How to THRIVE During a Recession
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Mr. Biz Radio: How to THRIVE During a Recession!
Unedited transcription of the show is included below:
(00:05):
Welcome to Mr. Biz radio, Biz. Talk for Biz owners. If you're ready to stop faking the funk and take your business onward and upward, this show is for you. And now here's Mr. Biz, Ken Wentworth.
(00:19):
All right. Welcome to the show. Another episode of Mr. Biz, Radio with me, Mr. Biz, Ken Wentworth. And,uyou're stuck with me for this one. We got a solo show today, today, but the reason we have that is we're gonna talk about a topic that I've been getting asked about. Ua lot recently, I've actually been interviewed a few times about this on other shows and,uthat's the big R word recession. Uand I wanna talk about several different things. So first of all, what is a recession? What's it look like? Ubecause I think there's a little confusion to that. Ubecause we've been very fortunate in that other than the pandemic in 2020 with, you know, everything kind of getting turned upside down a little bit there, we really haven't had an economic downturn since, you know, the 2008, 2009 timeframe.
(01:07):
When in reality, a normal business cycle was about five years over the last hundred years, a normal business cycle was five years. So you have five years of continual growth and then you have a recession and you dip and you start to come back up. So I wanna talk about that, but specifically I wanna talk about three different things to do, to prepare yourself for a recession. Not only a little bit preparing, but also what to do in the, in the midst of a recession. So we're gonna talk about, you know, the mindset and this is very important in this, in this order, right? We're gonna talk about the mindset, what you need to do, what you should be doing and how you need to reprogram your mind a little bit about some of the things you probably have heard in the past that will not serve you.
(01:47):
Well. we're gonna talk about operations specifically in your business from an operations perspective, what types of things should you be doing? What should be reviewing? What should you be changing? What should you be stopping et cetera. And then finally, cuz you know, Mr numbers, nerd was gonna pop his head out somewhere here. We're gonna talk about financials and some of the things that you should be doing financially within your business to again, ensure that you not only make it through a recession, but you prosper during recession. Cause there's a lot of opportunity typically in recessions. So with all that said, first of all, recession, you heard here first we're in a recession. There's a lot of people that are afraid to say that we're there. So the technical definition of recession is that you have two consecutive quarters where GDP declines. Here's the thing.
(02:38):
We've already had one we're in the midst of another and it's, we're not gonna climb out of that. So the, the, the trough that we're in, we're not going to get out of before the end of the quarter. So we're there. It's already there. I'm calling it a little early technically, but we're already there that said all good. No worries. So first of all, what I wanna mention is the, the the, the mindset around it. So a lot of people think of the recession and they think, oh my gosh, I might not make it. This is a terrible time. It is a terrible time. A lot of people are probably gonna lose their jobs. A lot of businesses will probably close. It's unfortunate situ situation. However, there are a lot of opportunities as well. And so what I wanna, I want to challenge you to do is to change your mindset around a recession.
(03:26):
A recession actually can be a huge opportunity for you personally, as well as your business. And I don't mean in a nefarious way. I don't mean you go around selling snake oil people and cheating amount of money and all that crazy stuff. Absolutely not. But what I mean is there's always opportunities. So don't be like the normal people, the normal people bating down the hatches and say, I gotta hold on to all my stuff and I'm not gonna spend money and I'm gonna lay people off. No, I don't want you to think like that. I want you to think of abundance. I want you to think about growing and expanding. And I know initially you might say that sounds crazy. We're gonna talk about this in not only the, the rest of this segment on mindset, but also in the operations and financial, what I mean by that and, and how that can, how the heck do I mean that, how do you, how do you expand during recession?
