How Recession Proof Is Your Business Model?

Delivering more value than promised to your customers and helping them weather the storm and stay relevant in their market makes your business model recession proof. Here is a quick thought exercise that anyone can play with to see where your company stands.

The economic clouds have been darkening slowly and steadily for a while. Most analysts and thinkers seem to look around and ask what the recession will look like on the ground. The answer is always the same and it is simple – the next downturn will hurt the most for companies that aren’t delivering the value they promised.

There is a lot written and analyzed around large companies in all sectors in terms of market sentiments and sector-specific risk profiles. But, small- and mid-sized companies go under the radar and could use insights into how strong their business models really are, especially if they are not yet profitable and cash reserves aren’t strong.

Not to fret – there is a path to get there without equity analysts or large consulting firms. Obviously, there are many forms of risk that a company can face, and they should all be considered. But in the context of darkening economic sentiments, the first one to assess should be the company’s business model. Here is a thought exercise to get started.

Customer Risk

Risk that your customers will struggle or go out of business and you have little recourse 

  • Are your customers involved in a market space that provide a necessary or discretionary value to individual consumers? [all value chains end with the consumer – even the business of war]
  • How critical is your customer in the consumer value chain? i.e. can the consumer get most of the value without your customers in the value chain?

Value Risk

Risk that your customer will cut costs and you aren’t delivering enough value for them

  • Are you truly demonstrating as much or more value than you originally promised? i.e. is there a chance that you have become “shelf-ware”?
  • How critical is your role in enabling your customer to create the value they promised to their customers? i.e. Do you rank highly on customers’ vendor list to ensure you survive any budget cuts?
  • How irreplaceable is your offering? i.e. can the customer replace your offerings with internal skills or cheaper options quickly without losing much value?

Deeper Assessment

What do you have to know to take this assessment to an actionable level?

  • A strong understanding of your customers’ value chain. i.e. how do end consumers actually get value in the space that your customer plays in and are your customers a necessary part of that value chain?
  • A strong understanding of your customers’ capability landscape. i.e. how do your customers actually deliver value to their customers and are you a necessary part of it?

If you see that the answers to either or both customer risk and value risk questions are further to the right, there is likely work to do to mitigate those risks in your product and commercial strategy.

Published By

John Oommen