Shrinking Market Size: How to Keep Your Business Running

Shrinking Market Size: How to Keep Your Business Running

This article was updated on September 12, 2018.

A recession impacts many organizations and can led many businesses to encounter a shrinking market size for the sector in which they operate. According to an analysis by the Federal Reserve Board, both new and established small businesses fared worse than their larger counterparts during the Great Recession, seeing profits fall by double digits. But there are many factors other than a recession that can also lead to a shrinking market size in any business sector, including changing consumer tastes and technological change.

Rein in Cash Flow

If your business is facing a recessionary scenario, do what you can to weather the storm until conditions improve. First, look for opportunities to reduce your business's cash outflows and expenses. Consider renegotiating rental costs or moving to smaller premises, switching to cheaper utility providers and vendors or limiting discretionary spending. If you decrease your inventory levels, you may be able to lessen the amount of stock held and try to negotiate better terms with your suppliers to help improve your business's cash flow.

If layoffs are inevitable, take care to plan timing appropriately. You may opt to conduct layoffs early with all affected employees at once, but be sure to not release anyone too early. A staggered approach as business decreases may be more appropriate, depending on your industry and the hardships your organization faces. When appropriate, keep your workforce informed of the types of cutbacks and adjustments that may affect them.

Diversify Where Possible

If the shrinking market size is caused by more long-term factors, your business may need to change with the times and adapt to new expectations. Diversify the products or services offered; for example, a restaurant business might reposition itself as a healthy option, offering only organic fare, or expand the range of cuisines it serves to match consumers' evolving palettes. A dry cleaner might diversify by offering clothing repair services.

To differentiate your business from competition, pay attention to your marketing and promotional strategies. Traditionally, marketing was done through business directories, trade ads and newspapers. Today's online channels, such as social media, provide much more effective routes for reaching out to new and existing customers. All businesses today should have a website, which serves not only as a marketing tool, but as an effective and less expensive sales channel for the sectors in which online sales are suited.

Whether market shrinkage is likely to be short-lived or your entire industry is shifting, many options are available to help your business survive.