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“Recession” is a dirty word in entrepreneurial circles. Mention it once, and you’ll face a tsunami of heated opinions and maybe even a shouting match. But the reality is that our economy ebbs and flows, and entrepreneurs have to prepare for an eventual downturn, whenever that might actually happen. And actually, the best time to prepare for that downturn, which could happen as soon as 2020, is right now. Play your cards right and you can not only recession-proof your online business, but win big while others struggle. Recession-lover and biz consultant Jonathan Slain shares the 4 moves all online business owners should make to prep for the recession—including 2 must-have tips for buyer
IN THIS POST
Picture this: the zombie apocalypse has finally happened. Cities are overrun by hordes of the undead looking for their next meal. You’re not sure why it happened or what’s going on, but you know you don’t want zombies chomping on your arm.
So, what do you do? Are you the person running amok in the street, screaming (who is totally going to become zombie food)?
Or are you reppin’ your Daryl Dixon badassery, navigating the apocalypse in a calm, orderly fashion? …And maybe taking out a few undead with your crossbow? Thanks to a little advance preparation, you’ve got enough stores of food and ammo to ride out the waves of undead attackers without breaking a sweat.
Everybody thinks they’ll do well in a worst-case scenario, but in reality, few people ever plan for the worst. That’s a recipe for panic. And as we saw with the Great Recession, when the economy isn’t doing well, it’s like the zombie apocalypse for online businesses. Luxury brands struggle to bring in business, products disappear overnight, and fledgling Amazon businesses start letting employees go.
It’s not a good look. That’s why Jonathan Slain, author of Rock The Recession, is sharing his tips on how entrepreneurs make the most of recessions, whether they’re internal, worldwide, or international.
Don’t become part of the zombie horde. Instead, follow these 4 tips for business owners and 2 must-have moves for online business buyers to navigate economic downturns with ease.
Based in Cleveland, Ohio, Jonathan Slain got his start in the world of investment banking and M&A. “I have to disclose that I’m a recovering investment banker,” he laughs. But that wasn’t really his jam; Jonathan was bitten by the entrepreneurial bug and decided to set off on his own. At one point, he owned 5 gyms in the Cleveland area.
But guess what? The Great Recession crushed him. Folks stopped worrying about their flabby bellies and instead worried about their bills. I mean, the Great Recession was the worst economic downturn since the Great Depression. And that meant business screeched to a halt for Jonathan. That’s when he had to learn the hard realities of operating a business during a recession.
After coming out (mostly) unscathed from the recession thanks to product diversification (which we’ll touch on later), Jonathan wanted to share his experience with other business owners. Today, he’s a full-time consultant who helps large companies ($10M+) grow their revenue.
Jonathan learned quite a few tricks of the trade from his experience in consulting. After all, it takes a lot of chutzpah to build a $10M brand, and Jonathan learned a lot from his clients. Paired with what he learned during the Great Recession, this is what led to Jonathan writing Rock The Recession, a much-needed antidote to the zombie bites of recession.
Whether you’re panicked about the next recession or not, you still need to plan for it. That’s just good business. But this isn’t about pumping more marketing dollars into your product or strong-arming your way into a new niche. You need to be smart and strategic if you want to live through either a recession or a crowd of ravenous zombies.
And actually, Jonathan looks forward to the next recession, and he says you should too. He’s one of many Daryl Dixons in the world, keeping their crossbow ready for their moment to shine. Why? Other than the sick adrenaline rush of success, a recession is your chance to buy when prices are insanely, stupidly low.
Most businesses fire people and cut costs during a recession—usually in a full-blown panic. But you don’t need to cut off your leg to survive a recession. Jonathan studied the entrepreneurs who leveraged a recession to not only survive, but thrive. These are the folks who hacked the system with smart preparation, growing their businesses and eventually selling for a dream outcome. Sounds nice compared to a zombie nightmare, huh?
Study The Survivors Who Thrive
“What if we studied the people who leverage recessions? Who use them as a way to hack the system?” Jonathan says. His formula is to prepare before a downturn so you can buy awesome assets from the people who aren’t so prepared.
