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Dear Gen Y: Here's How to Weather a Recession

10:40 AM Monday October 22, 2007

Tags:Generational issues, Recession

If you entered the workforce within the last decade or so you have not experienced a recession while there. Defined as two or more consecutive quarters of negative growth in the GDP, the last official recession happened in the fourth quarter of 1990 and the first quarter of 1991. There have been other bumpy economic times that skirted close to this strict definition of recession since then, but in general, if you're a Gen Y, your entire life thus far has been lived under pretty rosy economic conditions.

I hope that continues to be true. But depending on which economist you read, it might or might not be. There may be some pretty rocky times ahead.

Managing successfully through a recession is sometimes viewed almost as an art form. One of the criteria senior leaders like to use in selecting line managers for these times is whether they've weathered tough economic times in the past.

Why? I suspect because there's an element of feel, of judgment, involved -- discerning what's the trend and what's only a temporary blip, knowing when to take action and when to sit tight.

This discussion forum is an invitation to all the battle scared veterans of past recessions to share your wisdom on the best ways to prepare for and manage through a downturn with those among us who never have.

To kick the discussion off, I'll offer my thoughts. But first, a quick analogy.

Home for me is on a farm with animals, including about a dozen horses. Living closely with horses is never dull -- they are fast and powerful and they can switch from calm and gentle to terrified and down-right dangerous at the drop of a hat. The key to safety, both theirs and yours, is understanding their "normal" rhythms well enough, anticipating problems before they occur -- spooky things, strange things -- and heading them off. When we first moved to the farm, a more experienced person advised us that it would take three years to become comfortable living with horses, to know them well enough that conscious thoughts about each possible danger become instinct. That turned out to be about right.

Weathering a recession successfully is a lot like living with horses. Things can go bad quickly. The trick is reading the signs well. That anticipation gets a lot easier when you've been through it. You know what to look for, you smell trouble before it gets out of hand.

For your first time through, here's my advice.

Question everything, deny nothing. Pay attention to the first negative result or indicator. Don't assume it was the aberration and everything will bounce back next month. Maybe it won't. Especially since your experience will tell you that sales will go up, flip the manual override switch and reconsider. Probably the biggest mistake is waiting too long to take action because you assumed things would turn positive again.

Favor greater agility over lowest cost. Make decisions that favor flexibility, even over cost. Even if it would be less expensive to buy -- assuming demand were steady -- rent instead. Take advantage of SaaS capabilites for IT, rather than investing in a big in-house effort. Use contract labor. Give yourself as much flexibility as possible in case demand drops.

Watch your cash. Cash is a better gauge in a recession than profits. Are your customers slowing down their payment cycle? And put your managerial emphasis on managing your cash well.

Develop an alternative plan(s). Answer this question today: What would I do if sales dropped 10% or more? Don't just worry about it -- develop a detailed plan. During one of my darkest years (after the dot.com bust, since I was working in a small start-up), our CFO and I had an alternative plan in hand that we reviewed each week, identifying what specific action we would take, if performance dropped to various pre-specified levels. (I'm proud to say we were one of the few firms in our space to weather the storm.)

And, spend some time thinking about what you'll do when the economy picks up again, because it certainly will. Have your growth plans ready, too.

Other readers, what advice would you offer to those who may be heading into their first recession?

Read all of Tammy Erickson's Across the Ages posts

MORE ON MANAGING DURING UNCERTAINTY:
HarvardBusiness.org's Downturn Survival Guide
And If the Good Times Stop Rolling? Dealing with a Downturn (HMU Article)
Don't Let Your Brand Falter During a Downturn (HMU Article)
Moving Upward in a Downturn (HBR Article)
Five Missteps to Avoid in Volatile Times (HMU Article)

People who read this also read:

 
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Comments

Very good advice -- think the analogy to horses is perfect. I have managed through two recessions and think it's important not to panic and start letting people go -- that will spook all the horses! Know who your "keepers" are and make them feel secure -- smart firms will be talent shopping and can snag them easily if they are feeling skittish. Be the smart firm instead and think about snagging a few good people (better to spook the competition).

- Posted by Kathy 
April 15, 2008 2:08 PM

I was going to post this on my blog, then decided not to, then read this (your article) and felt it might be appropriate here.


Ironically I had just given out bonuses before I read the article below. : )
Did I mention I founded my first business (for whom I was giving out employee bonuses this morning) during the last recession?

My fantastic team IS my business, and if I take out a bonus, I give *them* a bonus. So, as I had given money towards the deposit on the siding yesterday, this morning I passed out their due.

From Harvard Business Publishing:
http://blogs.harvardbusiness.org/erickson/2008/09/nervewracking_times_require_in.html
(There are some great links at the end of the article, I encourage you to read them.)

What are we, in my first business, doing regarding the economy?

