Business Lessons Learned During Past Recessions
I have been through 3 major recessions with 5 businesses I started and each time, I learned something new that helped me survive the next downturn. With this “pandemic” recession, it appears that I may have finally taken all that experience and learned what to do during a recession. I would like to share with you what I have learned so that it may help you and your business survive and maybe even thrive during a downturn in the economy.
Expect That a Recession Will Happen and Plan
I am a planner by nature. So it’s no surprise that when I sat down to write this article about surviving a recession the first step I wrote is to plan to survive a recession before it ever happens. How many business owners do you know who really thought about what they would do when a recession hits? Yes, when not if. I did, but I admit that with each recession and business I owned I thought much further in advance about what could happen to the economy or my industry.
If you are reading this article during the “pandemic recession” then I am sure you are thinking “well this doesn’t really help me right now, does it”? I would agree that planning or at least thinking about what you will do before a recession is futile now but planning your next steps during this pandemic maybe some of the most important steps you can take.
I love building and running businesses. It has been everything I always dreamed it would be. It is super hard and very challenging but extremely fun. The areas that I seem to enjoy the most in building a business are planning, executing, reviewing & replanning. It seems that with so many unpredictable twists and turns that a business owner has to navigate, there is one constant -change. Experiencing one of these sudden changes often snaps me into focus so I can use the experience to survive/thrive next time.
Let’s take one of my past businesses as an example. I owned a company called HEALTHCAREseeker which placed Registered Nurses on long term temporary assignments throughout the United States. HEALTHCAREseeker was the third company I started and I started it because I thought it would be recession-proof. HEALTHCAREseeker.com grew to $7 million in sales in 5 years and made the Inc 500 fastest-growing companies list until the 2008 (“banking crisis”) recession hit.
Before I started HEALTHCAREseeker.com I thought the industry I was entering would be recession-proof but as it turned out I was very very wrong. After it was obvious the recession was going to affect my industry I immediately cut my expenses, made sure I didn’t lose any more money, and went to work on building a stronger company. One that, when the recession was over in what I thought would be 18-24 months, put us in a stronger position. At the time I still felt my industry was a good one and that some of my competitors would get out of the business leaving us with more work.
What happened was that the industry went from a $13 billion dollars to a $7 billion industry and even though the 2008 US economic recession lasted 18 months, my industry had a recession that latest for an additional 5 years. Because of the lack success over those five years, how small my staff had gotten, and the uncertainty of how much longer the industry recession would last, I decided it was time to move on to another business. After 4 years of trying to wait out the industry recession, I just couldn’t take it anymore and I decided to sell the company for peanuts.
There were two major things I learned in the 2008 recession. One was that planning reduces your risk of failure but it doesn’t eliminate all the risks. As much as I still believe you need to plan, events do happen that are outside of your control. The other thing I learned is that when a recession happens, think about how long you believe the recession might last and double or triple that expectation, then plan from there.
In my existing business, Financing Solutions, my business partner and I talked often about what we would do when a recession hit and when the pandemic recession came, we were quick in implementing all those cost-saving measures we talked about and it saved us a lot of money.
Consider Closing Your Company Down
My writings are usually based on my experiences because I believe one can learn a lot more from people who have actually lived through events. I also believe that it is important for me to write about things that are not commonly discussed.
If you don’t love your business or if the future isn’t bright, it might be time to consider closing your business down and moving on. Many times I have seen business owners stay in business because they feel scared or unsure about what else to do.
Over the last 25 years, I have had to close down three companies and each time I started a new business I learned from my past businesses and built bigger and better companies. I went from building a $1 million business in my first businesses to (2) $25 million businesses and my experience has allowed me to be more confident that I will make money during a recession or expansion.
Another example of when I decided to close-up shop was a company I owned called EXPERTseeker. EXPERTseeker placed long term temporary technology consultants into Fortune 500 companies. It was a great business – the profit margins where excellent. However, while running the business I knew that there were going to be industry changes that would cause the industry to become very challenging in the future. With EXPERTseeker, I knew that we had caught a wave of demand and that eventually, that wave would end. So when the 2001 “9/11” recession hit I knew our great run was over and it wasn’t going to come back. I quickly cut my expenses and started looking full time for the next business to start. EXPERTseeker went on to earn good profits for a few more years, but I was right, the industry crashed and was never the same. I used that time wisely to start my next business.
Don’t be afraid to move on and to start another business or even consider working for someone else again. You can always go back to being self-employed and contrary to popular beliefs that entrepreneurs can’t work for others, I have a number of former business owner friends who are very happy working as an employee again.
Start Another Complimentary Company
Starting additional businesses has been one of the best moves I have made in my career and there have been two situations where it gave me time to ride out the bad times.
One of the businesses I started wasn’t started because of my fear of a recession but because I wanted to reduce my tax burden. My company EXPERTseeker was doing tremendous and when my accountant told me that I had to pay almost $200k in taxes, I knew I had to have a better tax strategy. I bought a 10,000sf dilapidated commercial building and fixed it up. I rented 75% of it out to other companies and I used the rest for my business. Over the years that building allowed me to not only have more tax write-offs but also a steady stream of income. It also allowed me to use the building as collateral for a line of credit and to give me flexibility as my companies expanded or contracted.
The second additional business I started has proven to be my best move. My business partner and I were worried that the financing company we owned, Financing Solutions, which provides small business lines of credit, would be adversely affected during a recession, a prediction proven true with the “pandemic” recession. So we began to look for a business that we again thought would be recession-proof. We came across an industry that buys life insurance policies when a loved one passes away so we started Elite Funeral Funding. Elite has turned out to be a fantastic business during the pandemic and a good compliment to the downturn we are experiencing with Financing Solutions
Learning to Be a Good Entrepreneur Takes Time
The number one goal is that entrepreneurs want to be self-employed for the rest of their lives. What I have learned is that every year I am self-employed I learn more about building a company and surviving recessions.
Living to fight another day is a good lesson about running a small business because with each passing day, you get better at being an entrepreneur. However, don’t stay in business at all costs to both your finances and your health.
One of the advantages I have had is that early on I built a company that built my net worth and then I had passive income from my commercial building. Having some money as a buffer has allowed me to weather recessions and move into starting new companies but it was never easy.
I was lucky enough to become good friends with a competitor of mine and his company was at $40 million in yearly revenue. My company at the time was $7 million. When the 2008 recession hit his company dropped to $20 million while mine dropped to $1 million. Although the ratio of my drop was bigger the significant part is that my friend’s company had more size to play with. I ended up closing my company whereas my friend ended growing his company to $80 million a few years later when the industry recession finally ended.
Could I have stayed in that business at that time? Yes, because I was still making some money, but after 4 years of constant struggle, being a super small business again, and some things I didn’t like about the business, I felt it was time to move on.
The important lesson here is to keep your business alive (as long as you are not losing money) for as long as you can because your company will get stronger and you will learn to be a better business owner.
Expect Various Business Cycles
As business owners, we often have a lot on our plate so we are more concerned about the now instead of the later. We also tend to be huge optimists. Gaining experience during various business cycles will help you survive future recessions and expand during future expansions. The experiences will be a lesson that will help you stay self-employed, built wealth, and reduce uncertainty. Hang in there, living through the ups and downs of various business cycles will help you grow as an entrepreneur.
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