Inflation. Recession. There’s no escaping talk of an economic downturn but how do you separate fact from fiction? How do you know what’s just hype designed to make you buy? And what’s actually helpful? And most of all, what do you really need to know?
In this episode, we’re getting real about a recession with a look at the actual numbers, the complete BS the online business world is currently spinning, and what you can do in your business so you’re prepared.
Before we dive into this episode, I want to preface this with a few things that will provide some much-needed context. First, I want to tell you point blank I’m not an economist and I don’t have a crystal ball.
What I share with you today is based on three specific things:.
Not My First Recession: I’ve been through this recession stuff as a business owner before. And in my career, I’ve been around long enough to see this economic cycle multiple times since the late 90s. So unlike the despicable people I’m seeing on social media trying to position themselves as an expert and telling you that you can “recession-proof your business”, I’ve got some basis for what I’m sharing.
My Degree is Finally Useful: I have a degree in politics and did my fair share of political economy courses. Knowing how these things work is literally what I spent four years of my life and thousands of dollars to learn. I often think my degree was a waste of cash (because, student loans) but it does come in handy from time to time.
Lots of Research: I did hours and hours of research for this episode. I didn’t want to contribute to the noise (or should I say hype and drama?) around recession talk for service business owners. Around here, we deal in facts, so throughout this episode and essay, I’ll cite many sources so you have further sources to dive into.
Listen Now To This Essay On The BS-Free Service Business Show
What Should I
A recession is most likely coming, so as business owners we need a realistic idea of what to expect.
Here’s the good news, if you’re thinking of the 2008 market crash when you think about a recession, that’s not what’s being forecasted. There are different types of recessions, and 2008 should be treated as a once-in-a-lifetime event.
According to Morgan Stanley, the 2008 recession was driven by excessive amounts of debt, while this time it’s the result of “excess liquidity” resulting from “extreme levels of COVID-related fiscal and monetary stimulus pumped money into households and investment markets, contributing to inflation and driving speculation in financial assets.”
Think of this as a natural (however unfortunate) cycle in our capitalist system. (Like it or not, it’s happening so I’ll save my anti-capitalism talk for a different discussion, as we all need to get through this thing.)
Knowing that forecasts are predicting a mild recession, you’re likely wondering what that means for your business. Honestly, that will be based on a number of factors, especially your target market.
Corporate Clients: B2B and B2C
If you work mainly with corporate clients, the labor market is in your favor. One of the big reasons the potential recession is predicted to be mild is due to the current job market. That’s not going to likely change with a recession.
Right now, unemployment is low overall as companies struggle to hire and the job market isn't showing signs of slowing down. Typically, employment numbers will dip with a recession, but given where we are right now there’s likely to be a delayed impact.
What that means for you is that if these businesses are your clients, they have open positions. They have work to be done that they may need to outsource as they can't fill that position, and/or want to hedge their bets and not take on a full-time hire.
The other thing to watch for is what specific industry you work in and if it’s durable in the event of a recession. Tech companies like the ones my agency works for are relatively durable. This was definitely my experience in 2008 as they still conducted business, and benefitted immensely from monthly recurring revenue.
However, sectors such as travel, retail, and others that are dependent on disposable consumer spending are likely to be impacted. It’s worth noting that the key driver of this economic downturn being “excess liquidity”, not debt, may help lessen the impact to those sectors.
Business to Entrepreneur: Online Business
For the online business market, the potential impact of this is much less clear as we don’t have entirely accurate market data for the business-to-entrepreneur or B2E market.
Anyone who says they do is full of it, and what I’m going to share with you next is based on being in this industry for the last 10 years through many changes, along with a little bit of extrapolation from research I could find.
Here’s what we do know. Research from Hunt and Keifer 2017 documents the rise of the B2E market, and pegs the “entrepreneurship industry” as being a $13 billion USD industry.
Honestly, this number has likely grown dramatically, especially in the last two years thanks to the great resignation. More people than ever are starting businesses, and Upwork’s 2021 Freelance Foward report gives us an indication of how the market for “self-employment” continues to grow.
A few notable findings from the report:
More professionals are considering freelance work. 56% of non-freelancers said they’re more likely to do so in the future.
44% of freelancers earn more than with a traditional job. This number is up from 39% in 2020.
While many entrepreneurs and online business owners don’t identify as freelancers, this data indicates the larger trends around how people are looking for flexible ways to make money.
In the context of the B2E market, this means there’s a steady flow of new people entering the industry and more people to market and sell programs, courses, coaches and other offers to. As a result, the entrepreneurship industry is alive and well.
That said, if you sell to other entrepreneurs, there are several factors to consider with a recession.