(04:15):
And I mentioned earlier, there's always opportunities. So I, I made a list here and this is just a very short list, but here's, here are the names of some companies that you may have heard of that were founded and started during recessions. There's a small company. You may have heard of them they're based in the Northeast, but they're actually in, I don't know, probably a hundred plus countries now, general electric. You may have heard of them. I don't know. Microsoft was starting during the recession. Airbnb was starting in, oh, was started in oh eight. Netflix was in, I think, oh, 8 0 7 0 9, right in that time frame, MTV. I mean, think of these brands and how huge they are now and the global impact that they have all had. All those companies I just mentioned are all 100% global. They're not even just in the us that they've been successful.
(05:06):
They've expanded globally. They were all started during recessions. You can go out and Google a list. I mean, there are, you know, of course, hundreds and hundreds of companies that were started and founded during a recession again, abundance and expansion mindset. You know, those guys that started those companies and girls may have had those ideas. They didn't have the scarcity. They didn't have the, oh my gosh, you know what? We're in a recession. This will never work. Let me hold onto the idea back burn. Let's get outta the recession and then we'll start it. No, no, no, no. That's not what they had in mind. That's not what they did. And so again, there's always opportunities around that. So the main thing I'm gonna challenge you with from, from our mindset perspective, as outside of thinking and the growth and abundance way of thinking is to take action.
(05:56):
So many people just refuse to take action. They look at it again, as they have to really bat down the hatches and really kind of zip things up. And again, that's the, the, the normal way of thinking about things, but you're gonna miss huge opportunities. Look, I'll tell you during the last recession in the oh eight timeframe, you know, I was working a time for JP Morgan and JP Morgan ended up expanding significantly. And this is where a lot of where I learned this from. And I saw it firsthand and was able to participate in some of this, that, for example, JP Morgan, during the last recession bought Washington mutual a big company, a, a big, another financial institution. And they got 'em for bargain basement price because they got into trouble because they were not prepared for a a recession in, in the economic downturn that, that ensued specifically with mortgages, et cetera.
(06:49):
And then they also bought bear Stearns, which was another financial institution, more so on the investment side. So Washington mutual on the retail side, on the commerce side, more the commerce side of things. We were able to bolt that company on for a very inexpensive price. We were able to buy bear Sterns at a very inexpensive price which was more on the institutional side where you're talking about investments and things of that nature. So it bolstered several different areas of JP Morgan, because we were prepared for a recession. We were prepared for an economic downturn and our competitors were not. And we're gonna talk about that a little bit more as we get further into some of this content about how to thrive during a recession, but that's an important lesson to learn because if we would've had to buy those companies, you know, and I think even there I say an infamous person, a lot of people don't like, and a lot of people love Donald Trump has, has said, and I'll probably butcher that quote.
(07:44):
But he said, you know, it's difficult to grow during. And when things are going well, it's easy to grow when things are not going well. And what he meant by that, which again, sounds counterintuitive is exactly what I'm talking about is that if you have the capital, you are able to expand when your competitors are not. And that's a huge opportunity to gain market share. Think about it. If your competitors are all thinking of that, Batten down the hatches mindset, they're not growing. Matter of fact, they're probably shrinking. So they're shrinking, you're seizing opportunities left and right, which now when the economy turns around and begins to climb again and begins to grow, what's that gonna do to your business? Your business is going to go through that roof while they're like, holy crap. It's, I'm recovering. Now I can finally do this. I can finally do that. They're way behind you. They're way behind because you've laid the groundwork to come out of the recession in a major way. So I huge things to think about, but mindset. That's why I'm mentioning this first. You have to change how you think about a recession. It is not a time for shrinking. No one, no one shrinks their way to success. Keep that in mind. We're gonna hit a break here and I'll see you afterwards. And we're gonna talk about operations and finances.
