3 Ways to
Make Your Business Recession Proof
Because
there's one on the way. It's just a matter of how soon that political inanity
or the market's volatility will start us downhill. For startups, the
traditional rules won't apply.
I'm
almost 100% cash and feeling pretty good about it. Whatever you happen to
believe about equities appreciating over the long haul, the first half of 2019
is going to be a bumpy ride at best. The days of an explosive and expansive
tech sector-- the FAANG stocks that have run the market to such incredible
heights-- aren't likely to be seen again for some time. I'm seeing months of
volatility ahead, which is going to be great for traders but won't do much for
consumer confidence or any sense of stability, especially in a time of insane
political instability.
Other
than Microsoft, which I expect to continue to creep slowly and steadily
upstream, I can't see a single one of the other FAANG-class companies (however
you count them and whoever you choose to include) that isn't facing product,
market, regulatory or serious competitive issues. These issues are far more
likely to drive distractions and detours than any new initiatives or sustained
and profitable growth. And, as the politicians gear up for the next election
cycle, it's hard to imagine any lower-hanging fruit for the media-sick morons
to pick on than the big guys in the tech sector. Unlike the NRA and the big
pharma folks--they've long known how to buy off and hold off the pols-- the
techies are political babes in the woods. Easy pickings.
So, I'm
not looking for much in the way of good news any time soon and frankly, an Uber
IPO or an Airbnb buyout isn't gonna really set the markets on fire either.
Relative to their crazy and over-inflated private valuations, I'm betting that
a public offering in this environment for almost any of these unicorns is going
to look like a down round if you actually know the internal investment numbers
and prior valuations. And that's before giving any effect to embedded repricing
ratchets and other downward pricing protections that were undoubtedly built
into these deals. In my general review of these deals, the entrepreneurs were
almost entirely focused on keeping ridiculous levels of voting and board
control. And, because everyone told them that the sky was the limit in terms of
stock prices, they paid very little attention to the prospect and consequences
of any decline in the price of their internal shares. They were smart, but not
smart enough.
These
bad vibes make me pessimistic about the funding future for startups and
early-stage growth businesses-- especially those that are still chasing
profitability. So my advice is very simple: get your business ready
for the recession. It's coming and it's no longer really a question of
"if" but rather "when" and "how
bad." Now's the time to start trimming your sails and
re-setting your course for at least a year. In a market and a time as crazy as
today, there are far fewer penalties to waiting and hunkering down than you
would typically incur. Doubling down on your commitments and speeding up
expansion activities when everyone lacks visibility makes no sense. Don't be
doing things (especially deals) just to keep busy. Busy-ness is a lot different
than taking care of business. Random and reckless activity for activity's sake
is a poor antidote for whatever actual anxiety you may be experiencing.
Here
are a few suggestions about what needs to be done. But first, I want to modify
a few of my own prior pronouncements. Not because they're wrong in the long
run, but because they're not right for right now. So, think "yes,
but" rather than "yes, and" for a while.
1. Market share expansion occurs mainly in tough times.
Yes,
it's definitely easier to grow your piece of the pie when the competition is
down-and-out, and you're blessed with a recently-acquired war chest (at the
moment) and some pricing flexibility, which lets you take advantage of the
situation and make some very attractive offers to clients and customers. Or
maybe, because the channels are less crowded and there's less demand, you're
able to secure better deals or placements or exposure (or even long-term
partnerships) that wouldn't be available to you in happier and healthier, but also
more competitive times. These are definitely tantalizing prospects. But cutting
your prices to grab customers will almost surely come back to bite you down the
line; and there's no guarantee that, if things continue to slow down and get
worse, that you may also be looking at some tough times and choices. So, you
have my permission to be penny-wise for a while.
2. Don't try to do something cheaply that you shouldn't do
at all.
Yes,
I've always been a very strong advocate of avoiding anything that amounts to
"putting lipstick on a pig" or "steak sauce on a hot dog."
It's usually smarter to just say "No" to these temptations to try to
get by with less than your best but, here again, there are always going to be
exceptions to the rule. Right now, my motto for your business--whether it's
dollars for development, money for marketing, a new ad and branding campaign,
or growing the team--is pretty simple. "Go for good for now, great can
wait." Just because you've grown and even if you've got some
bucks in the bank, take a breath and a moment to remember the old days when the
only options were limited to guerilla, down-and-dirty, and get things done
with smarts rather than simply more shekels. Try to get back to
those days and those times.
3. You can't save your way to success.
Yes,
but saving a few bucks right now may be your path to staying in the game. In a
startup, the only sin you can never rebound from is running out of cash. Because
then they send you home. So, it's never worth the risk of cutting things too
close or not making sure you've got enough for Plans B and C if it comes to
that.
Right now, I'd say that the exact things you want to be doing are pretty
clear:
a. Conserve your cash
b. Shorten the length of your commitments
c. Stick with the team you have instead of making a bunch of
additional bets on unproven players. Don't let your mouth or your ego write
checks that you can't cash or cover.
In the
end, it all comes down to money. Money doesn't really care who makes it. Money
is always there; it's just the pockets that change. And money does talk. You
just want to be sure that it doesn't say, "Goodbye."