Now is the time to gear up, zombie-hunter. Jonathan predicts that we’ll see some type of economic downturn by the end of 2020. But I know, I know. Everyone is making their own doomsday predictions. The thing is, we can’t ride this wave forever. A downturn is as inevitable and ruthless as a hungry zombie.
It doesn’t matter if you agree that 2020 will bring an economic downturn. It’s going to happen eventually, and you need to prepare now because there’s no way of knowing for sure.
Actually, the US or world economy doesn’t have to collapse for you to experience a recession, either. Internal business recessions (also called non-economic recessions) happen all the time. It can easily happen to your business when:
- A key employee leaves.
- Your hero SKUs stop performing like they used to.
- Government or regulatory changes clothesline your growth.
- A big client or account leaves you.
- New competitors move into the space to steal your lunch.
The point is that business owners not only have to worry about a recession in the economy, but within their own business, too. So even if you don’t believe in zombies, you should invest in a crossbow. You know, just in case.
All right, so you’ve got a business and you want to recession-proof it. Congrats! You’re already ahead of a lot of people. Studies show 44% of business owners have zero plan whatsoever for a recession. Yeowch.
If you’re in that group, let’s pull you out of the pit. Make these 4 important moves to prepare for an internal or an economic recession.
1. Assess Where You Are
If you’re planning for the zombie apocalypse, you need to know the lay of the land before the zombies show up. You don’t want them to bust through the city walls and head straight for your business after all.
So, what do you do? You can’t make an escape plan if you don’t know the layout of the city. This is why it’s important to assess where you are.
When you’re planning for a recession, you need to benchmark performance so you can see where you compare to other businesses in the market. If you don’t know where you are now, you can’t figure out what to improve first. You might make a few wrong moves that could easily turn you into zombie chum.
Benchmarking is the first step to recession-proofing your online business. Jonathan actually put together this benchmarking quiz you can take. It rates your readiness on a scale of 0 to 100, where 0 means you’re absolutely effed and 100 means you’ll pop off zombies left and right with zero problems. “The average score right now is a 37,” Jonathan says.
Since the average score is 37, you can benchmark how you’re operating compared to the other businesses that take this quiz. “If you’re at a 100, you’re licking your chops and can’t wait to pounce when we hit the next downturn,” Jonathan says. It’s not super-definitive, but a benchmarking quiz will help you find your place on the map. It’s a hell of a lot easier charting a course to your destination when you know where you’re at.
2. Create A Board Of Advisors
But you might need folks to help you on your journey. That’s why Jonathan recommends online businesses build a board of advisors. “Small, private businesses need to have their own board of advisors,” he says.
And for the love of all that’s good, don’t bring on your accountant or lawyer as a consultant. I’m sure they’re smart, but you’re their payday. Vendors aren’t going to speak their mind because they want to keep your business. These people won’t tell the painful truths you might need to hear.
No. You need people at your table who are going to tell you like it is. With the apocalypse on the horizon, you can’t afford to pussyfoot around the truth, especially if it means your business longevity is at stake. Bring on a board of advisors made of people with a proven track record of earning money.
But that’s easier said than done. How in the world do you find these advisors? Sometimes it’s as easy as asking people in your network, but they won’t always agree. They’re busy, after all.
That’s why Jonathan says every business owner should have “The List.” It’s a list of 10 people that you want to have on your board of advisors but haven’t accepted yet. Maybe they’re busy or overcommitted; for whatever reason, they can’t work with you right now. But you want them bad, and that means you need to stay on their radar.
Bug people on The List once a quarter. Text them, email, or be more direct with a phone call. However you want to get in touch with them, do it, and do it consistently. “I wear them down until they finally get to the point where they agree,” Jonathan says, grinning. All you have to lose is a few minutes of your time. After bugging them for several quarters, you’ll more than likely get a few folks from The List to the boardroom.
Pay And Expectations
Your board of advisors is going to be your troupe of zombie killers. You want the best of the best on your side. If your strengths are, say, sales, get someone on your board who’s a whiz at financials. This is like complementing Daryl’s crossbow with Michonne’s sword badassery. You’re stronger and more lethal in the market with this combination.
But advisors need compensation for their time. You can’t get something for nothing. Jonathan recommends giving board members an honorarium ranging from $500 – $1,000 per quarter. Keep in mind that your advisor shouldn’t be in this for the money. They’re there to share their expertise and interests. Ideally, these folks should pass their honorariums straight to charity. You don’t want money-starved folks at the table because they won’t make the best decisions.
