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Why Do Some Businesses Thrive And Others Fail In A Recession?

ownership recession Oct 05, 2009

Editor's Note: This post was originally published 10/05/2009 and has been updated for accuracy and relevance. 

Success in business means being able to weather storms. Often times, we credit external reasons for the growth or failure of a business--but by looking at the past we can learn what is truly essential for a business's success or failure.

In 2008, the New York Times published a video called Small Business Weathers the Recession. It features three small businesses in New York City: a butcher shop, a bicycle manufacturer, and a movie tourism service.

The video quality is charmingly grainy, a reminder of how far we've come over the last 12 years. And yet, the stories told in the interviews could be from yesterday...

"I didn't want to fire these guys...Rather than laying anybody off, we cut everybody's hours"

"We were coming off the best year we'd ever had, and all of a sudden things changed drastically as the economy took a downturn."

"There's just a lot of uncertainty out there. They aren't sure if they should come to New York, or if they should travel, or if they should save their money because they aren't sure if their jobs will be there down the road."

It's eery. And strangely comforting.

Because it's a reminder that we have, in some way, been here before. Maybe not exactly, but synonymously.

I watched this video back then and again today, and this question is still starkly clear in my mind:

Why do some businesses thrive in a recession while others barely survive?

This fascinating video series examines real-life businesses in NYC who are doing everything they can think of to survive during our economic recession.

As a business owner who works with business owners, 

As I watch these videos, one question for these business owners comes to mind:

“Where is the creativity in your value proposition? In the substance of what you are offering?”

Business Strategy: Reacting vs. Responding

The butcher shop that is profiled, Menna’s Meats, really took a beating in the 2008 recession and is (naturally) responding operationally. He cuts back hours and even brought in his wife to help cover shifts.

In short, we can see him reacting. 

And in the face of a recession, his reaction makes sense. But he's not asking himself some really important questions, like:

  • How can I be a different kind of deli?
  • How can I revisit my assumptions about what I can do for people?
  • Am I stuck in one way of thinking about my business?

Sadly, it seems his business has closed in the twelve years since. 

Contrast that to another business owner who is featured in this series, Wayne Sosin with Worksman Cycles. He adopts a more forward-looking perspective: he begins to actively consider new markets.

In short, we see him responding. He has a calm mindset grounded in a strategy. And because of that subtle shift in thinking, he's able to come up with some creative solutions that yield a greater return.

And he's actually still in business today.

Look for Innovation

When your current market dries up, you do you have to make the operational decisions to survive. You need to stretch cash as long as possible--while also preserving the investment you've made in your workers.

However, these are survival tactics. This may keep you in business, but why not ask the (I know, “crazy”) question, "How can we grow?" 

What Wayne said was that his company was exploring other opportunities with other possible customers. He saw an opening, an opportunity in his market to substitute his (much lower cost) human-powered vehicles, as opposed to the standard powered vehicles common to the competition.

The takeaway is simple: look for the innovation opportunity in your value chain.

That means, not only looking at the operational and organizational reforms you have to make for survival but also looking big picture.

Take time in your day to get out of your office (ahem, home) to clear your mind. Think to yourself as you observe what’s going on around you:

  • What else can we do for our current customers?
  • Who else can we help with what we already do?
  • What other markets (traditional or non-traditional) can we be of value to?
  • Who can we partner with to bring added value to both businesses’ products and services?

 Thinking creatively about your value proposition is how small businesses will not just survive a recession but thrive in it.