Not if, but when.
In every horror movie there comes a point when you know something is going to happen. You don’t always know what and are never quite sure when. That’s where I think we are right now.
It could be an economic crisis. It could be another pandemic. No one knows what, and no one knows when. But something will happen that disrupts the economy and puts many entrepreneurial ventures at risk. It could happen this year or it could happen sometime in the next several years.
We’ve seen this movie before. COVID. The Great Recession of 2008. The dotcom bubble bursting. As someone who entered the workforce in the 1970s, I’ve lost count of how many economic shocks I’ve witnessed firsthand.
Economic shocks can be devastating for small businesses, but they also can create amazing opportunities.
Prepare Ahead
Be ready to act decisively and quickly. When the next bad time comes, it may come with very little warning.
For startup entrepreneurs, you need to be lean from the get-go. New businesses will still be forming, even when the economy takes a turn for the worse. Some of these new businesses will be opportunistic entrepreneurs who see ways to meet the needs created by the dramatic changes taking place in our economy and society.
Bootstrapping is always a good approach to entrepreneurship, but it becomes essential when times get tough.
There is less money being invested in, and lent to, new small businesses right now. Be prepared to find creative ways to get the resources your business needs. When things take a turn, the money flow may dry up almost completely.
Watch your overhead carefully, and know what you can cut quickly when the economy turns south. Pay down debt and take good care of the customers you have so you don’t lose them to stronger competitors.
Hire new staff prudently. I am not saying that you should not grow your staff, but make sure you have the cash reserves and/or cash flow to support each new hire.
Opportunities Await on the Other Side
Opportunities will present themselves if you are prepared for the next downturn and manage to muddle your way through it.
As the downturn unfolds, more of your competitors will probably fail, which presents an opportunity to attract new customers to your business.
This can be an excellent time to expand and take advantage of a larger market share. If you do expand, continue to bootstrap and try to keep your use of debt to a minimum. Labor and real estate costs will likely come down, making expansion more affordable.
Don’t be afraid to use this time as an opportunity to innovate.
In 2018 and 2019, Ryan Pruitt’s business, Frothy Monkey, was getting ready to grow:
“We spent 2018 and 2019 learning how to operate what we have created for ourselves, beefing up our admin team, working on our processes, learning the beauty of systems, such as ops systems, and checklists. These are all bad words for entrepreneurs. You sit in meetings, and you start hearing, ‘This is going to make us too corporate.”’ People work here because they don’t want to work in corporate. And so we began that beautiful tension of having enough systems to set yourself up for success and some scale, but in a way that supports the creative and emotional leaders that we have in our company.” (“Ryan Pruitt,” from Entrepreneurial Voices)
Just as they were about to open a new location in East Nashville, a tornado struck the city on March 3rd, and then the world shut down due to COVID less than two weeks later. Like almost all small businesses, Frothy Monkey was forced to drastically downsize and try to find a way through the pandemic. By listening to their customers and taking quick action, Frothy Monkey made it through. Said Ryan about what came next:
“Our loyal customer base rewarded us. Quick decisions rewarded us. And we’re very happy to say that we’ve not only made it through, but we’re a company three times stronger than we were before. We’ve opened our first out-of-state location since then. We’re up to 342 employees, seven locations open, and the eighth one, Knoxville, getting close. We’ve also just announced location number nine for 2023, which will be the second one in Birmingham. This will be our first time opening three locations in a twelve-month period.” (“Ryan Pruitt,” from Entrepreneurial Voices)
Great culture molding points from Ryan at Frothy Monkey; we have the same debate about incorporating policies and systems that make us feel like a corporate villain, but we’ve found that short, concise versions of these provide some guidance and set the expectations needed to work well as a team! Essential for Gens Y & Z!