The Bad News is That a Recession is Coming and It's Going to be Unpleasant
Guide to episode
- There's a recession coming, and it will feel particularly harsh and different
- Companies have an unusual opportunity with bulging order books to prepare now
- There are three key steps companies should take
- Marketing and an integrated approach to revenue growth (ORE™) will be critical
Hi, I’m Ed Marsh. Welcome to this episode of Signals from the OP. Signals is designed to put new ideas and perspectives in front of busy industrial company executives, in brief, easily digestible videos.
This Recession Will Carry a Particular Sting
It’s been a while since we had a recession. As I record this in June of 2022 markets are in turmoil, Q1 GDP was negative and it seems likely that Q2 will repeat. Two-quarters of negative GDP growth is the definition of a recession. And even if it doesn’t happen immediately, anecdotes of demand slackening are piling up quickly. It’s likely that we’re going to have one soon.
So manufacturers have to ask themselves how will they sell in a recession? It’s a particularly important question for several reasons. First, it’s been almost 15 years since we last flexed those muscles (2020 was just a flash recession.) Management and sales teams have changed in the meantime, and some lessons may have been forgotten. Second, for the last couple of years, most companies have really only had to answer the phone and do some basic prospecting to sell as much as they could make. So it’s going to feel like a dramatic change vs. a normal business cycle fluctuation. Third, buying habits have changed a lot since the last recession which means we’ll have to update our sales approach. Fourth, the business environment in which companies make decisions has changed as well, and therefore they’ll react differently to a recession.
We can Anticipate the Challenges and Plan to Maintain Sales in a Recession
We know that in a recession, certain things happen;
- companies move to conserve cash and become increasingly risk-averse. That means that justifications have to be more compelling and outcomes clearer
- traditional decision-makers (e.g. a CEO or president) are often more closely supervised by boards, investors – even spouses and other stakeholders
- there’s an important reverse wealth effect that psychologically weighs on decisions – whether a private company owner’s portfolio or a public company share performance
- financing will be more difficult to obtain
- your competitors will discount to win orders to keep cash flowing
- many suppliers will experience duress
That’s the bad news. But there’s lots of good news too. For instance:
- in a severe recession, we might experience a decline in GDP of 5%. Since we’ve generally grown 2%/year, that means we’ll be back to the level of 2019. And you were selling machines in 2019. So based on the numbers alone, it shouldn’t be terribly disruptive. Of course, there’s psychology….
- Most recessions last 9-17 months – and recent ones toward the shorter end
- This will help to eliminate weaker competition and create opportunities for you to acquire some strong talent and possibly even some inorganic growth – buying some struggling but important businesses that support your core market
People and companies will continue to do business. But they’ll be more cautious. In capital equipment sales, that caution will mean:
- Longer sales cycles
- Larger buying teams and more complex purchase approvals
- Tougher negotiations around price and payment terms
Sales Skill and Technique Will be Critical
Boil all these down and you realize that continued top-line growth and predictable revenue come down to superb sales skills, execution, and management. The market is a factor that every competitor will face. It’s not an acceptable excuse. Instead, take this opportunity – the calm before the storm if you will – to take these important steps to help prepare your team to successfully sell in a recession.
Three Key Steps to Prepare for Successful Sales in the Coming Recession
First, you must be really clear about your ideal customer profile, your product-market fit, the problems you solve, the outcomes you help achieve, your competitive positioning, and the compelling reasons why people and companies should buy your product or service even if they’re uncertain about their business. Most companies I chat with sell in response to inquiries. Companies decide they may want to buy a machine and engage vendors to discuss technical specs. Rarely do most machinery companies really understand the transformative business impact and considerations that they can have on their customers’ businesses.
But in an environment where fewer companies raise their hand to buy machines, then helping companies connect the dots on why investment is critical, even in the face of uncertainty, will be key to selling. And you can’t do that without a deep understanding of companies’ business well beyond producing more, less downtime, and the other casual “justifications” we normally hear.
Second, you have to optimize your sales talent. Your team is going to have to create projects and outsell discounting competition on value. That means that many of your reps who have taken orders for the last couple of years are going to flounder.
Start by figuring out what you’re really working with in terms of skills and capability – not just who could sell, but who WILL sell when it gets tough. A thorough overview of the sales team – each rep and manager individually and the team in aggregate – will help you establish a baseline. Then find a great sales trainer. Now, will you still have orders booked! This will help to raise the performance of your team and identify who’s going to perform going forward.
Further, you’ll want to put a plan in place to recruit top talent. A continuous recruiting program will be inexpensive and efficient. You’re not going to need recruiters when the economy sours – well-designed job postings and an efficient process for screening will let you create a flow of talent to consider. Here's more information on sales force assessments and our recruiting program that can help.
Third, you’ll have to improve and rigorously implement your sales process, sales methodology, team-selling approach, and sales enablement. Prospecting, including cold calling, will become more important – and tougher. That will require content and tools that your team can use to optimize efficiency and effectiveness. Information on business impact, financial considerations, and market trends should be available for each likely member of the buying team. These should be complemented with team selling, sales sequences, email templates, call scripts, social media language, direct mail pieces, and various guides, calculators, checklists, and videos to help establish value and advance the sale.
That means an investment in marketing at a time when your accountant will advise you to trim marketing spending. Start preparing for that conversation now.
Of course, this third point ties in with the two previous points. For the content to resonate you have to understand the buyers. And for your team to use it effectively, they have to be talented and well-coached. That’s the premise of ORE – overall revenue effectiveness – or an integrated approach to top-line growth.
You've Got Time to Plan Now - But Don't Delay
Staring down the barrel of a recession is concerning. Particularly when you haven’t had a chance to take a breath after two years of disruption, supply chain challenges, labor shortages, and more. But you have to. That’s what you signed up for.
The good news is that you have a chance now to get things in order. You've got strong order books and you can take steps one and two pretty quickly. We know the recession is coming. We know it will create opportunities. The question is whether you’ll be ready to seize them.
I’m Ed Marsh. Thank you for joining me for this episode of Signals from the OP. If you enjoyed it, please share it and subscribe – either to my YouTube channel EdMarshSpeaks.TV or at the related blog SignalsFromTheOP.com.