It’s not uncommon for newer entrepreneurs to use personal savings to cash flow their purchases to help them grow their business. With a rising cost of living, people may not have the same amount of personal savings or excess cash to tap into. If you work with newer entrepreneurs or people who are not cash flow positive in their business, you need to consider that they may not have the resources to invest in your offers.
For most of you listening, honestly, I’m less concerned about this as you offer services with actual value. My prediction here is that people making audacious promises about an “easy path to 6 or 7 figures” will continue to do so and victimize people who are experiencing financial stress or instability. They will continue to push debt as a way to grow your business as you’re investing in yourself and your future earning potential.
Their playbook is well-established, and they will amp up the anxiety and pressure to get people to “invest” in their scammy BS.
I do have some specific thoughts applicable to all of us when it comes to planning for a recession and what we can do to prepare, but this is the necessary context for that part of this discussion.
If you work with more established entrepreneurs, you may find that they’re more conservative with their cash. They may be waiting to make investments or taking longer to decide to spend that money, which means you may need to shift your audience, offers or even payment plans to adjust.
The final part of this is that the online business world is shifting slowly and more and more people are tired of the manipulative marketing and sleazy sales practices that abound. As someone who’s been talking about these things since 2015, I’ve never seen more interest and/or willingness to take a hard look at these status quo “best practices”.
I don’t think these practices are going away, in fact, they’ll likely intensify as promises get bigger and bolder in light of financial uncertainty. What I saw in 2020 was definitely a good indicator of the level of BS we should all be expecting.
For established entrepreneurs, they’ve been around the block and they’re tired of this crap. As they get more experienced (and likely have been burned) they’ll be more discerning about who they work with and how they spend their money.
They’re increasingly jaded which means you need to be able to clearly communicate the value you bring and be honest about the results you can help them get. You can’t continue to rely on things like income claims and trumped-up testimonials and expect people to buy from you.
In the last couple of months, I’ve seen a lot of people in the online business world claiming they can help you weather the storm of a recession.
They can help you make money no matter what. They can help you make this economy work for you. And my personal favorite, they can help you recession-proof your business.
These clowns ???? are playing on your insecurities about the economy and using it as a way to get your attention. What they’re selling is the SAME damn thing they’ve always sold with a new recession-era spin on it.
It’s laughable in many ways as so many of these people don’t even know the fundamentals of business, let alone what’s happening with the economy. They didn’t have a business in 2008, and they’re simply using it as a way to plant seeds of anxiety so you’ll buy their offer.
As you know, I’m all about action. So I’m not going to promise you that you can recession-proof your business, but you can use what I’ve shared to help you make decisions now so you’re planning for what may come.
Here are some specific actions for you to consider:
Get Your Money Handled
If you’re plagued by anxiety over a potential recession, the most powerful thing you can do right now is to get your money handled. You need a baseline budget with your revenue and expenses so you know exactly what it costs to run your business, what investments you may (or may not) make and what you need to make each month.
Even a breakdown in a notebook will do. And if you don’t like what you see, it’s better that you have factual information so you’re operating from reality. When we’re ignoring the money basics, it’s easy to make decisions out of desperation or denial.
If your business is in a position to do so, start building up your savings. A little extra put away for a slower month is never a bad idea! Conserving cash now won't hurt because if you don’t need it, you can use it later as a bonus or something else.
And if you’re not in a position to do so, don’t panic, this is a “nice to have”, and it may not be realistic for each and every one of you.
Build a Cash Buffer
Your immediate reaction to talk of a recession may be to decide to stop spending any money on your business. Honestly, that’s likely not realistic for many of you as you need tools and tech to run your business, along with some type of support. If you have the means to invest in things (because you know your numbers) decide based on your specific needs.
This isn't the time to invest in things because they’ve made a huge promise about how much money you’ll make or the value of the connections you’ll get in the group. Or to hire a bunch of team members speculatively hoping they’ll be a fast way to help you generate more revenue.
If you’re not sure what questions to ask to invest with a critical eye, you can check out an episode I did that gets into everything to consider.
Look at Your Leads
How you get your clients should not be a mystery. Start by looking at the patterns with your new clients. Where do they come from? How many do you get? How many end up working with you? How do they find you? What are they buying?
Those patterns can turn into predictable streams of income if you follow them, and again, having concrete data can help you make solid business decisions.
Assess Your Target Market’s Durability
For your target market, if you’re working in a segment that already seems slow compared to past years, or that’s likely to be impacted by lower consumer spending, you may want to make a shift now.