(09:01):
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(10:09):
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(10:21):
All right. Welcome back to the show time for Mr. Biz tip the weekend. This week's tip again. These things always seem to work out almost always. Coincidentally, this tip this week is take action. Success only comes through accent and execution. The road is riddled with flat squirrels who could not make a decision, do not be a flat squirrel, make a decision. And here's another related to making a decision and not being a flat squirrel. One of my favorite quotes, Yoda do or do not, there is no try. I don't let my kids say they're gonna try something. You're not gonna try it. You're gonna do it cuz you you're either gonna do it or you're not gonna do it. Don't tell me when I'm gonna try. Don't just make the effort, do it, commit to making it happen, commit to doing it and do it.
(11:06):
You might fail that's okay, but you did it. You didn't just try to do it. You actually did it. You committed and you made it happen. So another related piece to that taking action and not being a flat squirrel commit to something, make it happen. All right. So again, I wanna talk this week a little bit about how to thrive during a recession. So I mentioned this at the end and I kind of ran out a little bit of time there, but I want to emphasize one thing before I dive into some of the operational aspects of what to do to thrive during a recession. And that is keeping in mind again, maybe that'll help you get your mindset, right? Is that keep in mind, no one shrinks their way to financial success. It's never happened in the history of the world. You don't shrink your way to financial success.
(11:46):
You always have to be thinking in a growth mindset. So what, no matter what the economy's doing, thinking of ways that you can be successful and thrive, whether it's in a growing economy and a shrinking economy, et cetera. And so that's why this mindset is so important and it will set you apart from your competitors because they're not, most of them are not thinking that way and the ones that are, you need to keep pace with them because otherwise they're gonna grow while you're shrinking or staying flat. And again, when the economy rebounds, they're gonna be way ahead of you. Like I mentioned at the end of the last segment. So let's talk about operations here. So the first thing you need to do kind of obvious, but you wanna review all of your operations. You wanna look for opportunities. And what I mean by that is look for things.
(12:29):
I mean, literally go around and presumably during a recession, your volume may have decreased a little bit. So you may have a little bit of time on your hands as far as not just you as the owner, but also your operations manager, folks in the operations group is looking for opportunities of, are there things that we do that are just silly? And of course you should be doing this all the time, but especially during a recession, when you might have a little bit extra time looking for ways that you can make things just a little bit more efficient looking at ways that maybe it's a great time, assuming you have the capital and the wherewithal is to invest in automation. Maybe you've been holding back on purchasing some form of equipment. And, and maybe during a recession, you be able to get it cheaper than during an economic growth period.
(13:16):
Maybe those companies that are selling the equipment are in a little bit of a tough spot. And so they're willing to, you know, give you a little bigger of a discount because they're trying to keep their folks employed, et cetera. So you're doing them a favor as well by giving them work and giving them sales and revenue as well. But it's a great time. Again, you gotta make sure you have the capital. So we're talk about this in a financial section, but it's very important to have yourself prepared financially for a recession. Again, we'll talk about that. I don't wanna dive into that too much yet, but the other thing along the lines of the growth mindset, look for opportunities to expand. For example, let's say you have a manufacturing company and you've been considering, and you've been right. You're kind of bursting to seams.
(13:57):
You've had some opportunities to maybe, ah, gosh, we could really take on more, but maybe you had to pull the reins back on sales a little bit because you just couldn't keep up with the volume or it created too long of a lead time. Maybe this is an opportunity for you. If you have the land to build onto your manufacturing your plant or your warehouse, or open a second location. Again, you have to have the wherewithal, which means you have to have been prepared for this recession, but great opportunity to do this. Because again, a lot of times your competitors are shrinking or closing. That's another thing to look out for. Presumably you're involved with a lot of, you know, trade organizations, et cetera in your industry. And so you'll know if some of your competitors are in trouble, maybe not till they're in a lot of trouble.
