A recession is coming. And you will not survive.

This is a horror story. Unlike most horror stories, this one is true in every single detail.

I was 29 years old. With a team of intrepid colleagues, we founded Recruitment Solutions, and we were going to take on the world. We were ambitious. We opened with ten people on day one. We had two offices and big dreams.

Eight weeks after we opened our doors, the world’s stock markets went into free fall. Black Monday, the 19th October 1987. The Dow Jones on Wall Street dropped 23 % in eight hours. In Australia, the All Ordinaries dropped an astonishing 46%, while the NZ stock exchange fell a cataclysmic 60%! That’s right – over half the value of listed companies in Australia and New Zealand vanished in one day.

I was terrified. Mortgaged to the hilt, I had borrowed every single dollar to start the business. I had encouraged ten colleagues to leave great jobs, follow me, and start Recruitment Solutions. And now, I was sure, the economy would tank and our business would fail, ruining us all

But it did not. Stock markets recovered. The real economy thrived. Our business boomed, and by 1990, only three years later, Recruitment Solutions had 75 staff, five offices and revenues of $13 million. All good. So where is the horror, you ask?

By mid-1991, the Australian economy had fallen into a deep recession.

And so too had New Zealand of course. I won’t quote you economic data. Let me tell you how it felt being a recruiter. In mid-1990, before the recession hit, our business was handling, on average, at any one time, about 250 active perm job orders. I know this because each manager faxed me the job numbers every Monday morning.

By mid-1991, that number had dropped to 18 active jobs.

Our revenues, which peaked at $13 million in 1990, fell to 9 million in 1991.

But, even with those horrific numbers, Recruitment Solutions did far, far better than most.

During ’91 and ’92, 60 % of all recruitment companies in Australia and NZ went bust.

And I believe a higher percentage of individual recruiters were forced out of the industry. It was carnage. And it’s going to happen again.

And for us, it was beyond tough. Our staff numbers dropped from 75 to about 30. We closed two of our five offices. Every person in the company had to take a 10% salary drop. Admin staff were eradicated, with consultants shouldering the load. None of our offices ended up with receptionists, and all consultants took turns to man the front desk.

We stopped advertising totally because great candidates were queuing up in the foyer, without appointments, desperate to be seen. This not an exaggeration.

Our Sydney temp desk, which had averaged 30 job orders a week, plumbed new depths. In one memorable week, we took one order. And it came in at 4 pm on a Friday, and it was for a one-day Credit control clerk.

Rented pot-plants were wheeled out the door.

The breathtaking aspect of that time was the speed with which revenue dropped. The speed with which the market switched from job-rich, to job poor.

The unemployment rate in Australia jumped to over 10% in 1991, (currently 5%) a figure it has never come close to since.

And Recruitment Solutions would have been amongst that 60% who failed too, if it had not been for four key facts.

• We had a strong temporary business, which kept us afloat,
• We had no debt, so we were not crippled with repayments when revenue dropped
• We had some great recruiters who saw the thing through. Recruiters with character. Recruiters who were not just boom-time show-offs. Recruiters who could win business in a declining market.
• And we cut our expenses fast and very deep, early.

I remember a conversation between our finance guy and myself where I said we can “sell our way out of this”. He said, “Fine – you do that, but we must get our cost base down”. And we did from $450k a month to 225k a month, and still, in 1991 we only managed to break even.

Oh, it was a full-on horror story. But it had a happy ending.

When the market recovered, we found, that many of our competitors had disappeared! I take no joy in the misfortunes of others, but the fact was the field was much clearer.

We found our clients valued that we had persisted and felt bound to us as ‘fellow – survivors’. We found the consultants who survived had been burnished by the fire of true battle and were tougher, more loyal and far more skilled. Some of those recruiters who worked through those tumultuous times, work with me even today.

Subsequently, Recruitment Solutions boomed. In two years, our revenues were up to 18 million. By 1997 sales were over 40 million and the business was so profitable we could list it on the ASX at a value of over $60 million at its peak

And so, some massive lessons were learned. I don’t want to scare anyone, and I have no special knowledge, but I feel another massive downturn is not too far away.

In fact, I need to tell you if you didn’t know.

We will have a recession.

And it will be big. I just can’t tell you exactly when. Sorry.

The Recruitment Solutions experience, and subsequent downturns, like the one we faced in 2009 when I was running Aquent, have led me never to be seduced by the good times.

At all my Board meetings I ask my clients, “what would happen if our permanent Gross Profit (Net fees) dropped by 50% and temporary/contract GP by 25%?”

Would we survive?

So, the question must be asked.

Are you vulnerable?

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And in my next blog I am going to do the polite thing and share with you how you can tell if a recession will wipe you out.

And hopefully you do something now to avoid that happening.

Please let me know in the comments of you wish to see that blog (becuase writing blogs is a bit like work, and we can’t have too much of that!)

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