The right number of advisors depends on the size of your business. You should shoot to have at least 3 advisors, but no more than 30. You want to round out your board with a diversity of experience, covering areas like:
- Marketing / Sales
- Management / HR
An advisor is also extra-helpful if they have a big network of connections, decades of industry experience, and all-around good judgment. They should also not be a jerk to work with. If you’d trust these folks to navigate you blind during a zombie apocalypse, they’re a good bet for your board.
Set time and task expectations with board members from the start. “They need to do some research before they get to the meeting,” Jonathan says. Tell them to peek at your financials before every gathering so you can have an informed discussion. Let them know if you have a 4-hour meeting every quarter and how much prep they should do for each meeting. This ensures you’re getting the right advisors at the table who are going to help you.
3. Get A Line Of Credit Right Now, Not Tomorrow
The best time to buy your zombie crossbow is today from a friendly sales clerk, not when the zombies have already broken into every local Academy and Dick’s Sporting Goods. Thankfully, you’ve got at least 6-12 months before Jonathan predicts the economy will face some type of downturn. In the meantime, prepare yourself by arming up with a line of credit.
Cash makes the world go ‘round, but it’s hard to find during a recession. But if you want to buy assets during the recession and grow them as the economy improves, you need lots of cash to throw around during that recession. This is the prime time to buy assets and you need capital to afford it. “The thing is to have access to capital for a recession. You don’t have to use it right now,” Jonathan says.
Consider your options for opening up a line of credit, like:
- Home equity
- Credit cards
Ideally, you want a line of credit that’s not secured by personal assets, like your house. But if you’re desperate, you can use a home equity loan or move on to credit cards as a more-desperate third option.
You don’t have to spend the money right now. I repeat: you do not have to spend this money right now. In fact, I would encourage you not to do that. You’re just getting the money prepared in the event of the next economic downturn.
“But I don’t need a loan right now,” you might think, “Why go through the trouble of getting a bank loan?” It’s simple: you can’t get a loan during a recession. The banks will not only turn you away, but they’ll laugh at you and probably throw wads of paper at you as you run out of the building. If you go to the bank now, however, it’s a different story. When the economy is doing well, banks want to compete for your business. They won’t have a problem extending a line of credit.
But during a recession, banks don’t want to give people money. “Banks don’t want to open new lines of credit for riskier, new, or online businesses during a recession,” Jonathan says. They want to cover their own asses, and that means minimizing risk. As the owner of an online business, you seem inherently riskier, and that means banks aren’t gonna dance with you during a recession, bud.
Secure financing today and save it for the apocalypse.
4. Do Your Research
Okay, so you’re preparing your business for the recession. Let’s say you sell diamond-plated Apple Watch bands. It’s hardly a necessary purchase, but consumers respond to it and you feel invincible.
But what’s that?
IT’S A WALL OF HUNGRY ZOMBIES, COMING RIGHT FOR YOU. You didn’t build a wall around your business with proper research, and the recession is going to pummel you into the ground.
It’s a hard reality, but it’s true: customers don’t buy as much discretionary crap during a recession. If you happen to sell discretionary crap, you’re out thousands or even millions of dollars. That’s why you need to diversify today. But don’t diversify without the right research. Only with the right data can you truly zombie-proof your business.
Jonathan’s favorite research tool is IBIS World. It’s a paid tool, but it will give you direct access to industry reports. These reports use tons of historical data to recommend where particular industries are going and how they’ll perform during a recession. For example, if you’re selling wine online, there’s a report for that. And for jewelry and sports apparel and teddy bears and nearly everything under the sun.
Start thinking about your business not as your baby, but as a lifeline to keep you afloat during the recession. If you deal in discretionary products like jewelry, insurance, gyms, or travel, you’ve got an uphill battle, friend.
The good news is that there are some products people won’t stop buying, no matter what. These are life’s little essentials. They’re far from sexy and they’re uninteresting, but these products will give you more recession stability. “People are still going to brush their teeth in a downturn,” Jonathan says. This includes products like:
- Veterinary care
- Repair services
This is the stuff people won’t go without, no matter how much they cut their costs. Don’t convince yourself that people will bleed money in a recession for bedazzled Apple Watch bands. The data and the answers are already out there for you. Focus on your business and long term vision to create zombie-proof products that sell no matter what.
