10 / 08 / 2022

Do or Die (Or a Recession by Any Other Name Still Stinks)

The film The Trench takes place in 1916, in the hours leading up to the Battle of the Somme, one of the deadliest battles of the Great War — World War I, as it’s now called. Soldiers in the trench are restless and understandably fearful of what lies ahead — and of being shot in the head if they momentarily put down their guard.

Carey Smith | Founding Contrarian

As a founder, you may not be facing a life-or-death moment for your startup right now, but you could before long if you’re not careful.

Are we in a recession? We might as well consult the Magic 8 Ball, because nobody agrees. The GDP points to yes; jobless-rate sources say no. Some “experts” would insist that our combination of high inflation and low unemployment is an irrefutable indicator that a recession is nigh. “You may rely on it,” to quote the 8-ball.

All this uncertainty is enough to scare people into a recession, and that’s what’s really scary. But are the good times really “unambiguously over,” as one VC firm declared? In the short term, maybe. That’s why it’s important for founders to prepare themselves for the uncertainty that lies ahead.

And while the debate goes on — are we or aren’t we? — it would be wise to remember that there’s no such thing as a typical recession. Each is different from the ones that came before, and we don’t yet know what form a Covid-induced variant might take. Could it be as “great” as the Great Recession? (That was actually just more of a short-lived crisis followed by a truly slow recovery exacerbated by “help” in the form of crony capitalism by the federal government.) Only time will tell. One trait all recessions do have in common, however, is that they all test you as an entrepreneur — and the hardest part is not knowing when money will flow again.

So what should you do to prepare? Re-examine your business plan — or for f*ck’s sake, this would be a good time to sit down and actually write one. Comb through it for any expenses that aren’t essential, because every dollar you spend now is a dollar you won’t have later, when you might really need it. And that dollar today is before any costs like payroll, raw materials, rent or taxes have been deducted. In other words, saving a dollar today is worth several gross revenue dollars. Why is it so important to save money? Because you should expect that outside funding sources could shrink or dry up entirely. And if your business isn’t able to break even, get ready for a series of down funding rounds.

If you’re well-staffed, consider yourself lucky in this time of the so-called “Great Resignation,” when so many have the “help wanted” sign displayed. Hold on to your best employees — rid yourself of the hangers-on — because besides loyal customers, they’re the most valuable asset you have.

At the fan company, when business fell noticeably in late 2008, we had more than 130 employees. But I wasn’t about to throw them off the boat, because I knew that things would eventually get better — they always do — and then I would need those same people. So first our management team figured out how much business we could lose and still hold on to everybody. Then we found new ways to make money.

We launched an installation division, something I’d previously resisted because installation didn’t interest me, and I was concerned it might be overly complicated. But not only did that division create a new revenue stream, it also ensured the fans were installed correctly, which reduced customer service calls. It also allowed us to offer longer warranties with in-house installation — a great selling point. Ultimately it became a very lucrative part of the company.

And there’s a point that’s often overlooked: Downturns create new opportunities, if you let them. They challenge us into finding workarounds and overcoming obstacles, and that’s what makes business exciting. Take a fresh look at problems you’re having, and you might just find an all-new source of revenue. Remember, if everything was always hunky dory, we’d all become as complacent as the bullfrog that stays too long in the pot. Challenges are what test us as business people; they teach us what we’re really made of and help us grow.

There’s little doubt about it: We’re heading deeper into uncertainty, and the months ahead are going to be challenging. The Trench is a fitting metaphor for these turbulent times, because although entrepreneurs won’t be asked to put their actual lives on the line, they could find their livelihoods — and their employees’ — in peril if they don’t pay attention.