It’s been roughly 15 years since the United States experienced the recession that began in 2007 when subprime mortgages caused a financial disaster. Although this was a long time ago, the economy is taking another bad turn, primarily caused by the COVID-19 pandemic. After thousands of businesses have closed across the world, business owners are wondering what they can do to avoid the same fate.
The short answer is that not every business will survive in tough economic times, but many businesses will, and some will even thrive. There isn’t a simple answer, but this article will explore the factors that make businesses successful during a bad economy.
1. They sell what’s needed during a recession
In a recession, people still have basic needs and you have a better chance at surviving if your business provides those goods and services. For instance, people will spend their money on food, water, and healthcare/medicine first. After that, Investopedia says it’s accountants, home improvement, property management, and bargains.
The pandemic has made it difficult for unvaccinated people to buy necessities in certain areas and that might be to your advantage. For example, if you run a convenience store, you’ll get business from unvaccinated customers who can’t shop in big grocery stores that only allow vaccinated customers to shop.
If you’re currently thinking about launching a new product, consider launching something that will be needed during a recession. Go through all the usual steps for identifying and testing your market, but also consider tweaking your product to make it as recession-proof as possible.
For example, if you’re running a mail center, start selling necessities like toilet paper, paper towels, basic canned goods, and grab-and-go snacks.
2. They go online to eliminate real-world expenses
Running a business with a physical presence is expensive. How much money do you spend on rent, utilities, cleaning, and various forms of insurance? Imagine being able to eliminate most of those expenses by operating entirely online.
You might be surprised to learn that Airbnb and Uber launched their businesses during the 2007-2009 recession and have been thriving ever since. While these businesses have a real-world component, they’re actually operating from a mobile app that does nearly all of the work.
If you can run your business completely online, it’s worth making the move. By eliminating expenses you’ll get to keep more of your profits. Even though you’ll also lose some tax write-offs, you’ll still end up with more profits when all is said and done.
3. They have the capital required to take a big hit
Some businesses have enough capital on hand to carry them through tough economic times. During the 2007 recession, many major brands suffered big losses, but had enough capital to absorb the hit until it was all over. We’re talking millions of dollars lost.
Most small businesses won’t have enough capital to survive taking a big hit like that. Unless you’re a major corporation like Pepsi or Hamilton Beach, you’re better off adjusting your business model or going online to cut expenses.
4. They close temporarily
Instead of closing permanently, some businesses close temporarily. If this is the route you take, you’ll need to start mostly from scratch when you decide to resurface. For example, you’ll need to find a new location and you’ll have to set everything up inside once again. You’ll need to hire staff, get inspections, and restart your marketing campaign.
Closing temporarily isn’t necessarily the easiest strategy for new businesses, since starting over will require generating a customer base from scratch. However, if you’ve established a likable, well-known brand, many people will be eagerly awaiting your return.
5. They relocate
Sometimes the economy is better somewhere else simply because of fewer taxes and cheaper rent. Many businesses end up relocating during a recession for these reasons. For instance, the cost of living is 116% higher in San Francisco, CA compared to Lexington, KY. You can expect to pay thousands of dollars more each month just for living in San Francisco.
If you’re located in an expensive area, every dollar you save by relocating is an extra dollar in revenue. When the economy gets tough, being in a less-expensive area will mean you’ll be able to survive much longer and you might not even be all that affected.
Don’t let a recession get your business down
Just because the economy isn’t doing great doesn’t mean your business can’t thrive. You may have to make some adjustments with your products and services, or you may need to relocate. Either way, you’ll have a better chance at thriving by learning from past recessions.