How To Prepare for Recession: The Critical Role of Effective Leadership

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effective leadership how to prepare for recession

“Recession” is a term often heard these days among economists, especially in the wake of the latest GDP figures and rising interest rates. Yet as United States Treasury Secretary Janet Yellen pointed out in a recent Meet the Press interview, “When you’re creating almost 400,000 jobs a month, that is not a recession.” Whether we are in one or not may be up for debate, but the economy is clearly weakening and, without a course correction, headed in that direction. Basic economics is characterized by months of shrinking spending across all sectors, from consumers to all levels of the supply chain, a recession presents extreme challenges to even well-run businesses. Effective leaders want their businesses to survive, not only for their own economic security but also for their employees and for the customers who depend on them. So how do successful business leaders prepare for a recession to smooth the inevitable bumps in the road ahead?

The Best Ways to Prepare For a Recession

Generally, good leaders follow good advice and practices regardless of the economic climate. Many savvy business advisors will talk about managing cash flow, onboarding emergency debt options in securing financing, revisiting supply chain matters, budgeting, and analyzing current business risk factors with the foreseeable information we have. These are wise considerations at any time, but especially in times of economic downturn.

We believe that looking at these financial and strategic considerations without paying close attention to your effectiveness as a leader can lead to critical errors for the long-term success of your business. Below are the additional steps we advise when establishing a plan for surviving a recession.

1) Take an Honest, Critical Look at Your Business’s Strengths and Weaknesses

Honest Critical Look At Business Strengths And Weaknesses

Can you answer the question, “what are we good at?” In other words, you may sell computer systems. Are you good at creating custom computer systems? Or is your business good at some key piece of that system, such as security software? Or is your key strength knowing what the customer is asking for and meeting their specific needs, rather than just providing a turnkey system?

These questions are important since recessions may require your business to pivot from your traditional core business or core customer base to something else that holds the promise of more sustainable revenue. Is a recession the time to focus on sweat equity opportunities, expand or contract? We often cannot answer these questions with the objectivity the task requires. We are human, and our nature is to favor our own biases or possibly some group of individuals that could be negatively affected by our unbiased look. For this reason, business leaders should consider an outside facilitator coach to challenge their thinking. This can minimize overlooking opportunities that would result from a more impartial assessment. Figuring out how to see difficult economic times as an opportunity is a great struggle many companies experience.

2) Strengthen Relationships with Existing Clientele

Strengthen Relationships With Your Existing Clientele

Who are your best clients? Why do they keep coming back to you time and again? You will need their endorsement when times are tough. Also, they can help you expand your customer base now. According to, 92% of B2B customers are more likely to buy after reading a trusted review. This means the time you invest on your existing customers has a far greater return than just a happy repeat customer.

A good mix of stellar customer service, under-promising plus over-delivering, and networking to really know your business contacts is the key to nurturing these relationships. They will serve you well when times are tough. Ideally, these customers will think carefully about your business relationship even if they have to cut elsewhere. Still, they may also provide innovative partnerships to weather the storm or at least return to you when times turn around. These innovations may include discussions around the price, extending credit, collaborating on delivery to meet consumer market trends, etc.

Another critical question to consider is: Do your employees know their role in delivering excellent customer experiences? You will need a “yes” to this to accomplish this step, which leads to…

3) Create Clarity for Your Team

Create Clarity With Your Team

None of us has all the answers, yet leaders are put in a position where they have to make decisions. Leaders who can more regularly and unwaveringly make better decisions will create a more effective business. It is that simple….okay maybe not simple. The challenges to this are real but must be overcome. If you cannot articulate and write down your thoughts, how can you work on improving them? More importantly, how are you going to enlist your people to help if they don’t understand your vision?

