“Profiting in a Recession” Series One
A recession simply means the economy is receding, (technically it means the economy has had negative growth for six months). In a receding economy, what happens?
1. Incomes fall, households lose jobs, households spend less
2. Business invest less: as household spending fall, business spend less on expansion, rent, diesel, even paper
So in simple terms, in a recession, the business growth figures are negative. So a recession is like an economy going on a diet, a severe diet.
On the face of it, this is a problem. If you were an entrepreneur you will see sales falling as less households have disposable funds to buy goods, but this is an opportunity, how?
In a recession,
3. The business environment becomes open to new ideas that save costs and improve productivity.
4. As business fail (sadly), excess capacity becomes available, eg, offices to rent become more available and cheaper.
5. Start-ups can hire experienced workers who have lost their jobs.
To profit from a recession, there are any ways, Let’s start this with;
Start a Business on an Existing Model:
A recession is a great time to start a business. Yes, it sounds counter intuitive but many great businesses were established during a recession eg Microsoft.
A good strategy is to pick a business model that prospered during the boom years, replicate that model but offer your product/service at a lower price with same quality.
For example, look at WhatsApp, they offered free calls. Who does not want free calls? what’s the model they disrupted? Traditional GSM calls.
Remember consumer taste are hard to change, they tend to remain the same even during a recession, but consumers have less spending power so they are forced to cut back. So offering a proven product or service that offers same utility but at a lower cost is a winning strategy.
Also consider Cowbell Milk brand from Promasidor, they offered milk to compete with the leading milk brand called Peak Milk by WAMCO. Cowbell offered their milk in condensed form in small sachets, saving packaging costs, making their milk “cheaper”. Cowbell Milk did a lot of direct sales, also saving distribution cost.
Same utility (milk), different model, lower prices for Cowbell brand, cowbell gained market share.
We continue next week
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