(14:41):
But this is an opportunity. And again, I don't mean this in a bad way that you're trying to take advantage of a situation when I mean it in actually the exact opposite. Think about it. If one of your competitors out of business there's a lot of customers now that need to be served. You can step in and help those customers. More importantly, you be able to provide a little bit of financial cushion to the owner of the other company. Maybe they're going outta business and they have equipment they're gonna liquidate that you need. They have folks they're gonna, they're all gonna be outta jobs. Well, it gives you a huge opportunity to go in and find seasoned professionals within your industry that are already well trained the way they gotta learn your, your way of doing things a little bit and your culture, et cetera.
(15:24):
But if they're in your industry, they know the trade, they know how to do what you do. So you're saving jobs in that situation. I I've mentioned this a couple times on the show in the past, but we actually did this with two of my clients during the pandemic. You know, a lot of times what happened is people are not prepared for an economic downturn, even one that was very condensed but intense during the the pandemic. And so I had two of my clients that had competitors that were going on business. And so we were able to step in buy equipment from them at, you know, dimes on the dollar, as well as give jobs to folks that were gonna suddenly be out of, out of jobs and, you know, think of the catastrophic impact that would have, you know, I, I can tell you for sure, in one of the companies, there were several family members of the owner, the owner he's in his mid to late sixties, he had kind of been looking to retire soon anyway was gonna hang on for a few more years.
(16:25):
And then the pandemic hit. He was not financially prepared. His company was not fancy prepared to, to for that. And he said, you know what? I'm just tapping out. I'm just not gonna my, I, this is a sign I'm not gonna hang on for two or three more years. I don't wanna try to get through this. I just want to, I just wanna be done. And so we were able to, again, come in, he had family members. So think of that decision that he had to make. And now he's gonna have family members that are out of jobs as well. So we're gonna step in hire those folks, save those jobs for us by equipment that we are gonna need. So we're gonna need the people. We need the equipment. Cause now we need to service their customers. This particular client of mine is number one in their industry, in the area service based business.
(17:06):
This was the number two competitor. So imagine what happened with our company during the pandemic, we grew significantly. And then we came outta the pandemic and we absolutely went rocket ship launch because now we were taking on essentially. Now we had basically kind of, sort of bought the book of business from our number two competitors. So now you, you got the number one and the number two together, like number three is so far of a distant second now. So it gave us a huge opportunity. So that comp, that particular client had a record breaking year financially during the pandemic. Not because we charged people higher, we had the same pricing models, all that stuff. But because of this situation that I'm talking about, that's what I'm talking about. It's very great opportunity to expand. And then 20, 21, the year after the pandemic was better than 2021.
(17:58):
So they've been in business now, I think 21 years, 2020 during the pandemic, the year after the pandemic, 2021, where they're two best years they've ever had in 21 years of business. So there's big opportunities to be able to expand, grow during a pandemic. I wanna mention one other thing. When was it here? Oh, a real thing. And this is huge. You wanna refocus yourself again? You should be doing this all the time. You wanna refocus, how can you better solve customer problems? How can you make it easier for people to want to do business with you? Again, think of customers and think of your customer base. What are the things that you can do to help them, especially during a recession, there's different things than during a economic expansion time period. Right? So think about that. What are some ways that you can help your customer base, whether they be consumers or other businesses, commercial, et cetera, what are those things that you can be doing? We can refocus. You may have add, may add a product or service that would be able to helpful to the community, helpful to
(18:57):
Your customers.
(18:58):
That's another thing to do on the operational side. We're gonna hit a break here. We're gonna come back and then we're gonna dive into the financial aspect of thriving during a recession.
(19:10):
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(20:10):
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(20:21):
All right. Now we're gonna talk about the financial aspects now. I've, I've alluded to them a little bit during the first two segments, but as you can imagine, I got a lot to say about the financial side of things. But first of all, again, I mentioned this earlier, but really important. And you, you might say, gosh, thanks for letting me know this before, but to be prepared for an economic downturn. So again, I ran to this back pre pandemic. So in 2019, I was beginning to prepare myself more so more intensely preparing my, my clients at the time for an economic downturn. Of course I had no idea a pandemic was coming and that was gonna cause it. But we had been for lack of a better term fat, dumb, and happy in the United States because the EC economic prosperity that we had enjoyed for, again, not a normal five year business cycle, but it had been 10 plus years, right?
