Why small businesses shouldn’t fear recession
If there’s one thing I’ve learned while working deep within the digital tech world, it’s that during tough economic times small businesses are always on the front lines.
You might be a small venture worried about competing with the large-scale budgets and customer bases of bigger brands. Or maybe you’re thinking about starting a side hustle to help relieve some financial pressure. Whatever your situation or plans, downturns always bring unique challenges to duck and weave through.
Fortunately, tucked away in my top-secret file of contacts and sources, I have a network of successful small business owners willing to spill the beans about running and starting businesses during times like these.
From international business mentors to catering entrepreneurs in super-hip Portland, Oregon, I went undercover and got proper advice from the small businesses leading the charge against recession.
First things first – don’t panic
Nothing says impending economic downturn like a flood of terrifying headlines and squabbling financial ‘experts’. The important thing for existing businesses especially is not to panic and make rash decisions. Don’t get swayed by negative news coverage.
As Stefan Thomas, owner of global networking organization Connect Network, told me:
“A lot of the impact, actually, will be mindset from the constant barrage of bad news on the TV. I’ve already seen businesses publicly offer discounts before we see any real impact.”
Karen Skidmore, who provides business coaching and growth strategy for service-based business owners, backs this opinion. “Many small businesses may be in danger of making knee-jerk decisions, particularly over prices.” Karen also warns that this approach can actually create a domino effect of unsustainable business models:
“When emotions run high, prices are often the first things to drop in a bid to win business, which can then spiral out of control.”
Unique events are also shaping the current situation very differently from the last recession, adding extra worry for many. For example, the war in Ukraine is impacting food and energy costs across Europe. The downturn there isn’t just being played out across a background of big numbers and charts. It feels wrapped up in global events and practical changes that people can see and feel more acutely.
As Helen Elizabeth Evans, owner of innovative UK-based business consultants, Hands-on-Business, put it:
“I don’t think my clients took the last so-called recession seriously. It proved to me that much of it is all just perception. The problem is this current situation is much more obvious to everyone, so likely to create wider cause for concern and impact.”
Of course, none of this means you should sit around doing nothing. It’s just important to establish the difference between being proactive and panicking to snap decisions. In fact, there are many reasons why small businesses actually have a headstart on bigger competitors during a downturn.
Why small businesses have an advantage
It’s easy to feel like the bigger players are holding all the cards during a recession, but as Sara Price, owner of marketing and business training provider Actually®, explains, that’s not always the case:
“Smaller businesses are nimble and adaptable, with fewer overheads. At a time when clients are increasingly cost-conscious, that flexibility can be hugely attractive. Plus, we are often more entrepreneurial with less bureaucracy and a more open-minded approach to risk.”
So it’s like a supertanker vs. speedboat: one might be bigger and more valuable, but the other can change direction exactly when it needs to. Small businesses can pivot and launch entirely new products and ventures with much greater agility.
Sara goes on to mention that “Smaller businesses are often closer to their customers and better at building relationships that feel personal – inspiring loyalty and advocacy.” So you may have fewer overall customers as a small business, but more of them are likely to be loyal, which can be a vital consideration when getting through tough times.
But how can you make sure what your offering connects with customers the right way?
Know your benefit and value to customers
Most customer needs don’t simply disappear during a recession. They just come under the spotlight more. People are looking for real value. Not just in terms of cost, but in necessity too.
As online marketing and copywriting strategist Veronica Pullen puts it: “If your product is not perceived as valuable or vital, it will be more difficult to make sales during the recession.” It’s about making sure what you offer connects to customers at a fundamental level. This can be the difference between ‘liking’ and ‘needing.’
Helen from Hands-on-Business spells it out:
“It is inevitable that any businesses selling nice-to-have products will suffer first. If you have something people in troubled times absolutely will want/need, and you know how to position it, it’ll sell.”
Jennifer Page, owner of Affinity Academy, goes further, suggesting that re-assessing your products and services will give them an extra health check before the race is well and truly on:
“I see it as an opportunity to assess what we do and refresh things to move forwards. To go and REALLY listen to our members’ needs and adapt to serve them better. It’s an exciting catalyst to switch things up and rise to the challenge.”
So it’s about offering a deeper sense of value and benefit — but what are more practical ways to find and show this to customers?
How to find value opportunities
The ability to show value is vital for both existing and new businesses. So let’s take a look at how existing small businesses can actually do this in a recession.
