By: Jerry Abiog, Co-founder and Chief Marketing Officer at Standard Insights
In the last three years, companies had to deal with Covid, worker shortages, societal shifts in worker attitudes, inflation, and rising interest rates. In recent months, layoffs have been increasing in the white-collar world. The US and world economy are now barreling down to a full-blown recession. While businesses aren’t immune to a recession’s ill effects, they can mitigate its destructiveness with the help of AI.
The Great Recession Vs. Today
A recession typically happens when you have two straight quarters of negative GDP output. Companies layoff low performing employees and quiet quitters to preserve capital and protect their business interests. As the number of layoffs increases, consumer spending decreases significantly, creating a potential death spiral with little hope of recovery for both employers and employees until now.
Many factors can cause a recession – a financial crisis, supply chain issues, and inflation. During the late 2000’s we had a financial crisis due to lax lending rules that caused the Great Recession. Businesses today are dealing with the Covid fallout. Supply chain issues, government stimulus, rising interest rates, and inflation, are all to blame for today’s recession. We see mass layoffs in the tech industry not seen since the dot com bubble of the early 2000s, while at the same time dealing with labor shortages in blue-collar jobs.
Technology has come a long way since the late 2000s. We have smartphones, social media, and many affordable apps/software solutions available to businesses and consumers. All these tools have one thing in common – data, and lots of it.
Mitigating Costs While Maximizing Profits
At their core, companies exist to drive top and bottom-line growth. According to the Bureau of Labor Statistics, labor can account for up to 70% of business expenses. During hyperinflation, when there’s a labor shortage, companies may be unable to pay higher wages without a significant price increase. Conversely, layoffs happen during a recession when companies need to conserve their cash flow which can hamper productivity. Both instances can severely impact the profitability of one’s business.
AI, the ability of a computer to think and act like a human, could help struggling companies do more with less, especially in a full-blown recession. In The state of AI in 2022 report by McKinsey, AI investments are increasing, and the most significant impact on ROI comes from sales, marketing, and supply chain management. Sadly, according to the Wall Street Journal, Americans’ hard-charging attitudes about work are dissipating, leaving companies in a quandary about their next course of action on how to run a profitable business with minimal labor expenditures.
With the democratization of AI, businesses have tools to reduce labor expenses while remaining profitable. Solutions include:
- AI-writing tools that can provide content ideas eliminating the need to hire multiple e-mail marketers
- AI-driven facial recognition cameras help retail businesses reduce shrinkage, especially with rising crime rates decreasing the need to hire as many retail associates
- AI-driven sales and inventory platforms that can analyze voluminous amounts of your first-party data to predict what and how much a customer will purchase, reducing the number of data or business analysts
AI gets more intelligent over time. You’ll have better predictions that can enhance your company’s profitability. Humans will still be critical, though you won’t need as many to run your operations effectively.
Innovate Or Die
Times are tough. Profitability matters. The days of easy VC money with a growth-at-all-costs mentality are over. Industry stalwarts – Meta, Netflix, and Amazon have gone through layoffs. Google is laying off its dead weight. These firms’ margins are declining, probably just like yours. Some of it is due to the worker productivity battle between employer and employee, the old vs. new school approach. Southwest Airlines experienced an epic meltdown due to outdated technology this past Holiday season. If it happened to them, it could happen to you.
Now it’s time for your business to explore AI-driven tools that can help. Yes, it’s going to be uncomfortable. That’s where your growth as a business will occur. Many great companies were born from recessions: Microsoft -1975, Airbnb – 2008, Slack – 2009. See this recession as an opportunity to build your economic moat and separate yourself from your competitors.
About the Author
Jerry Abiog is the co-founder and CMO of Standard Insights, an AI as a Service analytics and growth marketing platform. They help companies leverage their first-party data (POS, ERP, e-commerce, RFID) to drive top and bottom-line growth using the predictive power of AI.