ€™s time to begin to trim off the fat. Itâ€™s much better in the long run to declare a loss and survive for the short period of a recession than to force yourself out of business by trying to milk water out of a rock (getting cash strapped customers to pay more because your costs have gone up).
I am all for maintaining goodwill in a recession but it is the one time to avoid giving credit as most people will never pay up but surprisingly will pay cash for a good bargain.
Lesson 2:Â A recession; global, continental, regional, corporate or individual is a phase. It will pass but it requires tough choices of cost cutting, profit forfeit/slashing and personal sacrifice to survive. If you run business as usual, the recession will end but your business wont.
To be continued