Running a company during a recession takes grit — the economy is volatile, the financial markets are unpredictable, and investors are tightening their purse strings. Despite the risks, opportunities exist in any market cycle and many unicorns emerge during recessions. Here’s what you need to know about running a company during a recession.
Do Your Research
Research market cycles and current trends to gain insight into how you should position yourself in the market. Understand how your industry has historically been impacted by market downturns and how comparable companies have responded. Talk to fellow entrepreneurs and study your competition to understand how others are adapting to the changing market. Survey your customer base and learn how your company can uniquely solve their pain points — people will pay for your product (even during a recession) if you can solve their problems. Seek out experienced advisors as they will provide invaluable advice on how to survive and even thrive during a recession.
Your business plan should reflect the current economic conditions. During a recession, customers focus on necessities not “nice-to-haves”. Make sure your product is a necessity (or viewed as one) for your customers. What unique value is your product bringing to market? How are you saving your customers time and money? The most successful entrepreneurs are proactive, not reactive, and adjust their business strategies to match the current economic climate. The ability to adapt to shifts in the market is crucial to your success.
During a recession, cash management (or lack thereof) can make or break a company. Understand your burn rate and prioritize what will help generate revenue in the near future. Utilize low-cost channels of distribution such as social media (e.g., Twitter, TikTok, Instagram, etc.). Focus on customer retention instead of acquisition. Revisit your budget to take into account potential revenue fluctuations due to changes in consumer demand or inflationary pressures. As a founder, avoid taking out high-interest loans or tapping into personal savings to fund your company, instead consider extending your company’s runway by issuing current investors SAFEs or Convertible Notes. Lots of companies fail simply because they run out of cash.
Airbnb was founded during the 2008–2009 financial crisis and as of December 2022 had a market cap of $62.37 billion. The key to Airbnb’s continued success (even during the 2008 recession and COVID-19 pandemic) is their ability to provide value to their customers. Airbnb offers its customers a way to make money — by renting out vacant rooms in their homes. And alleviates a pain point of cost-conscious travelers by providing them with an alternative to expensive hotel rooms and a way to uniquely experience the culture of different cities. Airbnb also adapts its value proposition to align with the current market cycle. When COVID-19 caused worldwide travel restrictions, Airbnb pivoted to curated online “experiences” — where customers could continue to either make money selling the experiences, or experience different cultures without leaving their living rooms. To succeed as a startup, you must be able to provide value to your customers regardless of the current economic conditions.
Running a company during a recession is challenging and requires thoughtful preparation and strategic execution of your business plan. However, periods of economic downturn also offer a unique opportunity to attract customers who are looking for better value propositions in their current product and services. By doing thorough market research, adapting your business plan to fit the current market cycle, focusing on cash management, and providing value to your customers, you’ll set yourself up for success despite the ever-changing economic climate.