Are You Prepared for the Recession?

I’ve been expecting a recession for a while. If you’d listened to my predictions of a stock market crash in 2016, you’d have made some bad investment decisions. But evidence is piling up that a recession is likely in the next 12 months. Even if it takes longer to arrive, one thing is certain: it will eventually arrive. And business owners need to prepare. 

Younger entrepreneurs might not be worried. But I’m old enough to remember what an economic downturn feels like. I remember the 1987 stock market crash, even though I was a kid. I graduated from college in 2001, just as the Internet boom was beginning to bust. And I was a young professional during the 2008 downturn as well. 

My company, however, is relatively young, and hasn’t weathered a downturn before, so in many ways this is uncharted territory. I’m currently thinking about how to prepare my company to thrive (yes, thrive) even if the economy doesn’t. If you’re doing the same, here are four questions to ask. 

How much of your revenue is at risk?

Just like a savvy investor might analyze his or her portfolio during a downturn, business leaders need to identify which clients might be hit hard by a recession. 

Industries aren’t the only thing you need to evaluate. Are your clients venture-backed startups? VC firms can struggle during downturns, and may not be able to invest additional capital in struggling portfolio companies. 

Furthermore, is your product essential to your customers, or is it discretionary? If it’s discretionary, is it a high-cost product that customers will see as a good source of cost savings when their budget gets tight? Or is it an inexpensive product that may fly under the radar?

Overall, we feel good about the diversity and financial health of our customer base. But our best protection is the fact that, for most of our clients, we offer a service (customer support) that is essential for their business. 

Are your marketing and sales teams prepared to turn on the gas?

All of our growth has come from referrals, so we have spent almost nothing on marketing. It may seem counter-intuitive to change that now, when we could be setting that money aside to weather an economic storm. 

But we’re taking the opposite approach. Over the last six months, we’ve invested in building the content on our blog. We’ve hired firms to help us with SEO and marketing strategy and shifted internal resources to increase our activity on social media. 

Our goal is to build a solid marketing foundation. In a few months, if we need to add fuel to our marketing engine to increase business, we’ll be in great shape to do so because of the work we’re doing today.

When your core business is growing fast, it’s hard to find time to think about new products, let alone find the resources to invest. This is the core of the Innovator’s Dilemma – when times are good, you have no time to innovate, and when times are bad, it’s too late.  

The solution: create a budget for innovation and hire an outsider to execute. We’ve often thought about selling the online training we’ve developed. But it’s far outside of our core business. This fall, we’re aiming to engage a consultant to explore and launch this business for us. 

At the same time, we’re looking to offer new services to our current client base. We’re currently adding UI/UX design and expanding our direct mail business. Both are outside our core business of customer support, but they enable us to build deeper relationships with our clients – helping them grow, and increasing our own economic resilience at the same time.  

How much cash do you have on hand?

Warren Buffett is famous for having large amounts of cash reserves available; Business Insider reported that he’s currently holding a whopping $34 billion. 

You don’t need $34 billion in the bank to survive a recession. But all business leaders can (and should) leverage Buffett’s strategy during an economic downturn. If your company’s savings accounts look sparse today, set aside additional cash while your sales are high. We’ve been focused on this all year, and our reserves are at an all time high.

Recession may be on the horizon, or it may still be over a year away. Either way, it’s time to prepare. If we turn out to be early, that’s perfectly fine. Our efforts will still put us in a stronger position to prosper when the recession finally arrives.

Illustrated by Rhea Avenceña