The Great Necession: Leading in Tough Economic Times
It’s not a Recession, It’s a Necession
Anyone bothering to pay attention to what’s happening with consumer spending in the current recession can note one trend: that is, even those consumers who are likely to be unaffected by the economic downturn are helping fuel the recession because they’ve gone into wallet lockdown. They’ve declared that we are in the Great Necession of 2009.
While one could argue that in a free market no job is ever really safe, 92% of Americans who want a job, have a job. Moreover, most of those same 92% are likely to have little disruption to their income streams over the foreseeable future.
So why does the housing market continue to tank and why are new car sales sitting at their lowest levels in decades? People have been scared into a Necession.
Forget for a moment that the credit markets have tightened; there aren’t any tire-kickers on dealer lots or looky-loos at the Sunday open houses to apply for credit. Why? Because no one in their right mind is going to buy a new car or house until they need to buy one.
How do you know we’re in a Necession?
Traditional large discretionary purchases (like cars, boats, vacation homes) are based on emotion and impulse, not on necessity. Cars, for example, are built to last for a decade or more, yet many Americans habitually traded in their cars every 18 to 36 months. This is what fueled more than 16 million new car purchases a year as recently as 2006. (Read our related post on the auto industry here.) We’re now at half that amount; and because of the Great Necession of 2009, we predict the auto industry won’t see the 16 million mark again before 2020. People just don’t need to buy a new car, regardless of the availability of credit, and now they know that.
The economic realities of today have taught those of us who’ve lost jobs and those of us with good jobs that we need to live within our means. One colleague recently told me he will never again have a monthly financial commitment (he called it his “monthly nut”) greater than he can cover working for minimum wage. I believe him. His spending paradigm has been forever shifted from one of excess to one of “necess.” He is a New Era Necessionist, helping fuel the Great Necession.
How to Lead in a Necession
The unfortunate reality of being in a Necession is that even when the credit markets relax and the layoffs subside, retail spending will not return for a very long time. Consumer confidence may return, but consumer spending – that is, spending like drunken sailors on shore leave – will not. The generation that lives through the Great Necession will be much like the one that lived through the Great Depression: they will change their habits forever for fear of a return to bad times.
The only remedy for leaders is to instill confidence. You must reek of confidence when dealing with your acquaintances, your employees and your customers. (It certainly doesn’t help when the media seeks a negative slant to every story – but great leaders know to control what they can control, and to limit the influence of that which they cannot.)
People are simply not productive when they fear their jobs are in jeopardy. Lacking confidence, otherwise sane managers can literally become paranoid – rendering them ineffective. The rumor mill – fueled by negative thoughts and doomsday predictions from the rank and file – runs rampant. Job dissatisfaction from an uncertain future begets customer dissatisfaction; while customer dissatisfaction begets even lower sales, leading to a further erosion of employee confidence.
It’s our job as leaders to keep all of this from happening. So let’s agree on few easy paradigm shifts:
- The times are challenging, but our future looks great. Believe this and live this, then use this as a standard reply to anyone (especially employees and customers) enquiring about your business.
- The best part about a recession is the thinning of the herd. You need to believe this and live this, as well. Feel free to speak to your employees in these terms and let them know you appreciate their hard work, because it is their hard work that will help them and everyone else at your company keep their jobs.
- We cannot wish our way back to prosperity. Too often we see managers looking for magic pills to solve a crisis. The truth is that anything worthwhile takes hard work – otherwise, everyone could do it. You need to gain a solid commitment to best practices from everyone in order to save your company.
- Sales cures all ills. While it was this very saying that partially got us into this mess (we didn’t realize we had bad leaders, because times were good and revenues were growing), returning our teams to a “selling culture” is one of the quickest ways to right any ship. Unfortunately, many businesses have focused too heavily on cost-cutting and not enough on the fundamentals of selling. Get your teams back to basics: focus on selling activities, not results, so that when the market turns, your team will get more than their share.
March 13, 2009 @ 5:00 PM
Very insightful post with some terrific suggestions! A must read for any manager or leader who is looking for guidance (or who is otherwise in desperate need of it!).
The Business Insider Blog (www.timrosablog.com)