All of the "financial experts" and pundits say we are headed for a recession here in the US in 2023. Talks of mass lay-offs, corporate shake-ups, and other grim economic indicators are causing many small and mid-size companies to freeze spending across the board.
It is the same behavior seen with investors, who tend to bail out of markets during downturns. Then, when the markets recover losses in exchanges and begin to see consistent gains, many investors choose to re-enter and miss out on the profits on the way up.
I have been an entrepreneur through some great rallies and have seen the bottom of the well. While things may look bleak now, we've seen these indicators before.
In 2001, the terror attacks literally froze Wall Street, and banks ceased lending. This meant that the fed had to provide liquidity to the markets because the domino effect would have crumbled our entire financial system if they didn't.
2008 brought the housing market crisis and "The Great Recession." Between late 2007 and early 2009, American households lost an estimated $16 trillion in net worth; one-quarter of households lost at least 75 percent of their net worth, and more than half lost at least 25 percent.
Through these downturns, some companies have learned to innovate and win. We'll take a look at some examples of companies that have succeeded during recessions and outline three key principles to help you survive and thrive.
Here are 3 ways you can survive a recession as an entrepreneur
1. Invest in ad spend during a down market
While many companies contracted and pulled back investment, other companies invested during the 2008 downturn by spending more on advertising and as a result, literally exploded with growth. You may have heard of one of them.
Airbnb co-founders Brian Chesky and Joe Gebbia used VC funds to invest in technology and ad spending during a time when many other traditional hotels and motels cut spending in these areas.
It paid off because reduced competition is when you should spend more. When everyone else operates from a place of fear, it presents an opportunity that favors the bold.
2. Evaluate your technology
The best time to get your technology stack in order is not when the market has recovered. You may have heard of a company called Netflix. Coming off a disappointing year, Netflix tried to sell to Blockbuster for $50mm. The sale fell through, and Netflix continued to struggle.
Then, during the great recession of 2007 - 2009, Netflix chose to invest in technology, and the rest is streaming history! They went from $2 per share to trading as high as $400 per share.
While many entrepreneurs are not inventing technologies, we all use technology to manage our companies. There is no better time to review your sales, marketing, web, and customer service systems than during a downturn. These are 4 areas that, if managed properly, can bring efficiencies through automation and workflow to give you the edge over your competition.
Many entrepreneurs have turned to HubSpot to solve and grow, and the flexibility and scalability are perfect for helping you manage through uncertainty. It has integrations for the technology you already use to run your business. HubSpot software also provides a seamless experience for those companies that can take advantage of the tools and functionalities in the ecosystem. The lesson is to get your tech house in order during a recession to prepare yourself for the growth opportunities on the way up.
In short: technology will keep you running even if the stock market crashes. Customers need to buy and pay for cost-saving solutions or new technology that increases sales and productivity. During recessions, a company requires "must-have" solutions driven by the need to be more efficient.
3. Keep your emotions in check
The temptation is to watch the news or read it online and allow it to create fear and panic in a downturn. Even worse, it can create arrogance and greed during great growth.
You must set those (very human and very relatable) emotions aside when making a decision regarding personnel, technology, and growth initiatives—review alternatives to budget cuts. For instance, Is it time to seek outside investment? That's what Slack did, and it became the fastest-growing company ever.
If you can get to cash flow break-even with the cash you have in the bank now or recap raising a round; the point is to create a new operating plan with that new amount of cash and move towards growing and take the emotion out of it.
Taking a wait-and-see approach may become the death knell to your company. 1.8 million small and medium businesses went out of business due to the last great recession. Those that keep a level head and think through these 3 areas have been proven to have a better opportunity to succeed.
In part 2, we will discuss the entrepreneur’s approach to sales in a down market. To learn how Instrumental Group can help you scale and grow in challenging times, reach out to us below!