Communicating with transparency on the state of the business, what your plan is, and what everyone’s role is, creates an opportunity to bring everyone together. Imagine if you put a team of people in a rowboat and tell them they have to cross a river, but no one thought to bring oars? What happens if you have oars but get a hole in the bottom of the boat and no one knows how to fix it? Knowing where you are going (to the other side of the river) is half the battle. The other half is setting clear expectations on what you are looking for your team to do (get oars and row together and be prepared to do it safely). Many people in leadership positions find themselves wasting time on how to get people to do things without transparency. Not being transparent creates distrust and a deep sense of insecurity that damages leaders’ credibility. When times are tough, isn’t that when you need your people to stick with you? This naturally leads to…

4) Strengthen Relationships with Team Members

Strengthen Relationship With Your Team Members

Good talent is a healthy business’ most valuable asset. In fact, good talent could make a difference in a recessionary time. Finding employees that are a good fit is hard; training them is expensive and takes time. Think of the irony in the past few years as we have been challenged with the Covid pandemic, a difficult employment environment, and scary market conditions. You want your best team members to stick by you when times are tough, not just to keep the business moving forward but to avoid rehiring and retraining when times improve. But how can you keep them when revenue streams are tight?

Again, the key is planning. As mentioned before, streamline business processes, so you don’t need to rely heavily on layoffs. Send the team clear messages of your vision and your expectations of how they fit into the big picture so they trust and support you. Then reward them for their efforts. Reposition people to leverage their best skill set where you need it. Be flexible, so if you need to alter your business model, they can support it with their skills. This does not mean layoffs and cutbacks are never an option. However, making this the conversation on day 1 of the challenge is foolish. Forgetting the basics that people are both assets AND humans who have their own anxieties (e.g., finding a new car, keeping their job, paying off their credit card bills, and the impact of a volatile stock market on their ability to one day retire).

Empower Invest In Your Leaders

Empower and invest in your leaders. A 2017 study of how companies fared during the “Great Recession” of the early 2000s showed that those who decentralized their decision-making fared better. “Decentralization was associated with relatively better performance for firms or establishments facing the toughest environment during the crisis,” according to the report. Why? The researchers found this allowed decisions to be made at the highest levels of familiarity with the problem. This, in turn, allowed companies to respond to needed changes faster. One of the study’s authors, Raffaella Sadun of Harvard Business School, noted that even if the organizational structure doesn’t support decision-making at lower levels of the hierarchy, Companies benefit significantly from information-gathering at these levels to support decision-making at the levels where it occurs. Here is where the trust you have built with your team all along will serve you well in a recession. Investing in your leaders (when spending money seems counterproductive) will help ensure your leaders effectively get their teams to provide needed feedback honestly. If you have done your job well as a leader, communicated your vision clearly and enthusiastically, and created an environment of mutual support, they will.

The Right Tools to Help You Prepare for Tough Economic Times

Executive Coach To Challenge Mindset

There are a few common threads in the four steps presented. Leaders preparing for a recession are nimble, open-minded, ready for change, and willing to look inwardly. You can do it as long as you take an honest look in the mirror. Change can be painful, generate pushback, and create self-doubt. In fact, you may have already encountered this or have avoided executing certain initiatives due to fears of meeting the changing economy. After all, it can be lonely at the top.

In those cases, an external coach is worth serious consideration. Having a neutral party can help take bias out of the critical look needed to be most effective with this exercise. An executive coach can help you stay focused on the tough questions surrounding recession-proofing your business and answer them more objectively to build the most viable plan. Having a thought, challenge, and accountability partner may also enable you to more effectively keep the team on track and hold the right people accountable for your plan’s execution.

At Strategy People Culture, we have been helping leaders to be more effective for over a decade. If you think you could benefit from the objectivity of a certified and seasoned executive coach to develop your recession plan, don’t hesitate to contact us at or at (833) ROCK – SPC.

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Andy Botwin

Andrew (or Andy) founded Strategy People Culture, LLC in 2012 with a passion for working with the interconnectivity between people and business and the fundamental beliefs in the symbiotic relationship between the advancement and success of both people and business.