7 Tips on How to Recession-Proof Your Business, From Leaders Who Have Been Through It

Nearly all of the jobs lost during the pandemic have been recovered. In June, the U.S. added 372,000 jobs, beating expectations, and the unemployment rate remained cemented at 3.6 percent–the lowest in more than 50 years–according to data released by the Bureau of Labor Statistics today. 

Despite the buoyant labor market, the overall economic mood feels increasingly pessimistic. No business owner wants to hear the “r” word. But depending on whom you ask, the country could be talking itself into a recession, or we could already be in one.

Wells Fargo argues that this latest jobs report should squash the conversation about whether the U.S. economy is in a recession–but not everyone shares that confidence. A group of forecasters surveyed by the Wall Street Journal put the odds of a downturn over the next year at 44 percent, up from 28 percent in April. JPMorgan Chase CEO Jamie Dimon upgraded his metaphorical concerns from storm clouds to, yes, a full-blown hurricane. Even Federal Reserve Chairman Jerome Powell echoed the unease. When he testified before Congress last month, Powell stressed that the central bank is “not trying to provoke” a recession with its rate-hiking campaign to rein in inflation. Then he admitted that an unintended recession was “certainly a possibility.” Helpful. 

If you’re a small business owner, best to leave the debates to the economists–you need to prepare as if a downturn is a certainty. Because, like coastal homeowners who know to gather plywood for the windows and sandbags at the beginning of hurricane season, you’ll want to shore up your company’s chance of survival by recession-proofing before the turbulence hits. What to do? At Inc., we believe the best source of advice is founders who’ve been through it. So we reached out  to a number of them, including leaders running companies that made Inc.’s 2022 Best Workplaces, to learn how they plan to avoid becoming a statistic should the economy slump.

If the economy does enter a contraction–which would be declared by the National Bureau of Economic Research–many founders will be experiencing a recession for the first time as a business owner. The last official downturn lasted from December of 2007 until June of 2009, and that financial crisis hit small businesses disproportionally hard. Plagued by heightened credit constraints and sensitivity to consumer demand, small businesses, despite their relatively small payrolls, accounted for 62 percent of jobs lost between 2008 and 2009.

So it’s worth remembering that your company’s survival is crucial not only to your own livelihood, employees, and customers, but to the economy as a whole. Small businesses account for over 45 percent of GDP, and as conditions rebound, small and new businesses provide the primary fuel for recovery with faster growth and job creation. 

To make sure you’re still around for that eventual expansion, we pulled together a list of seven precautionary measures you can take, based on the hard-earned experience from the founders we interviewed. You’ll also hear about their plans to navigate the turmoil once the storm makes landfall. 

1. Listen to employees and customers

You cannot stop the business cycle from shifting, but you can give yourself enough time to get ready. All American Entertainment CEO and founder Greg Friedlander gauges current conditions and future expectations by listening to the most anecdotal of data sources: his clients and employees.

“With rare exceptions, a recession is not something that should ever catch a company off guard,” says Friedlander, who started the Durham, North Carolina-based speakers bureau in 2002 and made Inc.’s list of Best Workplaces 2022. All American’s clients include Fortune 500 companies and universities. “If you are in regular communication with your customers, and you’re asking the right questions about what they’re seeing in their business, you get real-time insights into where things are headed.”

To keep a pulse on local economic conditions, from inflation to the housing market, it also helps to pay attention to the conversations among your own team, says Friedlander.

2. Use the pandemic as a case study

Many founders don’t have first-hand experience from the 2008 financial crisis to guide them because they weren’t operating then (the median age of a small business is less than 10 years). But the pandemic should be a good proxy, according to Jennifer Glanville, director of partnerships and collaborations at the Boston Beer Company, the brewer behind Samuel Adams.

Glanville manages the company’s entrepreneurship program, Brewing the American Dream, which offers access to capital, coaching, and networking for small businesses in the food and beverage industry. After two and a half years of Covid-19 closures, supply chain disruptions, and staffing shortages, the business owners that Glanville works with feel ready to confront a potential recession. “They’ve been prepared,” she says. “Everything that’s happened has prepared them for the next hurdle.”

Christina Stembel, who founded the Oakland-based online flower delivery company FarmGirl Flowers in 2010, plans to use the same playbook. When Covid-19 cases started rising, she learned that the worst-case scenario was worse than anything she ever anticipated.  Her most important takeaway: embrace conservative accounting and prioritize profit over growth.

