CNBC Headline: The Federal Reserve on Wednesday raised its benchmark interest rate by half a percentage point, the most aggressive step yet in its fight against a 40-year high in inflation.
CNBC Headline: Fed Survey: 57% of respondents say Fed efforts will cause recession.
A recession is two-quarters of contraction, a shrinking of the economy. In the United States, GDP fell by 1.4% in the first quarter of 2022. It looks as if the economy is poised to shrink in the second quarter of 2022.
The Federal Reserve's charge is to ward off inflation and maintain full employment. There are some who believe that, because we are decelerating, the Fed's decision to raise rates may cause stagflation (high inflation and high unemployment, and stagnant demand). It is rare Central Banks don't cause a recession when they try to bring down inflation.
The labor market is fully hot, with more than 11.5 million open positions in the United States with half that number unemployed. Pay rates grew by 5% in the first quarter of 2022, which means this increase will be passed on to the customers.
My Experience with Recessions
The first recession I experienced was the 1992 recession. I had been working in sales for a short time, and my manager and I created enough new opportunities that we increased revenue, something that was easy to do, as the prior manager wasn't interested in sales.
In 2001, when the dot com bubble burst, I had my own team to lead. We sold through the recession, and we did well, even though it was tough to get new clients. We increased our activity.
On October 1, 2008, my company lost fifty percent of our revenue. What would have been a profitable year turned into a disaster. Things would have been worse, but because we targeted large clients, we created several very large deals that gave us some room to breathe, but not much. It would be close to six years for unemployment to return to the 2008 numbers.
The first step to being recession-proof is to avoid churning your clients. Because some of your clients are going to experience slowing demand, there is often less demand for what you sell them. When you are trying to create net new revenue, losing clients means you must replace the lost revenue before you can create growth. Invest time and effort in taking care of your existing clients and ensure you acquire all their orders.
As a salesperson, you want to be on offense, creating new opportunities and winning new business. Even though it takes time and energy away from selling, you need to also play defense, making retention a priority.
Increase Your Prospecting and Create More Opportunities
At the time of this writing (May 5, 2022), we are already deep into Q2. If you weren't disciplined about your prospecting in Q1, it's likely you have fallen behind. What's most important now is that you increase the number of new opportunities you create. Those who avoid prospecting every day often find themselves in trouble when the economy shrinks and there are fewer opportunities being chased by an increasing number of sales organizations. Finding companies that need better results and greater efficiencies means double or tripling your prospecting efforts. This increase in activity is necessary, as it allows you to create the new opportunities you need to make up for the revenue you may lose as some of your client's demand wanes.
Target the Recession Proof
As some of your clients and prospects experience a slowdown, you need to create opportunities that replace the revenue you lose when a client's demand slows enough that they need less of whatever you sell. Other companies are less susceptible to these downturns because they produce something that is recession-proof, like food manufacturers, distribution companies, medical and health care, financial institutions, and industries that produce staples—the things that people must buy.
By focusing on industries that are not going to be harmed as much as other industries you ensure your time and attention are devoted to the industries where there is still demand. You may not want to target industries that suffer in a downturn.
Target the Vulnerable
The reason you want to understand different companies models is because it allows you to see something that is invisible to others. There are some companies that will need help with their profitability, as their costs remain the same or increase, while they are making less money. These companies may make less money because they must compete with competitors that have a lower-priced model, or because they have inefficiencies that prevent them from generating more profit. In either case, if you can increase a company’s profitability, you have an excellent chance to create and win an opportunity.
Money becomes an issue when companies have fixed costs that are difficult to meet when demand slows. Many companies start to make cuts to improve their profitability, with some having an even more difficult time after cutting spending. Eventually, they run out of room and need to make changes that improve their profitability.
Power Through the Downturn
To power through a downturn first take care of your existing clients and ensure you retain them. Once you have taken care of your existing clients, you need to increase the amount of time and energy you spend prospecting and creating new opportunities. Make certain that you start by targeting prospective clients that are recession-proof, focusing on industries that are not harmed as much in a recession. Then hunt for those companies that are going to need to improve their profitability, those who are going to need help improving their results enough that they can remain profitable.
It is rare for me to make predictions, but I have a feeling we have a strong chance of returning to GDP growth in Q3-2022, as supply chain issues improve, and because there are jobs available.