Do your research and diversify—so you don’t die. The key is to expand your offerings to recession-friendly lines of business without overextending yourself. In fact, if you’ve got the cash to swing it, you can safely diversify by purchasing multiple businesses. Curious about preparing for the zombie apocalypse as a buyer? Read on, my friend.
We’ve covered the 4 critical moves for online business owners, but what about business buyers? While buyers should also make those 4 moves we’ve already covered, they need to obey 2 cardinal rules for a zombie-free business transaction.
1. Choose A Critical Service
Story time! Jonathan’s book co-writer, Paul, bought an HVAC business during the Great Recession. Paul invested $1 million to grow the business. The business previously would install HVAC systems for construction projects. But Paul knew construction projects were stalling during the recession. He and his partners pivoted the business, gearing it towards HVAC repairs instead of installations. Why? Because consumers prefer repairing over installing new systems when times are tough.
Paul’s new direction paid off. 63 months later, he sold the business for over 70X of the cash he put into it. How’s that for ROI?
Paul’s purchase worked because he picked a business that gave him a tailwind during a downturn. As a buyer, think about what business will give you the most economic tailwind in a recession. These are essential, critical services that folks won’t go without, even in a recession. HVAC may not be sexy, but homeowners won’t go without A/C or heat (unless it really is the zombie apocalypse, that is).
Jonathan’s mom would always say, “You’ve got to put yourself in the middle of the street to get run over.” It’s a morbid idiom, but it has a lot of truth. You have to put yourself in a situation where you’re going to make money as a buyer. You put yourself there when you choose a recession-friendly business in the first place. “Find a business niche that’s not going to be impacted by a downturn,” Jonathan says.
As an online business, consider creating subscription-based services for items that people need. Online shave subscriptions are a great example of this in action. If you can purchase a critical online business and then add a new subscription service on top of it, you create recurring revenue that will keep you afloat during a recession.
2. Minimize Personal Financial Risk
Personal finances and business finances should be kept as separate as possible. Combining the two is like slathering yourself in barbecue sauce in a zombie outbreak and screaming, “Come and get my tender underbelly, zombies!” You’re just begging for trouble.
Minimize personal guarantees when you get a line of credit as a buyer. Remember, banks are willing to bend over backward for you right now when the economy is good. Take advantage of their flexibility. You can’t do this with an SBA loan, but if you’re pursuing conventional financing, give this a try:
- Shop around for the right bank or credit union.
- Ask your bank to do a loan.
- Specify if you want to eliminate, reduce, or cap the amount of personal guarantee tied to the loan.
This is super-duper important to do. If your biz goes sideways during a recession and has trouble paying back that loan, you’ve mitigated your personal risk. You don’t have to worry about zombies scratching at your window at night.
“I love the idea of capping, reducing, or eliminating personal guarantees for buyers,” Jonathan says. The bank might reject your request, but guess what? It’s free to ask and it won’t kill you. This is worth the 2 hours of time if it means your personal assets aren’t tied up as collateral.
Zombies are brainless creatures, but you aren’t. Use your brain to rock the recession not with brute force, but smart strategy. 2020 holds a lot of promise for online business owners. Make it a safe, profitable year by building a recession-proof business.
Assess where you are today, create a trusted board of advisors, secure a line of credit right now, and diversify your business based on research. If you’re buying a business this year, make sure you’re fulfilling a critical service and minimizing personal risk with financing.
Bottom line, make a recession plan now while you’re calm and collected, not when you’re freaked out about business performance. “Put together a recession plan in the cool, rational light of day as opposed to the emotional heat of the night,” Jonathan says. If you hear a recession rumbling in the distance, break the emergency glass and put your plan into action. You’ll be thrilled to have the groundwork prepared for recession survival. When in doubt, take Jonathan’s benchmarking quiz to see how prepared your business is for an inevitable economic downturn.
Don’t cower in the fetal position in the event of a downturn. Pick up your crossbow and prep for the end of days now. Who knows? Maybe you’ll hit your stride and come to love a good recession.
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