How Your Company Can Survive a Financial Crisis

It looks like the measures forced on us by the coronavirus will slowly be eased. However, this doesn’t mean that we can immediately get back to work just like we did before the crisis. Many experts are predicting another financial crisis to follow before we’ll be able to “get back on track”.

So, how do you survive a financial crisis and recover from it?

We’ll take a look at how governments are helping citizens and businesses get through it and how companies have successfully endured financially difficult times in the past.

Ten years ago, we were in the midst of the global financial crisis.

In case you need a recap:

All of Europe was affected by a financial crisis as many citizens, companies and even some governments were struggling to survive.

However, financial difficulties aren’t a new phenomenon. After all, you can’t always have high peaks and ideal situations when it comes to the economy. Sometimes, these financial crises can be caused by a natural disaster or an epidemic (or even a pandemic).

Therefore, sometimes it's more important to keep your business afloat during these tough times than trying to make profit out of it. Weathering the storm can put you in a better position to succeed afterwards.

Of course, different brands have different stories and there’s no one-size-fits-all solution. Keep reading to figure out what you can do for your business now.

In this article, we’ll cover the following two parts:

• Economy and banks during crises
• How companies successfully survived crises in the past

Economy and banks during crises

In order to know how to keep a crisis from affecting your business negatively, it’s important to figure out what caused a crisis in the first place.

Then, check what banks and governments do to limit the damage.

In his book “The General Theory of Employment, Interest and Money” (1936), economist John Maynard Keynes already wrote about the possibility of governments aiding companies during the Great Depression.

Taking out loans

You know the expression: Borrowing money will cost you money. This saying certainly applied during the financial crisis in 2008.

On the one hand, it meant that larger investments in companies were postponed. On the other hand, it had a huge impact on buyer behaviour.

Because it was difficult for many people to get a loan, people postponed or didn't make expensive purchases at all.

Shutterstock/Chiociolla

For many businesses it was exactly the same: With a lower turnover, this obviously didn’t give rise to investments of any kind, whether long or short term.

Fortunately, we learned a lot from the last financial crisis.

So, just before the corona crisis, Europe was at a pretty good level in terms of the economy.

Interest rates had gone down sharply and rumor has it that sometimes even negative interest rates occurred.

That’s what’s going to benefit us during the current corona crisis, providing us with a good basis to endure.

In the UK, the Bank of England’s takes care of limiting the effects of a financial crisis, managing the monetary policy. In EU member countries the European Central Bank (ECB) has this responsibility.

The institution did, for instance, cut their interest rate down to 0.5% in 2009, simplifying and cheapening loans for UK businesses and households. In August 2016, Bank of England rate was at its lowest ever point: 0.25%.

The financial bubble

The so called “financial bubble” was one of the main problems caused by the last crisis in 2008.

A financial bubble occurs when demand is so high that prices keep rising until suddenly no one can afford paying such prices for products or services. Then, demand disappears completely: This is when “the bubble bursts”.

An increase in pricing also leads to poor value for money.

This isn’t something new: During the crisis in 2008, this unfortunately resulted in bad financial investments resulting in resales at a loss.

If we now ensure that this won’t happen (high interest rates, lower spending, etc.), we can, in fact, limit the damage.

How have companies successfully survived financially difficult times in the past?

It’s interesting to take a look at how other companies have endured financial crises in the past because we can learn from them.

Think of the aftermath of a natural disaster, in which most businesses end up at a standstill for months. The same has happened during economic crises.

We have a number of examples of companies who dealt with crises exceptionally and you may want to adapt some of their actions to your own business.

Shutterstock/ARG77

Producer of soy sauce

In March 2011, Japan was hit by a tsunami.

At that time, Japanese company Yagisawa Shoten Co., producer of soy sauce, had existed for over 200 years, but was literally destroyed by the disaster.

The company’s owner, Michihiro Kono, told the Guardian immediately after the disaster:

"To go on for another 200 years, we must adapt."

It can take up to several years for soy sauce to be ready to be sold as the soy plant has to ferment like wine.

That’s why the company first sold soy sauce from another company shortly after the disaster, until the former factory was rebuilt two years later.

To rebuild the factory, the company used crowdfunding, writes news site Pri.org.

In order to innovate, Yagisawa Shoten Co. also decided to expand its product line to include miso paste and soy cakes and among others things, t-shirts. The company also released soy-flavoured ice cream in 2018.