(21:10):
So we went from, you know, recovering in 2009, 2010 to fast forward to 2019. And we had about 10 years. And so I think a lot of business owners just got used to, without having to put forth a whole lot of effort growing every year without having to have their, their, their, the pedal to the metal, their foot on the gas pedal, they could really continue to grow. And so it became easier to grow and expand at your business. And so I began talking to my clients in 2019, the beginning of the year of saying, look, I wanted to prepare that we're an economic downturn is going to begin July 1st, 2020, my clients all said, oh my gosh, you're being paranoid, blah, blah, blah. Okay. So of course the pandemic hit and they're like, oh my gosh, you were like Nostradamus, you're predicting the future.
(21:57):
I said, look, I didn't know it was gonna be <laugh> a pandemic was gonna cause this, but PO positioning yourself is super important. So you have the capital, you have a strong relationship with your bank. Here's another thing that you're not going to hear from probably any other financial person. Don't be afraid of debt to take on debt during recession, not necessarily personal debt, but maybe personal debt, but I'm talking about for our business. If you, and, and again, interest rates are gonna be up, right? They're they're raising interest rates. The fed is in raising interest rates. They're gonna continue to raise them to try to, to, to try toque and stop inflation. So the interest rates are gonna be a little bit higher, but let me ask you this, if you can borrow at 7% and you know, the ROI for your business is 20 plus percent, that's all, you're, you're gonna return almost 300% on that.
(22:44):
Are you willing to borrow for 7% to make 20 plus percent? I mean, again, you look at it. And I think, again, the mindset people go, gosh, interest rates have been so low. I don't wanna borrow at 7% or whatever it might get to. That's crazy because you've been conditioned to having the interest rates so low. So 7% seems outrageously expensive, but you gotta consider what you might be investing in. What I mentioned during the operational segment last during the last segment of investing in automation, you know, even if you have to borrow money to do that, and you have to borrow it at 7%, if the ROI on that is, you know, again, 20% or whatever, it's a great investment to take. So don't be afraid of debt. But that's, you have to position yourself to make sure that you have a good relationship with your bank.
(23:27):
Your credit score is high. You know, ultimately you have the capital yourself to be able to take, take advantage of some of these situations, you know, review your P and O you should be doing this all the time, but really a recession's gonna force you into this review, your P and O the obvious things to look for, right? But a couple key things. Number one, look at all of your, your products or services, and look at the margins, update all of your, the numbers, the background numbers, if you don't do that regularly. And if you don't shame on you, but if you don't do it now and look at the, the, the products or services you have that are the highest margin begin shifting more of your sales in those directions. On the flip side of that, look at the products or services that you have that are maybe low margin.
(24:13):
Maybe they've now slipped way below where you want to be. You could consider discontinuing that product or service, or you might need to change your pricing on it. Or you look at, are there ways you can lower the cost base on that? So you can lower, you can increase the margin. So those are, again, those are things you should be doing all the time anyway, but if you haven't done it in a while, take a deep dive into that. Really need to look at that very, very important, because if you shift your bus, your business and your sales to hire margin products, it's gonna give you a lot more financial flexibility. Let me see, what else did I have here? Oh, along the lines. What I mentioned first. So maximizing your liquidity, not for what you think, not for what most normal people tell you.
(24:56):
They, they, again, they say Batten down the hatches, you know, pulling cash have as much liquidity. I want liquidity to be able to take advantage of opportunities. For example, as I mentioned, maybe one of your competitors goes out of business. Maybe you have an opportunity to, again, purchase equipment at a discount, things like that. You want to have the liquidity to be able to do that. Not necessarily you're gonna pay cash for it, but you have the money to even put down for it. So if you have to put down 10% or 5%, or maybe even 20%, depending on what that equipment might be, that's gonna give you a lot more flexibility. Think about making an investment in an automation project during a recession when maybe your volume is down. And so your workers aren't as busy rather than letting them go. You invest in this automation project, they help implement it.
