Recession Leadership

“Geesh, Pop, doncha know there’s a Depression going on?”

The  year was 1933. Tony was home for Christmas from the Harvard Business School and he couldn’t believe how dumb his father was.

“I dunno, Tony. Business has been OK.” Tony’s father ran a hot dog business in New York City. He had about fifty pushcarts on street corners and he had just received a concession at Yankee Stadium.”

“Pop, Pop, Pop. You say that now, sure, but everywhere you look people are out of work. Big companies are laying of more workers every day. Things are bad, Pop. You need to be smart, cut back now.”

“I dunno, Tony.”

“ Pop, read the newspaper.”

Tony went back to school and the old man read the newspaper. Things were bad all right. The whole paper was full of how bad things were.

The old man bought cheaper hot dogs and day-old buns. He cut out onions altogether and added water to the ketchup and mustard to make it go further. Some of the street corner guys complained, but he answered them with Tony’s words, “Doncha know there’s a Depression going on?”

The street corner guys weren’t selling out anymore, so the old man cut back on his orders. He started to run out of dogs at Yankee Stadium before the seventh inning stretch. Stadium management didn’t like that much, but the old man knew that it would just be a matter of time before people at the game just started buying fewer hot dogs like the people on the street.

In June when Tony came home, the old man told him he might not have the money to send him back for the second year. The business was down to thirty push carts and he’d lost the Yankee Stadium contract.

“I guess you were right, son. There is a Depression going on.”

This is an old story

I saw a photocopy of this story on my boss’s wall in the 1970s. Sam said someone gave it to him twenty years before. He asked his salespeople read it and then he’d ask us what we thought it meant.

Most of us got that negative attitudes can create a self-fulfilling prophesy. Some of us saw that the old man had cut his quality in ways that drove away his customers, no onions, watery ketchup and mustard, stocking out before the seventh inning rush at a baseball game. A few of us were able to generalize that all sectors and channels do not suffer equally in a recession.

Now the ‘R’ word is being bandied about again. The bond yield curve is headed down. The stock market is down substantially after years of a bull market. We have price inflation in many staples, especially gasoline. If you aren’t tired of the phrase “pain-at-the-pump” yet, you haven’t been paying attention.

Interestingly many corporation’s profits are quite high, jobs numbers are up, and unemployment is still very low. Many of the effects that people are whining about can be attributed to a two-year pandemic that disrupted supply chains. China, a major supplier is still shut down. Dockworkers and truck drivers are in short supply. Suppliers, including oil and gas companies, cut back production during the pandemic, laid off workers in some cases. Now it is harder to start back up. Airlines, who got big bailout checks they used to buy back stock, gave early retirement to pilots and other staff and were unprepared for the resumption of demand and inflated fuel prices.

So prices are up. High profile CEOs say we’re headed for a recession and everyone wants to blame the President, even though the business cycle doesn’t conform to a four year election cycle let alone the first year and a half of the President’s term. “The government spent too much money on the pandemic relief,” say some, conveniently forgetting that the 2017 tax cut reduced revenue. All this is exacerbated by a Fed Chair who doesn’t speak forcefully and confidently.

Don’t let a downturn scare you

The ‘R’-word is surfacing more often. So when you hear it remember:

• Economics is a social science i.e., real people (customers) buy products and services that other people create (workers and their managers in companies). People are emotional beings.
  • Don’t make recession a foregone conclusion, self-fulfilling prophesy, look at it rationally.
  • If it happens, industries, products, jobs, and people are not affected equally.
  • You can’t shrink your way to prosperity.
• Avoid, and help your people avoid a bunker mentality, the state of mind where you:
  • keep your head down
  • never volunteer for anything
  • talk to the brass as little as possible
  • don’t hire anybody (get it done outside if you have to, but just keep it in variable cost)
  • cut costs to the bone, especially visible soft items like sales meetings, product development, improvement and innovation initiatives, training, or advertising
  • pay more attention to the grapevine than to your customers, and
  • focus on revising your resume.

What if revenue drops and costs increase?

If you find you need to take action to reduce costs:

• Do a Pareto analysis of customers. If twenty percent of your customers create eighty percent of your profits, hug your best customers (offer special discounts, bundle some products, write joint articles to promote both business) fire your least profitable customers and improve the rest, (cross-sell other products, raise prices, add fees.)
• Do the same thing with products, get rid of unprofitable products or SKUs.
• Cut costs transparently i.e., tell people what you are cutting and why
• Cut costs strategically with long term impact in mind – i.e., a 10% across the board is fair, but should you really cut the budget of the company’s future products at the same level of those you’re phasing out?
• Temporary salary reductions may be better than layoffs and please apply whatever cuts you make to managers as well as workers.

Look for the opportunity

If your debt is low and your company is fundamentally healthy, maybe you should spend money instead of cutting costs:

• There is considerable evidence that companies that increase marketing investment during recessions gain market share.
• Companies that invest in innovation during recessions often emerge as leaders in recovery.
• Stephen Covey in The Seven Habits of Effective People talks of “sharpening the saw,” periodically investing time in improving. How can you individually and collectively use downtime to improve your capability?

Recessions are abnormal times, times of change. As a leader don’t let the change happen to you and your people; take charge and make the change you choose.

Short of denying reality or honey-glazing the stinky stuff, a positive attitude is a good leadership trait right now.

I’m not saying that “not saying the ‘R’ word” means it won’t happen – just saying – not saying it – is better than saying, “Geesh guys, doncha know there’s a recession going on.”