It’s also worth noting that the company expanded its sales model. Now, they sell a bit more to restaurants directly rather than just to wholesalers.

In a nutshell, how did this company endure the crisis?

By temporarily offering other products produced by a different supplier, through financial support, and through innovations of both products and sales methods.

Recommended reading:
Why the Time is Right for Direct-to-Consumer (D2C) Brands

High-tech products

During a typical recession, it’s normal to cut back on purchases such as technology.

Although in recent weeks, the industry has been able to experience a significant increase in sales due to the need for home office equipment, sales may decline in the coming months.

Shutterstock/GaudiLab

So, how have technology vendors withstood the previous crises?

Fastcompany.com has written an article about this, in which the author describes his own experiences.

The author worked at Intel during a recession and asked the CEO at the time (Paul Otellini) what he thought about the recession.

Otellini said that recessions are likely come and go, just like the tides.

That's why he didn't shut down or downgrade research and product development, as some companies did.

He did quite the opposite: He invested even more in developing products so that they were better than the competitors’ ones when the market had finally recovered.

Florist company

In the Netherlands, for example, we can look at the floral industry. Floriculturists not only produce for florists, but also for shows and events of all kinds all over the world.

This sector has therefore been heavily impacted by the current crisis.

When shipping company Red Je Pakketje learned about this issue, they created another company: Red Je Bouquetje.

This website makes it possible for the elderly (alone) to order flowers online.

The flowers offered on the site were saved from the trash.

Ten years ago, US florists also were struggling.

In 2011, news site Crain's New York published an article about how florists were able to overcome the crisis: By giving the customer a personal experience that they made them want to keep coming to the florists, rather than doing their flower shopping in supermarkets.

Some flower-selling businesses even decided to work together.

Shutterstock/SmartPhotoLab

For example, if a customer was to enter a flower shop wanting to have a bouquet delivered to another region, the florist himself then would make sure that another florist closer to that address delivers a bouquet to that specific location. Collaborations can indeed benefit everyone.

Luxury goods

In times of crisis, it’s easy to save on clothing, makeup and other beauty products.

In 2008, the New York Times wrote that brands and sellers should be expecting a bleak outlook.

How did retailers survive then?

In 2004, the Tory Burch brand was founded. The company had barely existed by the time the recession hit.

As described at Luxurysociety.com, Tory Burch managed to grow during the crisis, particularly by using online marketing.

Usually, the harmful effects of a financial crisis don’t hit lipsticks and this is how the term "Lipstick Index" came into being.

The underlying idea is that lipsticks sell more in times of crisis because they’re luxury items that are more affordable than shoes or clothes, so they are less likely to see a dramatic decrease in sales.

As nail polish and nail art gained popularity, there has also been talk of a “Nail Polish Index”.

Remember, the urge to look good doesn’t just disappear during times of crises, but customers preferably spend their money on cheaper product groups.

Recommended reading:
How to Convert Website Visitors into Customers

Supplies in tourism

As we aren’t supposed to leave our homes during the corona pandemic, the tourism industry has been hit particularly hard.

How has this sector survived previous disasters?

Samsonite is a household name in suitcases. However, this company ceased to exist at one time. Shortly before the 1930s crisis, the company had opened a second factory.

Once the crisis hit, Samsonite started producing license plates and sandboxes in addition to their luggage in order to keep its head above water.

However, the company never abandoned its core business and continued to focus on suitcases, with a particular emphasis on their quality despite demand being lower than usual.

In short, Samsonite was able to survive by temporarily selling additional products, but also by relying on quality to stand out from the competitors.

Transportation

The automotive industry experiences a sharp decline in times of crisis.

The German Institute for Economic Research wrote that some companies saw their profits drop by as much as 92% during the 2008 economic crisis.

That’s why, in 2009, the German government decided to intervene in the automotive industry, leading to a further increase in sales.

However, without the government's help, this industry would’ve had a much harder time recovering.

In short

In order to survive a crisis, it’s important to continue innovating and temporarily adapting to the situation so that you can later focus on your core product(s) again.

The government's influence is also vital because it cannot only save the economy as a whole, but also provide support to specific sectors, so make sure you check to see how your government is supporting businesses.

In addition, it remains essential to provide your customers with an unique experience, so that they remain loyal to your company.

Crises come and go. The most important thing is to survive the crisis, so that you can grow again afterwards.

This article was originally published on our Dutch blog: Zo doorstonden bedrijven financieel zware tijden