Here are five secrets to surviving a recession that every entrepreneur should know.
Economists predict we are headed into a recession by the second quarter of 2023. During a recession economic growth stalls, which can lead to layoffs and hiring slowdowns. It may become more difficult to find a job. Investments lose value and lenders tighten the reins, making it harder to take out a loan.
This paints a gloomy picture, but there are some benefits to a recession … if you’re prepared.
Efficiency increases, the cash economy flourishes, and some businesses, and business sectors, do quite well. But if you’re new to running your own company (even if you’re the only employee) and you have not experienced an economic downturn, it can be scary.
Here are five secrets to surviving a recession that every entrepreneur should know:
1. Take an honest stock of your financial picture.
Unpredictability is the hardest part of a recession – especially when your business relies on economic spending (all businesses rely on economic spending!). The first step is taking a good look at your personal and business financial pictures. Write out a budget. Find areas to curb your spending. And secure a cash-flow back-up plan, like a line of credit. It is not the time to take out a loan – remember a line of credit is there if you need; a loan you must begin repaying immediately.
2. Build a niche market.
Building a niche market can be very lucrative and beneficial for a company with limited resources. Depending on where you are in your business as we head into 2023, one strategy for surviving a downturn is to niche down.
Niching down means tailoring your product or service to a very specific audience. There are inherent benefits to a niche market such as higher profits, reduced marketing costs, and reduced competition. For the new entrepreneur, building your company around one niche can save money and resources by effectively eliminating the competition.
A quick internet search will suggest 20 or more niches that are “recession proof.” That doesn’t mean you should rush and buy a business or shift your focus to the “flavor of the month.” Evaluate the business you have and ask yourself these questions:
- What services (or products) are your top producers? These are the items that bring in the most revenue.
- What are people asking for? And has that shifted or remained relatively constant?
- Where am I receiving the most inquiries? Who is asking for your services, where do they live, and what do they do?
Use the answers to niche down your existing business. If you do your homework, you’ll identify your niche and who and where your customers are.
3. Diversify your offerings.
Another strategy is to expand your offerings. This is beneficial for businesses that already offer a few services or work in an industry with complementary services. Here are three ways to diversify your offerings:
- Merge with a company offering a complementary service, e.g., graphic design and website development.
- Become a content provider to your audience, be it through offering online courses to complement your services, starting a YouTube channel or launching a podcast.
- Sell complementary items at your brick-and-mortar service-oriented businesses, e.g., yoga studios that offer yoga clothing, mats, and bolsters for sale.
4. Vertical integration.
This business model gives companies ownership over all the stages of production. Netflix is an example of a vertically integrated business that shifted from licensing shows from major studios to producing original content. Netflix controls the product from production (making the movie) through the end user (the movie watcher).
Apple is probably the best example of a vertically integrated business. Apple controls the manufacturing, distribution, and software for its computers, iPhones, and iPads as well as the accessory market (cords, adapters, etc.). And the company is getting ready to launch a new savings feature for its Apple Card holders, making high-yield savings possible…exclusively for iPhone users. SaaS companies are other examples of vertically integrated companies – giving their clients what they need to be successful. For example, email marketing platforms that offer website and social media integration, landing pages, and other services.
5. Consider career opportunities.
The last thing budding entrepreneurs want to think about is closing the doors, but depending on the financial health of your business it may be necessary to consider scaling back on your business and exploring other career opportunities. Here are two thoughts to consider:
- A job– or a part-time gig– that pays the bills, but gives you the flexibility to continue your business. That way you can continue to service your clients while still meeting your financial needs.
- A career that compliments your business. In this scenario, you’ll learn valuable skills that will help you succeed when the economy changes. For example, if your business is content writing, join a marketing firm as a writer. You might have to put your own business on ice, but the skills you learn will only help you when the economy bounces back – and it will bounce back.
The most important thing to remember is that recessions are temporary. They’re part of the ebb and flow of the economy. Think of the impending recession as an opportunity.
One parting piece of advice: show respect for the people you do business with. If you need to scale back, let them know. Continue to support their business in any way you can, even if it seems like such a small token, it can mean a lot to the business owner who is scraping by. Give people ample notice. Let yourself be vulnerable.
After all, when the economy begins its upward swing, you’ll need these people again.