Listen to your customers
Following on from Jennifer’s previous point, it’s vital to understand your customers and their changing needs. Just as a recession can affect you, it can affect them.
Using her experiences during one of the last downturns, Karen made sure her coaching and strategy business understood the changing landscape:
“We dug in deep with our clients…put on extra calls and clinics to support the huge changes that many had to make to their businesses.”
“Embrace collaboration, community, and connection,” comes the advice from Sara back at Actually®, who advocates even tighter customer attention:
“I maintain a very close relationship with my ideal clients at all times. I nurture strong relationships, checking in to see how they are, what they need, and what their fears and hopes are.”
Of course, constant customer communication may not be possible for all types of businesses, but the digital world is nothing if not resilient. There are a host of other ways to gauge customer satisfaction and needs.
Customer surveys, for example, are a great way to find out more from customers, alongside tactics like follow-up emails — just make sure they look and feel professional. Other areas to explore are focus groups or starting a social media community on platforms such as LinkedIn or Facebook. There’s always a way online.
As with nearly all businesses, when times are tough, it’s easy to put costs first, but the overwhelming advice from my network of small business leaders is clear — put customers first, and figure the costs out accordingly. Don’t fly blind into a downturn. As Karen re-states: “We have to make sure we keep listening to what our marketplace wants to invest in.”
So, once you know what customers want, what next?
Refocusing, expanding, or adapting your services
Aligning an existing business with changing customer needs will probably mean a pivot of some sort, but how far you need to turn is never clear-cut to begin with. A good starting point is to think about whether you need to:
- Refocus your offering?
- Expand your offering?
- Adapt your offering?
Helen from Hand-on-Business advocates a clear-cut approach, especially when checking if you need to refocus your attention on a select group of your products:
“Stick to the Pareto Principle. Invest more time, energy, and money in the 20% of your business that brings in 80% of your income.”
On the other hand, Stefan from Connect Network has made sure to have several extra revenue sources, such as “speaking and consultancy work” on top of his network group — expanding to safeguard his income.
Jennifer from Affinity Academy has taken the option of adapting key services. For example:
“We’re concentrating on continued class quality and personalized care, but also enhancing the development routes and opportunities through the club. Plus we’re looking at improving the membership software for better access and easier bookings.”
There are other ways too, especially if you try to think laterally. Value can be found in the most unlikely places… even the competition! Husband and wife team Ronald & Franziska San Pedro are exploring this unusual angle with PDX Dönerländ, their Portland-based food cart business. They’ve actually looked into “group buying deals with other food cart owners for common goods we all use.” So there are always ways to find new approaches.
In the end, you’ll need to decide the right way for you — even if it’s starting afresh with a new venture (more on that later). But don’t be afraid to adapt and invest in your services, even if it comes with some initial outlay — such as Affinity Academy’s software. Investing in your customers’ experience is investing in (and often safeguarding) your future.
And speaking of customer experience…
Get your marketing spot on
When you’ve been geekering (yes it’s a word) for as long as I have, you see a lot of financial ups and downs. One thing that nearly always shrinks with the downs is marketing spend.
As Sara from Actually® points out:
“So many business owners make the mistake of cutting back on things like PR and marketing during a recession, but all of the research shows that those who maintain their spend – whilst also operating proper cost control – are more likely to survive the downturn and thrive in the aftermath.”
The main thing is to be smart about it. Focus on your most effective methods. “No investing in anything new and untried” is Helen’s approach. Don’t throw money at your marketing to see what sticks. Just get the basics right.
That last point also reminded me of one of Helen’s earlier remarks:
“If you have something people in troubled times absolutely will want/need, and you know how to position it, it’ll sell.”
The fact is, that positioning and communicating your value is massively important — especially if you’re updating or changing your main offerings. This is where websites come sharply into focus. Jennifer from Affinity Academy is even investing in a new website to make things “clearer and easier” and to “help us attract new members to continue growing.”
If you’re an existing business, you may not be thinking about building a new website from scratch. But it’s 100% worth taking a look at updating your homepage messaging and discovering a few easy ways to optimize your site’s design for more sales. That’s just a given.
As Stefan from Connect Network says, above all:
“Make sure your customers and prospective customers really understand the value of what you offer.”
You can also look to add things like coupons, loyalty programs, free trials, and introductory offers to help spread the word, show extra value, and keep customers coming back. But fundamentally your messaging and marketing must convey the core value of your business. What do you offer that the competition doesn’t? Why do people need your business in their life?
This process is much easier for small businesses, with their ability to adapt to changing customer needs faster — and even launch new ventures and ideas quickly when needed.
