5 Tips to Prepare Your Startup for a Recession

By Ellie Pigott

While a recession looms overhead, many entrepreneurs fear what’s in store for their startups and small businesses.

The Oxford Dictionary defines a recession as “a period of temporary economic decline during which trade and industrial activity are reduced” and in the last 160 years, recessions have occurred roughly every 4 and a half years. Meaning if your business plans to stick around, the likelihood you’ll have to endure one eventually is inevitable.

Although the word “recession” may sound dooming, these trying times have resulted in some of the world’s most successful and recognizable startups.

With these tips we’ll make facing a recession less stressful and help you gear up to come out on top.

1. Watch the Books

It may sound obvious at first, but for a company in its stride, it may not be top of mind. When you’re doing well it’s easy to ignore the nitty gritty financial details, but when you’re worried about the fate of your business, it’s time to pay attention.

This is the time to trim the fat and get lean.

Every cut counts, but you may be unsure of where to start and what to cut. A good place to begin is conducting a self audit. This allows you to see exactly where you’re putting your money.

Some easy cuts to start with could be subscription services your company pays for.

Depending on your type of industry, you may be able to save a few dimes in production. These saves can quickly add up, but be sure not to sacrifice the quality of your deliverable.

2. Re-Evaluate Your Loans

You would never wait and try to buy insurance until you’re already admitted to the hospital, and if you did, you wouldn’t be successful. The same goes for trying to renegotiate your loans during a recession.

Ideally it’s best to talk with your lenders before a recession is even in the air. However, with a recession looming, it’s better to speak with your lenders beforehand and try to work with them for a better rate.

Remember, you’re on the same team and neither of you wants to see your company default.

If you’re looking for more personal financial security, opening a business card instead of using your personal account is a great way to rely on loans without any effect on your personal credit score.

It’s important to remember these things take time. That’s why talking to your bank as far out as possible gives you the best opportunity to get a hold of your finances before a recession starts.

3. Diversify Your Services

You might think tough times call for sticking to what you know. While that can be true, it’s not always enough to keep you afloat.

Many great companies started with different intentions in mind. Take the 50 billion dollar company Shopify for example, they started as an online snowboard retailer and now run proprietary e-commerce all over the world.

Think about ways you can use your existing infrastructure to provide alternative services to your customer.

This not only allows for multiple streams of revenue, but it mitigates your risk in the event the market takes a turn.

In some markets, diversification can also mean differentiation. If your company can continue to innovate and grow, you’ll have a huge advantage on your competition.

4. Focus on Existing Customers

In a recession everyone will be trimming the fat, don’t let that fat be your business.

Take the time to talk with your customers, listen to what’s going well and what’s not. At the very least this will show your dedication to their business and ideally form a personal connection.

Holding on to your existing customers during hard times will allow some consistent cash flow while you focus on small steady growth.

While building these relationships, you may hear patterns begin to form. Take these to heart and let them mold the leanness of your business. There may be areas of your business you didn’t realize could be trimmed with little to know effect.

5. Don’t Stop Marketing

When looking for ways to save on cash, marketing might seem like an easy cut. But don’t be quick to jump to conclusions.

Marketing is the gas that powers your sales force. If you’re still not convinced marketing is worth the money, start tracking your marketing ROI.

Cutting your marketing budget without doing any research could lead to an unexpected drop in sales.

If you’re still looking for a way to save a few bucks, try committing more energy to your content marketing campaign. Content marketing refers to things like your social media, blogs or other resources on your website. These can be great ways to attract customers organically. On average, this type of marketing generates over three times as many leads for a fraction of the cost.

Before jumping all in, try experimenting with content marketing while still supporting your outbound marketing efforts. This will allow you to see what works and what doesn’t before allocating more resources.

Looking Forward

Regardless of the condition of the market, balancing the books, re-evaluating your loans, making the most out of your existing infrastructure, forming valuable connections with your customers and pinpointing what’s effective in your marketing, are always important.

The most successful way to make it through a recession is by being proactive, not reactive. By focusing on what’s working best, doing business in a start-up doesn’t have to be scary.

If you’ve got specific questions about how to help your startup succeed, reach out to us at peyton@tractioncapital.com .