“Prior to the pandemic, I was laser focused on getting Farmgirl as big as I could as quickly as I could,” says Stembel, whose company grew 161 percent over the last two years. “As a bootstrapped company, we don’t have a safety net,” says Stembel. “While big numbers and big reporting certainly look good, it also means big losses when-not if-things go wrong.”

3. Don’t rush layoffs

Staffing back up, particularly in this labor market, will not be easy, so make layoffs your last resort, says Friedlander. When the events industry came to a halt during the pandemic, the All American Entertainment founder watched competitors make major staffing cuts, but he decided he had invested too much in building his team to lay anyone off. “We knew that things were going to come back,” he says. “It was just a matter of time.” 

When the sector rebounded with remote events and eventually in-person experiences, Friedlander’s fully-staffed, experienced workforce proved to be a competitive advantage. His team was able to meet demand and wasn’t forced to leave money on the table.

“Our competitors focused on live events laid off 50 percent of their staff,” says Friedlander. “When they were ready to hire back, a lot of those people had moved on to other industries or had better jobs.”

4. Defer funding

“If you do not need to raise money, do not raise money,” says Vinicius Vacanti, the co-founder and CEO of YipitData, which provides alternative data and analysis for investment funds and large corporations. “That’s my number one piece of advice to entrepreneurs right now.”

Vacanti, who started the New York-based data provider in 2014 and completed a series E funding round in December, recommends taking whatever steps are necessary to extend the runway until conditions improve. “This is the absolute worst time to try to go out and raise a round of funding.”

5. Become indispensable

During any downturn, customers will be looking to cut costs. To avoid becoming another line item that can be subtracted from their budget, Vacanti advises founders to find ways to make their product essential. “That may mean adjusting your product based on the changing environment.”

When the pandemic ushered in a wave of uncertainty and market volatility, YipitData expedited their research publishing schedule from monthly to weekly. When rising prices became a top concern, the company developed their own inflation tracker, which came out before the official CPI data from the Bureau of Labor Statistics.

Those pivots require urgency. “Weeks matter,” says Vacanti, whose company is an Inc. Best Workplaces 2022 honoree. “You need to act very quickly. Your customers are going to look to whoever it is that’s going to be solving their new problems.”

Another way to become indispensable is to strengthen your existing customer relationships. More than just providing value, Friedlander says it becomes even more important during a downturn to document that value for clients.

“In any type of uncertainty, you’re going to close your wallet,” he says. “You’re not going to spend money unless it’s clear that you’re getting a return and you can justify that expense.”

Friedlander recommends collecting data and compiling case studies. Initially, All American Entertainment confronted skepticism about virtual events from clients. Bolstering their pitch with concrete numbers and examples, he says, made people more comfortable investing in the concept.

6. Maintain perspective

While you need to be prepared for a potential downturn, the founders that Inc. spoke with also advise keeping a sense of perspective.

If the economy does contract within the next twelve months, it could be the most viral recession business owners have ever experienced. In 2008, the Motorola RAZR dominated the cell-phone market; MySpace boasted the most users among social media sites; Twitter was only a year old; and Facebook had yet to introduce the like button. This year, the economy has only endured a single quarter of negative GDP growth, but #recession and #recessionproof have already garnered nearly 250 million views on TikTok.

“It’s hard to watch, listen, open an app and not see at least a few mentions about interest rates and indications of if or when this [recession] will kick off,” says Farmgirl Flowers founder Christina Stembel. Who’s to say whether the potential recession will be bigger and badder than the last? “With far more communication about it, that can make it seem scarier.” Stembel’s advice? Put down your phone.

Keep decision-making anchored in the long-term, Friedlander suggests. “There are cycles, but everything is going to end,” he says. “If you’re too focused on that short term, it very well will hurt you in the long term when things do recover.”

7. Stay entrepreneurial

In the meantime, concentrate on what you can control. Approach the recession like any disruption. “It’s an opportunity for you to find new ways to provide value, new revenue streams, new business lines,” says Friedlander.

Despite the gloomy economic forecast, Jennifer Glanville of Brewing the American Dream remains optimistic about the overall climate for entrepreneurs. She predicts the next downturn–whenever it comes–will generate plenty of success stories, because of one crucial difference from 2008. After the pandemic, customer support is much stronger than it was 14 years ago.

“America as a whole is more hyper aware of small businesses, and the need to support them,” says Glanville. “That’s very helpful.”

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