Starting a new business successfully
Starting a new business in a recession might seem counterintuitive — or just plain mad — but my network of small business leaders disagrees.
As Veronica says: “There is never a bad time to start a business, per se. There is always opportunity.” In fact, difficult times can actually be great for launching new ventures, as Veronica goes on to highlight:
“Plenty of new businesses were started during the pandemic, sanitizers for example. They did very well because they were solving a problem.
Or as Stefan simply puts it: “When it rains, sell umbrellas.”
Both Airbnb and Uber were born during the 2008 ‘crash’, and on a smaller scale, Sara identifies that “after each of the last few recessions, we have seen a surge in entrepreneurial start-ups and small business growth.”
In fact, as Karen points out, startups large and small can be a major positive in times like these: “startup energy is lean and agile, and that’s what I believe you need to be as we go into a recession.”
So in truth, there’s no time like the present to get going with a new small business.
Ready, set…innovate
Choose your new idea carefully, though. The need to solve customer problems is important, but as Jennifer also points out, pushing things further can be key:
“Know your industry, but also re-look at it from different angles. Question and challenge what’s always been done.”
Karen echoes this idea of searching for fresh approaches:
“Don’t be afraid of creating something new if that is what the marketplace wants.”
It’s clear that disruptive thinking during global recessions has had amazing results, but we can’t all start billion-dollar unicorns. Karen uses her own experience during the last recession to emphasize the importance of not overstretching yourself:
“I was working hard and constantly launching new product ideas. Long term though, I wouldn’t recommend this approach, especially if you are juggling family and midlife like I was then.”
So you may want to consider starting with a side-hustle business first. As Sara points out, they can “be a good way to test the water first without eschewing the safety of a regular salary to cover the bills.” This will give you more personal and financial balance. You can always take your side hustle full-time later, when the time is right.
Run the numbers
No one’s asking you to use up all that amazing startup energy on spreadsheets, but you will need to burn off a few company calories by running some numbers.
Karen leads off with a safety-first approach:
“Do your commercial due diligence. Even if something feels right, this is not the time to throw caution to the wind. Do your financial costings and make sure you are putting money aside.”
Despite being a startup, you need to be planning for the future. Sara gives us an insight into Actually’s financial planning:
“I ensure that we always have cash reserves in the business equivalent to between 3-6 months operating expenses… in the unlikely event that all revenue were to dry up overnight, we’d be able to keep the business and the team going.”
Sara also goes on to highlight the importance of “continuing to pay suppliers,” which raises an equally important point about understanding your future business network and infrastructure e.g. suppliers, transport, storage, technology, energy, and so on.
In short, get great deals from suppliers, but make sure you aren’t over-reliant on services that could be negatively affected by a recession — special materials and delivery costs, for example. As Helen points out, many ventures may go out of business because “they are unable to get products to deliver their products.”
But once you’ve done the strategic and financial thinking, you can start getting ‘real’.
Launch it right
Starting a business is an exciting time. You may already be thinking about finding the right business name, designing a logo, or even brainstorming your image and branding. Where it all comes together, though, is your website.
If you’re thinking ‘do I need a website?’ The short answer is a resounding YES. It’s your shop window to the world, and your checkout too. Building a website will be fundamental to your success — trust me, I’m a geek.
Do your research, though. Just like your future customers, demand value from your digital service providers. Not just in terms of cost, but in customer support, add-on services, and extra resources to help you along — make more online, for less.
Once you have the technology and basics in place, you can start thinking about marketing your business and products. Veronica offers some extra insights here:
“Offer a high-value free-to-access resource or low-cost online product to rapidly encourage your social media network to join your email list. Use the social media platforms to network with your potential customers.”
Sara’s final point here once again comes back to value:
“Learn how to write compelling sales copy that positions your brand as a leading authority in your niche and clearly communicates the value of your products and services.”
Most importantly, though — have a vision and a plan.
What it really comes down to…
Running a successful business during a recession is also about running a business smartly all year round: being smart with your products, smart with your planning, smart with your marketing, and smart with your resources.
While the stakes may seem higher now, especially when launching a new business, the rewards can be much greater. As Sara from Actually® learned during the last recession:
“If you have a business model that works during recessionary times, you will FLY when the recession ends!”
But I’ll leave the final word to Ronald and Franziska from PDX Dönerländ:
“No matter what it is you do, make sure you do the best version of it that you can possibly do.”
Good luck out there!