  • We're increasing our "padding": Instead of paying out (larger) bonuses upon completion of big projects, we're all refraining, choosing to tighten our belts individually so that the business account has enough padding to sustain ALL of us in case of rough months ahead.
  • So, unlike many people in my field, I won't lay anyone off! (I never could, anyway! My team is everything to me, much less my business!) Fortunately, we remain busy.
  • But I think that's also part of surviving: we ask a fair price, not excessive, unlike again, many people in this field. If we lose an account, it won't kill us, as our client's fields are diverse; and because we're reasonably priced and efficient, we seem to always gain new customers.
  • We have *always* believed in low overhead.
  • Over 80% of our business is through word of mouth. Nice, fun, happy clients send us more nice, fun, happy clients.
  • We volunteer a lot. That puts us in front of nice, community-minded people that might have need of our services.
  • We make sure we're freakin' darned good at what we do.

And What About Them Thar House Kits?

Yesterday I had a little tirade on Twitter about the loan crisis. (Revealed, below.)
In summary, I was feeling pretty cranky about the situation (for those of you not familiar with Twitter, you "tweet" using 140 characters or less, hence the short bursts of text):

  • It began when I read Doug's tweets saying...
    • "Newsweek Business Analyst just said capping exec comp of fin institutions that take advantage of bailout is a "buzzkill". Idiot!"
    • "Newsweek guy also said he wanted 1 congressman to step up and say the blame lies with the people who took loans they couldn't afford."
I actually happen to agree that yes, it's not just the unethical / bad business marketers that need to be investigated for criminal activity regarding this crisis, but we also must look at those taking unrealistic loans. Is it fair for us to pay for others bad decisions when we espouse frugal, thrifty, and responsible financial lifestyles?

So I responded:

  • @DougMeacham Glad the FBI has joined the fray/resent others bad decisions affected *my* approved loan-lowered 20k! (I have excellent credit)
  • @DougMeacham re: blame: I think there's something to be said for that- mentality of "because I'm worth/deserve it" vs. "can I afford it".
  • For example, I just saved & saved & wrote a big ole 5k check to siding today vs. using my credit, so I will end up w/lessdebt. Frugal's fun!
  • @DougMeacham Then they should all be held accountable- the bad marketers, the people taking risks they *knew* they shouldn't.
  • ...And here I sit, frugally & responsibly saving for my dream, then get penalized for & have to pay for those irresponsible people as well?
  • Just checked- guess who SAVED, and then PAID IN CASH without taking out irresponsible loans over 30K this year towards their house kit? Hmph
  • That's 30k that did not enter our household, so made us struggle and pinch pennies. But it was worth it. And now we'll be in less debt.
  • *Sigh* but I wonder how much more taxes I will pay in the next few years to cover the sorry-asses who didn't practice responsible finance?
  • Rant over, empathy for the "because I deserve it" bad loans? Never.
I think cautious and steady stays the course. Keep paying off your land, keep saving for your house kit, or even consider ReFabbing (making your home more energy-efficient and environmentally friendly) your existing home. If you're stretched, then now is not the time to stretch further!

Don't worry, we'll be here... we're here for the long run.

First, I started with an amazing product: gorgeous design that is energy-efficient and environmentally friendly, utilizing passive solar principles, as cost-effective as possible.

Second, this is my passion. I'll never stop doing this because I love doing it, and believe we're the best out there.

Third, we always aim to improve. We constantly analyze and research and strive to be better. As new technology comes out, I consider it. As improved methods appear, I adapt it.

Green Building For The Rest Of Us!
: )

- Posted by Copeland 
September 25, 2008 9:02 PM

That’s a very good article to put one back into perspective. Although I remember the emotional and fiscal hardships of the 1997 Asian Financial Meltdown, I wasn’t yet in the workforce and wasn’t exposed to the true brunt of the collapse.

It would have been good though if there were more on attitudes and expectations: actions that we should take. As we know, multiple studies on Generation Y indicates a money-orientation and a me-attitude. Based on your experiences what, and to what extent would generation Y need to change their attitudes and outlooks in order to survive a global Humpy Dumpty?

A lot has been said that companies need to accommodate the needs and wants of Gen-Y in order to retain them. Given the recession, do you think companies still need to do that, or will this be a turning point for the older generation to reassert their management techniques and work values?

- Posted by Karn G. Bulsuk 
October 31, 2008 4:44 AM

conference prework

- Posted by Steve 
November 25, 2008 6:21 PM

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Tammy Erickson

Tamara J. Erickson is both a McKinsey Award-winning author and popular and engaging storyteller. Her compelling views of the future are based on extensive research on changing demographics and employee values and, most recently, on how successful organizations work. Erickson has co-authored four Harvard Business Review articles and the books Retire Retirement: Career Strategies for the Boomer Generation and Workforce Crisis: How to Beat the Coming Shortage of Skills and Talent. She is with nGenera.

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