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Surviving an Economic Downturn: Moves to Help your Startup stay in the Game.

You know what they say "a rising tide lifts all ships."

I believe the other side to that quote is the famous one by Warren Buffett: "Only when the tide goes out do you discover who's been swimming naked."

The Buffett quote always makes me chuckle when I hear some financial analyst or news pundit repeat it. But as funny as the concept may be... this is one of the most profound things the Berkshire Hathaway boss has ever said - and there have been many such quirky, borderline inappropriate, folky quotes by the Oracle of Omaha.

Especially since at 92, with a 70-plus-year track record in business, it is safe to say that Warren has seen many - many storms. Those of us who have been following his career know and admire his ability to turn things around even during the worst of times. He really is the last of a dying breed: The turnaround artist.

I would even count folks like Oprah, Adam Aron, and a few others among the pantheon of business leaders who are able to lead their companies during the worst economic conditions and even find a way to thrive in the aftermath.

And friends, make no mistake about it. We -globally-find ourselves right in the midst of an economic kerfuffle. Now! we can go back and forth (all day) about what or who caused it- and it seems that's all we spend our time doing these days... but it is what it is.

The Economy as it stands now

  • Inflation as gauged by the consumer price index rose 8.3% over the past year through August, while retail sales increased 9.3%.

  • Real gross domestic product (GDP) decreased at an annual rate of 0.6 percent in the second quarter of 2022, following a decrease of 1.6 percent in the first quarter.

  • It’s widely expected that the Fed will implement another rate hike of 0.75% when the Federal Open Market Committee meets later in September. the Federal Reserve has already implemented four interest rate hikes in 2022, including two consecutive “jumbo” rate hikes of 0.75% in June and July. The federal funds rate is currently 2.25% to 2.50%.

The current state of the economy and its effects on even those in higher tax brackets and our need to be talking about it a little bit more were highlighted by the least likely person you or I could have ever imagined:

As small business owners

Especially those in the midst of starting our companies, we feel the economic pain harder than almost everyone else. In times such as these, we find ourselves struggling to access the capital needed to fuel the growth of our organizations, we find it necessary to cut back on hiring, marketing, and so forth.

Trimming the fat?

Cost restructuring, cost-cutting, whatever you want to call it. This is often a natural knee-jerk reaction to uncertain economic times. Even in our personal lives, when we feel things are bound to get bleaker, or when they actually are, we tend to trim our costs first.

Larger organizations will often start by reducing headcount. This is simply because, believe it or not, among your workforce is where you find the most room for cost reduction.

Small organizations and startup companies will first go for the layoffs option and then move their way towards the direction of marketing budgets - among other areas.

While reducing your overhead is and should be a natural place to start as you try to winterize your business, I would caution against trimming your budget to the point where your Research and Development (R&D) efforts suffer unnecessarily.

Remember, every storm has its end. One must take advantage of an economic downturn - if one's budget permits - to fill your pipeline with new products and initiatives that are sure to put you ahead of your competitors once we know a recovery is imminent.

Core strength

During the toughest periods of our lives are when we get to know what we are truly made of. My thing is that if your business can make it through a period such as the one we are having, then you know you have a viable business model, and a great team; and you are certainly the one to lead your organization.

These are times to truly figure out the core value of our product and/or service offerings.

Be bold. Try to find as many pivots- through customer feedback and internal data - as possible to help you streamline and perhaps even reimagine your business model.

I am seeing too many entrepreneurs - ones who were riding high during the post-lockdown boom - now throw in the towel when things get a bit harder. Outfits like Peloton and Netflix now find that a reorganization of their business models might be prudent.



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