What does a recession mean for the work of designers?
We are going through hectic economic times. We keep hearing about inflation, tech stock market crash, hiring freezes, layoffs, etc. But is this just a minor correction or are we in a real economic downturn? And if we are, what does it mean for the design community?
Soon, you may see media talk about the infamous recession. You've heard about it before. But what does it really mean?
1. What is a recession?
Unfortunately, a recession is yet another term defined differently across the world. But a simple rule of thumb is that a recession starts when we see a decline in Gross Domestic Product (GDP) for two consecutive quarters. In other words, a nation has produced and sold fewer goods and services in the last six months than it did before that.
But why is this so bad? Companies also go through slumps, right? Well, it is bad because when a whole economy goes through a decline, governments, companies, and individuals do not make as much money as they predicted. This means they can't pay off their loans, which leads to all sorts of problems such as bankruptcies, leading to even less demand.
During a recession, many vulnerable companies go out of business. Unemployment rises. Factories produce less. Companies stop investing and hiring. Everyone gets more cautious with their money. Hence, people start spending less.
2. How does it look in the real world?
Between late 2007 and 2009, we experienced the so-called Great Recession. It was caused by a market housing market bubble, originating in the US. According to FED, the GDP of the US declined 4.3% in 18 months and the peak unemployment rate was 10%, making it the most severe US recession since the 1940s.
The recession quickly spread around the world. For example, Latvia's GDP fell by an unbelievable 25%. Some countries found themselves in serious financial troubles. For example, Spain, Greece, Italy, and Portugal required intervention by the European Central Bank and International Monetary Fund.
3. Why is it relevant for businesses?
First of all, we need to understand that recessions are part of a regular business cycle. After every economic expansion (i.e. times during which an economy is growing) follows an economic contraction (i.e. times when an economy is declining).
In a recession, companies usually tighten their budget. This may mean less or no funding for big innovation projects, hiring freezes, layoffs, etc. Companies tighten their belts to weather the storm.
But a recession is also a time of opportunity. Consumer demands and behaviour change. New technologies are adopted. New value propositions flourish. New winners are born. For example, during the Great Recession AirBnb and Uber were founded.
4. How is it relevant to the work of designers?
You may be asking yourself how is this even relevant for me as a designer? Here are a few things to consider:
When business news get full of stories about a potential economic downturn, many business leaders start preparing for a bumpy ride. So, this may not be the best time to pitch new innovative ideas. Most business leaders are looking at ways they can optimize their current operations (improve company processes, user flows, etc.). So, focus on design work that is on the optimize side of the spectrum as opposed to the innovate side.
Have you ever heard of recession-proof products or services? These are a type of goods that are resistant to the effects of a recession. For example, baby products like diapers, nutrition, pet care essentials, cosmetics, etc. Ask yourself what type of product or service are you working on? If it is recession prone, are there ways you can make it more essential and hence resistant to a recession?
If you are managing your own business or an agency, prototype with numbers to prepare various contingency plans. What happens if my revenue goes down by 10%? What about 20%, 30%, 40% or even 50%? How would you react? Similarly, if you are in a charge of a team and its budget, you may soon be asked to create a new plan with a lower budget.