How to Grow Out of A Recession
I was unfortunate enough to lose my job in the 2008/2009 great financial crisis. I always wanted to start my own company. This ended up being the best, worse, thing that ever happened to me. It pushed me outside of my comfort zone. It led to building 4+ companies in 10 years. It significantly accelerated my personal growth trajectory. It shifted my mentality to being fearless from fearful.
Humanity is resilient. The most disruptive change and innovation come when we are pushed outside of our comfort zones.
Since it has been a while since our last recession, I decided to get on the phone and speak to some great technology leaders that successfully navigated 2001 + 2008.
Below is a compilation of their imparted words of wisdom.
#1 Share the Pain — Wages
Executives — Sacrifice needs to start at the top. Lead by example. Cut your wages down to minimum living wage. For some, this may be 0$s. The alignment you create showing your team you are in this together will pay dividends long term
Employees — It’s time to freeze wages, eliminate bonuses and cut OT. Message that this will last 2 or more years. The company will sacrifice profitability to keep as much of the workforce they can today.
#2 Secure the Braintrust
Every team has cultural/performance rockstars. Retain them through appropriate job security messaging. If their job doesn’t need to exist move them to another job. This approach helps raise the benchmark across the organization both short and long term.
#3 Price to Win
For businesses that have low customer CHURN/high long term LTV winning a larger % of the market today at near break-even prices will give you a larger (and more loyal) client base. You can increase prices later (when they can afford to pay more) or sell additional services/products to that valuable client. They will remember your generosity for years to come.
#4 Cut Non-Performing Business Lines
You need to run lean. This means if the business unit isn’t profitable today, or it is not absolutely fundamental to an aggressive near term growth trajectory it needs to go. Think about this in terms of ROI. There is a time for exploration, and there is a time for extremely efficient allocation of capital. Which do you think makes the most sense in this environment?
#5 Reducing Cost Structure
Suppliers — Turn capital expenditures into operational ones. 0–1 month ROI is your objective. Speak to existing suppliers. Start with the highest margin & largest. High margin suppliers can afford to cut the most. 40–50% discounts are reasonable to ask for from them. Like you, as a good partner, they now need to switch their mindset from short term profitability to long term relationship retention.
Team Member Benefits — It’s time to cut non-essentials that aren’t a core part of the corporate culture. Gym memberships do little for culture, team parties do a lot. Team parties will become more affordable. That 300$/person Christmas dinner is now an expense reimbursed potluck.
#6 You are saving jobs, not cutting jobs.
You have a duty to all employees to do what you can to help them maintain employment. I wish I could say items #1–5 will get you there, but many of you will be faced with the binary decision of bankruptcy or layoffs. The earlier into the recessionary period that you complete well thought out layoffs, the better your chances of survival. Be respectful, help them find the appropriate support services, make referrals to companies you know are hiring where possible. It’s a small world and maintaining strong relationships with former employees is to everyone’s benefit.
#7 Close Financings
No one is doing anything but an acquihire for the next year. So if your plan is to be acquired, and roll off into the sunset in the next 2–4 years, you won’t be. Your plans have been delayed but they don’t need to be destroyed.
If someone is willing to invest to help you grow out of this, now more than ever, take the money!! Top SF valley VCs are saying a flat round is the old equivalent of a 3x up round. The terms may not be what you would have gotten before, but focus on what it means for you in 2–3. years.
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — -
I know none of this will be easy. It is the job we signed up for as founders and leaders. Focus on the light at the end of the tunnel. If done correctly, your business will come out stronger than it went into the recession. As our great leader Trudeau says, “We will all get through this together”.