(25:37):
And then again, when the economy turns around and starts to grow, my gosh, you're gonna grow like gangbusters. It's gonna be absolutely again, rocket fuel for your business. As you come out of that, and again, I should mention, I should have mentioned this in the first one. So you may have this question as well. The, over the last 100 years, the normal recession lasts between five and 24 months. So you should expect, you're gonna see a dip for, you know, five months up to, up to about two years. Usually that's about the most. There's been some that have been longer. Of course, this is on average five to 24, but you know, considered about a year. Probably it's gonna be somewhere around a year that you're gonna have it down. Now that year is gonna be a dip and start to come, you know, flatten out a little bit and then start on the way up.
(26:21):
So it's not gonna be, you're gonna be dropping for 12 straight months. It's not necessarily gonna be that way. And I don't think by the way, I should mention my prediction. At least my guidance, my advisement would be this, this particular downturn. This recession will not be nearly as bad as we saw in 2008, 2009. Few reasons for that. Number one, one of the primary causes of that particular recession was the mortgage industry because they had gotten way too lax on their underwriting. So they were giving people, you know, no down payment loans, people who, you know, barely checking credit scores, sometimes not even checking them. People were way overextended on their mortgages, the economy tanks, interest rates go up, they have adjustable rate mortgages now they're they can't afford their, their mortgage. So a lot of people just walked away from their house and, or got it taken away, foreclosed on which just crushed a lot of the financial institutions and then that, that downstream impact on the rest of the economy.
(27:16):
So that's one huge reason. Another reason why I don't think this one will be as bad is the infrastructure bill that, that recently went through the government, right? The 1.8 trillion that money's already earmarked, it's essentially spent not been officially spent, but it's already been earmarked. That money is going to be spent. I, I don't know of a time when we've gone through a recession in the past, in this country that we've had 1.8 trillion of tailwinds helping us of government spending that we know is coming. Now, maybe your business is not in one of the industries that are gonna be affected by that, but some of those companies in that industry might be indirectly tied to you. So again, in the country, at least we have that tailwind. So those are two reasons. I don't think this one will be nearly as bad as in catastrophic as 2008 2009 was review all your expense lines.
(28:08):
Of course, you should be doing this on a regular basis as well. Again, I don't want you to think about shrinking. However, if you are not prepared for the recession and it hits, here's a couple things and we're running out of time here. So I'm gonna make this quick, but if you have to review your expense lines, you're like, man, I gotta cut some expenses. Here are two, two rules of thumb that I use. The last thing you want to do is shrink your sales or revenue pipeline. So what you wanna make sure is you're not cutting expenses that are gonna do that. So look at all, as you go down your expense lines, look at each expense line and say, does this have a direct indirect or no impact on sales? Does it have a direct indirect or no impact on customer service? If you cut things that are directly impacted by impacted to sales and or customer service, you're gonna shrink your sales pipeline.
(28:59):
And then you're just in a nonstop, running and quick sand. I gotta cut more. I gotta cut more. I gotta cut more cause I cut expenses and now my sales are down. So I gotta cut again. I gotta cut again. Don't put yourself in that quick sand. So that's a quick thing. If you do have to cut expenses, those are two ways to look at that philosophically to make sure that you don't really dig yourself and continue to dig yourself in a deeper hole. So hopefully that was some, some good tips for you on how to thrive during recession. We are unfortunately out of time here, appreciate you guys watching and listening and love to hear comments from you and, and hear how you're getting through the recession and thriving. Thanks for watching guys. Have a great weekend, always as always. Don't forget
(29:36):
Cash flow is King
(29:39):
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