In October 2018, Forbes notes that a potential recession could happen a lot sooner than we may be expecting. While it may be alarmist to start considering the possibility of a recession without solid indicators of its arrival, we must remember that recessions are cyclic in nature. In a case where a recession does happen, you may have to consider what your business is built upon and if it can possibly withstand a couple of quarters of negative growth within the economy. The way to do that is through the exploration of a concept known as ‘stickiness’.
What Exactly IS Stickiness?
In the context of this article, the term stickiness refers to how difficult it would be for a client to remove your company’s contribution to their business. Being sticky means making yourself indispensable to the client. You can look at this in one of two ways: either you provide a valuable service at a preferential cost or you are so ingrained into their business practices that replacing you would be both unwieldy and not worth the time and money to set up another company or provider in your place. In the case of a business that focuses on selling more than one product or service, it’s in your company’s best interest to prioritize getting and keeping customers for the stickiest of those products or services. All of this, of course, hinges on legality. It’s a bad move to ignore the law when trying to make your company indispensable.
How Can Stickiness Help a Business?
Entrepreneur notes that diversifying customer bases can help in “recession-proofing” a business. When talking about stickiness, getting new customers and expanding the customer base allows for more potential clients to become indispensable to. A very good method of determining whether a business can survive a recession is checking the monthly or quarterly income reports and seeing where most of the income for the business comes from. If the business depends solely on one or two major clients and those clients don’t pay their bills on time, or fold as a result of a recession, it means the business could very well collapse through lack of clientele. A diversified client portfolio allows a company to weather a recession much easier, as income doesn’t depend on a single source.
Contracts as Instruments of Stickiness
Chron states that small businesses tend to have problems during recessions because of their limited access to cash and minimal cash flow. Cash is important and in a recession, it’s even all the more important. Cash ensures that a business can pay its obligations. Instead of considering cash as a spendable resource to improve the business, in recession it should be thought of as a cushion in case the business can’t make enough income for a particular month to meet its obligations. The best way to ensure that cash flow continues is through a system of subscriptions for a particular brand or service. Subscription-based sales are good in that the amount of income can be calculated beforehand with the help of a GST lawyer Toronto, allowing the business to know at the start of the month, what sort of assets they are dealing with. Stickiness can be applied here by automatically opting the client in to a renewal of the subscription service. Many people just don’t think it’s worth the time to opt out of a subscription system, especially if that system delivers information or services that are well worth the price.
Backups Plans are a Last Resort
Even if a business managed to get their portfolio diversified and build stickiness into their business ideal, there’s still the possibility of the business suffering negatively in an economic downturn. The way around this is to understand how to adapt dynamically. Having a backup plan might be something as simple as changing pricing on the product to reflect the economy’s state, or something as complex and changing products or services into something more marketable. The business’ survival depends on, not just providing the best service it can, but by doing so in a manner that makes it indispensable to the client. It is this indispensability that ensures the business’ survival during tough economic times.