This editorial article is a part of Navigating a (Possible) Recession Month 2023 in Technical.ly’s editorial calendar.
While plenty of companies created before then are still kicking, the upcoming potential recession might be many founders’ first time experiencing a significant economic event. That likely doesn’t comfort them.
Nobody can answer for certain whether or not a recession will come, although many feel certain some form of slowdown will take place (worth noting, though: Derick Maggard, executive director of Virginia Tech’s Apex Center for Entrepreneurship, does foresee an economic downturn that does not go as far as a recession). Unless you’re sitting on a finance degree, though, defining a recession can be a little foggy.
Clifford Rossi, professor of the practice and executive-in-residence at the University of Maryland School of Business, explains it as follows: The unofficial definition is two consecutive quarters of negative GDP growth. Per this definition, we actually experienced one last year. But whether or not we’re officially in a recession is up to folks at the National Bureau of Economic Research, who say they also explore factors like unemployment — meaning that we can experience a recession’s effects without technically being in one.
Rossi currently predicts a mid-2023 recession but anticipates nothing near the tumult of 2008.
“We’re certainly seeing numbers that, on days, seem like they’re relatively strong; the economy still seems to be hanging in there pretty well,” Rossi told Technical.ly. “But at the same time, there are these warning signs, particularly with rates as elevated as they have been relative to where they were in the past, that seem to suggest that we could be in for a bumpy ride.”
So, what exactly should you do about it? We asked Rossi, Maggard and other regional experts for advice.
Follow the money
As a founder in lean economic times, you’ll need to keep a very close eye on the financials. To start with, Assistant Director of the American University Center for Innovation Danielle Vogel said that every founder needs to have a plan for lean times — including cash flow. Even if this doesn’t end up being the big recession event, it’s good practice for any future difficulties.
“Embedding fiscal discipline into your company culture creates the sorts of habits that will help small businesses endure,” said Vogel, who also founded Glen’s Garden Market. “So the idea of teaching your team and yourself how to spend your money wisely, regardless of external conditions, is simply good business practice.”
She also advises running the company you have, rather than the one you may lead someday. In other words, spend within means; control the controllable, which could involve renegotiating supplier contracts or office space; double down on team retention; and get creative in developing new, ancillary streams of revenue.
“When the revenue streams that we were counting on begin to dwindle, it’s important to step back and get creative about how else we can use the organization that we’ve built in order to drive revenue into the company,” Vogel said.
President Matt Hetrick of DC accounting firm Harmony Group encouraged founders balancing their budgets to also divest from anything that doesn’t make sense for the company. That means having some discipline and making hard but necessary choices about what the company needs.
Hetrick suggested determining your core software product and seeing if any extra pieces can be monetized. You meanwhile need to gauge if what you’re building is necessary, and not just under development because you had the extra funds.
“You can’t possibly need to focus on all of the lines of the business at once,” he said.
Jeff Reid, founding director of the Georgetown Entrepreneurship Initiative, noted that raising capital is particularly difficult in a recession. As founders eliminate expenses wherever possible, he recommended raising a little more than you think you need or opening a new line of credit to ensure you have the cash to make it through. He also suggested watching your customers to make sure they’re sticking with you when they, too, need to reduce costs.
Crucially, he added, it’s okay to make those your goals for the year — not the lofty growth plans possible in previous investment-heavy years.
“You might want to focus on more short-term wins,” Reid said. “Who are your most important customers? Make sure you understand how they might be affected by an economic downturn and try to continue to serve their needs.”
Talk to your employees
Navigating a recession isn’t just about numbers, though. Founders need to determine how to discuss the current state of affairs with their employees. If you believe they aren’t thinking about a possible recession, Reid said, you’re wrong. So, it’s important to get out in front of any questions and be hyperaware of what your team might feel.
For some, that will mean making some cuts. And while that’s a difficult decision, Reid recommended not putting it off: Laying off workers deeper into a recession does them no favors. He also suggested doing it all together, instead of through multiple rounds which can render employees unsure of their future.
“If you do have to lay people off, a lot of people would advise cutting deeper, quicker,” Reid said. “What really hurts a company culture is if, every couple of months, you have another round of layoffs.”
It’s also important to focus on the team that you have. Founders, Maggard said, have a core responsibility to motivate their teams. But they also need to operate with huge levels of transparency. If you’re honest about the budget, employees themselves might have a solution. He’s even heard of high-ranking engineers offering to take a pay cut for a mission they really believe in.
“The founder’s job is to remind everyone of what their mission is, what are they trying to accomplish, what you’re trying to do and then rally the troops around them,” Maggard said. “It’s a really awesome time for founders to understand who they have around them.”
And remember — just breathe
Look, we’re not saying that recessions (which impact a lot beyond economics, like public health) are a good thing. But there are some advantages to company-building during this time. It can offer space to double down, focus on the product and build something even better than before. Reid noted that with so many looking for jobs, it’s a little easier and potentially less expensive to find talent.
He added that while they aren’t easy, recessions happen; sometimes, you just have to step back and weather the storm.
“[A recession] is natural,” Reid said. “Every so often the business cycle has a recession, so it creates a lot of opportunities for entrepreneurs — as well as challenges. It’s good to be ready for it if you think it might be coming.”
Despite the many stories of successful companies built during trying economic times, Reid noted that being a founder in any environment is difficult. He suggested prioritizing the search for a community of fellow friends and founders who can help, advise and offer a sounding board because founders must take care of themselves. Whether that involves exercise, meditation, finding a community or something else, your company will be at its best when you are, too — even if that takes a little time.
“Don’t feel like you have to solve everything,” Reid said. “Take time for yourself, build your community, build your team.”
Maggard’s advises always trying to find an awesome cofounder who you can trust and speak to with tremendous transparency. He also suggests finding and leaning on mentors who grew companies in the 2008-2009 recession, or even earlier.
“[The DC area] is such a rich environment, with lots of founders, and the ability to sit down and have a meal with a couple of them — and for them to talk in an open environment, and be able to share best practices…I think is really, really critical,” Maggard said. “They’ve got to have those sounding boards.”
And if you’re truly worried about what the year will bring, Vogel stressed the importance of remembering that we just endured a huge period of uncertainty — and survived. So you’ve already got some tools for getting through the next bit.
“Every business owner who’s just emerged from the last two-and-a-half years of struggle and torment understands what it is to pivot, understands what it is to run a lean business,” she said. “We have to have been through the hardest part already. So now, it’s a matter of taking those hard lessons learned and embedding them in the company culture so that you move forward.”
Knowledge is power!
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