I shared the following with the SAGA community earlier this week. It received such a strong response that I decided to publish it here, too. If you would like to receive exclusive content from me via email, please be sure to subscribe to the free newsletter. For more resources on preparing for a recession, check out the SAGA archive for previous podcast episodes, videos, and articles.
The “R” word — Recession — is getting harder and harder to ignore.
During the past couple of weeks, I have received a number of questions from agency owners wondering if I think a recession is coming and what they should do to prepare.
The honest answer to the first part of the question is that I don’t know because I’m not an economist, and I didn’t stay at a Holiday Inn Express last night.
Ultimately, it matters less whether we end up in a true recession by definition because what really counts is how the clients of our agencies behave.
It is also important to remember that even in by-the-books recession, not all industries — and therefore not all agencies — are impacted to the same degree.
That’s why it is more important than ever for you to have your ear to the ground to understand what the clients and prospects you serve are feeling and how they plan to act in the months ahead.
The news has been littered with stories about CEO’s getting nervous about a recession and considering pulling back on some initiatives.
Just yesterday, the ad agency R/GA announced they were letting 5% of their New York staff go because of recession fears.
At the same time, most of the agencies that I work closely with in an advisory capacity have not yet reported any meaningful pullback from their own clients.
But I do expect that at least some will likely see that in the next couple of months — if for no other reason than that the onslaught of media coverage at some point becomes a self-fulfilling prophecy, at least as it applies to organizational behavior.
So what should you do?
Start by having open and honest conversations with your prospects and clients to understand what their plans are and whether their organization’s leadership has given any internal guidance about spending and new initiatives.
Typically you start to see the earliest indications among prospects who may be slower to make decisions. If you see sales cycles extending in your agency business development activities, that could be an indicator that a slowdown in the markets you serve is coming.
The truth is that the things you should do to prepare for a possible recession are the same as the things you should generally be doing to operate a healthy and profitable agency:
- Keep a minimum of 3 months of normal operating expenses in reserve to smooth out any sudden revenue decline and allow you to make an orderly transition to a smaller footprint if necessary.
- Consistently demonstrate the ROI of your work to clients through effective reporting and communication.
- Match your per-project and agency-wide staffing levels to the revenue and profits you generate.
- Price correctly and don’t over-service clients (this can be especially difficult during tough economic times but any short-term revenue gains/retention it may provide are usually offset through long-term problems that get created).
- Continue to press forward with having meaningful conversations with prospects and clients alike — to help create new opportunities, gather vital intelligence, and strengthen relationships that lead to better retention.
- Communicate honestly and directly with employees. They’re seeing the same news reports that you are and you need to be as transparent as possible about how it is impacting your clients and your agency so that they know what’s going on and don’t speculate.
Beyond these basics, I advise all of my clients to focus on flexibility right now. Keep your business in a position to adapt to whatever may come along.
That might mean outsourcing some work instead of hiring a new full-time employee right now while you keep an eye on things.
On the other hand, if other agencies start laying off workers in the months ahead and your own is going strong (and looks likely to continue that way), you might be in a position to snag some talent that might not have been available last year.
There is no one-size-fits-all answer to most agency business questions, and the “R” word is no different. You need to be constantly analyzing the signals that impact you directly and make the best decisions that you can with the information available to you.
Don’t overreact and don’t spend too much time worrying, though. If you have made it through the past couple of years and are running a healthy business today, the odds are very good that you will come through this period with minimal impact — or perhaps even stronger if you play your cards right.