Article
High Awareness with Limited Actions
Victor AyacheWhat is a recession?
The rule of thumb is two consecutive quarters of declining growth. High unemployment, decreased spending, high inflation, lower consumer purchasing power, low consumer confidence, poor investment performance, and panics are all characteristics. Since the COVID-19 pandemic, logistics and energy tensions, the war in Ukraine, and now in the Middle East, along with persistent high inflation, all contribute to forecasts of growth in 2022-2024 being below average performance in the last 30 years. Although global growth showed resilience in 2023 and inflation rates are falling, we are still below historical averages. We are pretty much in a recession.
Why is there a sense of security?
As mentioned earlier, it's due to the lack of experience with recessions among executives. Executives of SMEs are optimistic about their prospects. For instance, during the 2009 recession, the advertising market saw a decline of 10-15%; however, today, all advertising charts indicate that CEOs expect normal growth and are investing accordingly. The pandemic has further reinforced this bias or distortion. Many executives are overly confident in their ability and resilience, viewing the recession as another opportunity rather than a risk. Additionally, there's a misconception that a recession is similar to the pandemic. However, this assumption is dangerous. For example, during the pandemic, governments provided significant support to SMBs, but in a recession, such assistance may not be available.
Awareness and no actions
Executives know about the recession and what is coming when forecasts are tight, but there is no sign of action to face it. The sense of security and underestimating the potential downturn of a recession, especially among digitally savvy companies, leads to inaction. However, when comparing strategies and tactics between SMEs and enterprises, there are huge differences. Most enterprises decrease spending across the majority of their technology stacks, including less spending on advertising, cutting investment in equipment, facilities, machinery, human resources, pausing new product launches, and market entries. SMEs seem to be doing the opposite. Why is this difference?
Research revealed that SMBs look to peers who are in the same industry (48%), facing the same challenges (41%), and selling similar products (37%). FORBES
Peer pressure and the role of enterprises
In general, SMBs often trust their peers and view enterprises as playing a different game. While this is correct, it is also a dangerous generalization. SMBs need to learn from large enterprises how to navigate economic cycles, minimize the impact of downturns, and discern when to invest or exit the market.
However, enterprises also have a significant role to play here. The peer network effect could be disrupted if enterprises establish connections with SMEs, which would be mutually beneficial. SMEs would gain the experience they need to deal with recessions, while enterprises would access the rich potential and untapped growth opportunities within the SME world.
Enterprises need to act as matchmakers, enhancing their capacity to organize content and communities so that SMBs can easily find hyper-relevant peers, engage in private interactions, and access content directly addressing their issues and concerns.