The key thing is to assess its durability. How can this specific market weather a recession and what’s likely to happen? If you work in an area like travel that’s likely to see a slowdown, you may need to pivot your focus. However, if you work in a market such as technology that’s relatively durable, you should be less concerned.
Take the time to read up on what’s happening within your target market and what’s being forecasted so you have a heads up as to what may happen.
If you're in a market that’s expected to be more impacted, keep in mind that you don’t necessarily need to change industries entirely but it may be time for a new offer, different marketing strategies, or other tactics so you’re ahead of the curve.
As a reminder, if your market segment is struggling to find people to fill roles that you can handle on a contract or outsourced basis, that’s good news for you. That was definitely the experience I had in 2008 and 2009 as my clients stopped hiring, but they still needed help with their PR and content marketing. (Plus, our team has had that experience already this year as a client wasn’t able to fill a specific role and we’ve stepped in to bridge the gap for them.)
Manage Your Expectations
Honestly, managing expectations is something we should all do right now. None of us has a crystal ball, but getting real with ourselves now is one of the best ways to prepare.
When I say to manage your expectations, I don’t mean you should abandon your goals or your business.
What I want to encourage you to do is understand that your clients may take longer to decide than normal. They may require more hand-holding in the sales process. Or their budgets may be different.
What you’ve come to expect as “typical” in your business may need to shift. Being flexible and agile is part of being a business owner.
Adjust Your Offers and Pricing
During this time, we may need to adjust your offers and your pricing. Be willing to look at everything and adjust as needed.
For your pricing, if you’re not selling an offer consistently that’s an indication that you may need to adjust. It may not be the right price point for your target client. Or you need different positioning to justify the price for that offer. Or you simply may not have enough people coming through the door that have the means to pay for that price point.
Does this mean you should drop your price on everything? Absolutely not. I simply want you to think about what’s happening in your business today and get curious. Being open to making tweaks to your pricing and not holding so steadfastly to a rigid set of rules may be what you need to sell more of that offer.
The same goes for your specific offers. Too many times we create offers in isolation from our market based on what we want, and we don’t consider if it’s what our clients want, let alone actually need.
If you’re not selling that offer consistently, consider why that may be. It may need messaging or marketing help. Or you may need to adjust the offer in some way.
And if you’re not selling enough of your offer, look at how you’re marketing it. Trust me when I say it’s easy to build it and wait for them to come. I’ve had a few of these offers over the years, and it wasn’t the offer per se, but my shitty marketing of it.
Talk to Your Team
If you have a team, don’t ignore the recession and pretend it’s not happening. Acknowledge it and let them know where you really are as a company. What are your plans? What may you need to shift or adjust in the coming months?
The key here is balancing transparency with creating stress for your team. What they need to know is that you have a plan and you’re not simply ignoring the news. You don’t need to detail every last little thing you’re thinking and create a panicky feeling where they wonder if they’re going to be out of a contract or job.
And if they ask about layoffs as a possibility, be honest if that’s a consideration. In 2020, my team and I had to have some tough conversations after we lost three clients in a single week.
At that time, my answer was that I didn’t think so, but I didn’t entirely know if we would need to make team changes. And I pledged to them that I would be honest and if we did need to make changes I would give them lots of notice. That may seem scary, but I’d rather they know and decide to make a move than to totally surprise them later.
You may decide to handle it differently, but remember you’re dealing with people’s livelihoods.
Think About Your Clients
If you’re reading or listening to this you run a business that works with clients, which is why it’s important to keep in mind that a recession impacts their business or company as much as it does yours.
No matter what type of business you run you can support your clients and influence the decisions they make during this time.
For example, if you’re an HR consultant and you have a client with an unrealistic idea of how hiring can help them generate immediate revenue, you can have that conversation with them. If you're a copywriter and your clients are seeing lower sales, you can factor in the bigger economic factors into what they should be planning for.
The name of the game is managing your client’s expectations and encouraging them to think critically about the potential impact of a recession on their business.
As we wrap up, if you’re feeling unsettled that’s to be expected, especially as this comes on the heels of so many global factors since the start of 2020, including COVID-19. What this discussion isn't meant to do is to stoke anxiety and fear in anyone, but rather give you a factual basis to work from along with concrete actions you can take in the midst of all of this.
Finally, do your best to ignore the pile of BS that’s likely to get worse in the online business world. There’s no coach or consultant or course that can help you recession-proof your business or guarantee you’ll hit big revenue numbers.
These predatory coaches and creators who make big promises aren’t going anywhere. My hope is that with each one of us that makes the choice not to succumb to their manipulative marketing and sleazy sales, they’re forced to clean up their acts in some way. Don’t fall for their hype.