Before it hits, it becomes a taboo word.
“Recession.” There, I said it. Recession. To some, the mere mention of the word brings on a preternatural sense of impending doom. But after a historic period of growth following the Great Recession that rivals the 1990s for untainted longevity, it’s fast becoming a risk every business should think about.
If you started your business since 2009, you don’t know what it’s like to lead a company through the troubled waters of an economic downturn. But it doesn’t have to be frightening. Many businesses find themselves in generally “recession-proof” sectors—or can instead “recession-proof” themselves with a few key precautions. Is your business one of these? Let’s find out.
Recession-Proof Sectors—and What They Mean for You
The concept of being “recession-proof” means you work in a business that’s stable enough to go on surviving in the aftermath of a burst stock market bubble. Pets.com was not recession-proof; Amazon, willing to diversify beyond books, was.
The complicated truth about recession-proof sectors is that they’re not 100% insured against recessions. Sweeping changes in technology and consumer trends can affect businesses before they know they have to adapt. But over the course of a few recessions, we can reliably assume that businesses in the following sectors will have plenty of consumer demand even in tough economic times:
- “Consumer staples.” People still need to wash, clean, and maintain. Consumer staples from laundry detergent to paper towels tend to perform consistently even through recessions.
- Cosmetics. Many of the same large companies that provide consumer staples also have stakes in cosmetics. Bad economies might force some people to skimp out on regular purchases, but few give up on makeup and cosmetics simply because work is hard to come by.
- Candy. As Entrepreneur notes, Snickers and Three Musketeers were born in the Great Depression. Even if your business doesn’t produce candy, here’s one important thing to keep in mind: when consumers have less money to spend, they don’t necessarily stop spending—but they do start buying the cheaper options.
- Education. Providing educational services such as tutoring and college entrance exam preparation is just as valuable during a recession—perhaps more valuable, as job-seekers and college applicants look for more opportunities as a result of their academic achievements.
How can you tell if you’re in a “recession-proof” sector? Those that tend to do well in recessions are those that remain necessities for most people. Low-price goods and services will also tend to perform well as consumers tighten their budgets.
How to “Recession-Proof” Your Business
Maybe your business caters to high-end services and doesn’t pump oil out of the ground. Maybe you’re not sure about the timing of your business. Maybe you’re a fragile startup that’s just looking to turn a profit before a recession even hits. But these scenarios don’t have to be alarm bells for your business. There are ways to “recession-proof” yourself before a recession strikes.
- Practice fiscal discipline. One rule of business will never go out of style: you have to bring in more money than you earn. If you can practice budgetary discipline in the good times, you’ll stand a far better chance of knowing what it takes to tighten your belt during the tough times.
- Don’t ride the trend; ride your own growth. A business trend (remember the relative rise-and-fall of cupcakes?) can feel like sustainable growth for your own business. But there’s a marked difference between a business that grows because of its fundamental strength and a business that grows in response to market trends. Don’t grow your business simply because of market demand; grow a business when you can justify each investment individually.
- Think long term. A business that lives and dies on its performance each quarter is not going to perform well when a recession hits. Setting up a business for long-term success means identifying the opportunities for clients and customers that will return for more. Sometimes this requires diversifying the offerings of your business, but as Amazon showed during the Dot-Com bubble, it’s always possible to diversify and continue to grow.
One caveat: the best time to think about recession-proofing your business is when times are good. We’re not in a recession now, which means that extra revenue that can be used to broaden your company’s appeal can pay off dividends should the economy take a turn for the worse.
Finding Opportunity in the Difficult Times
Economic recessions don’t have to be all doom and gloom. Alec Lynch of Forbes once wrote “Ten Reasons the Best Time to Start a Business is During a Downturn,” citing the vulnerability of incumbent businesses that have lost trust and the broader availability of credit.
But running a business during the tough times can also speak to the better nature of free enterprise itself. Inc.com noted the rise of a New Orleans business that took off in the aftermath of Hurricane Katrina—the crisis of the flood left Barrett Wiley wondering if there were cleaner and more sustainable ways of cleaning large commercial spaces across the New Orleans area.
Difficult times mean that consumers are spending less and investments are giving out poor returns. But this isn’t a universal experience. Some investors made their fortune by starting during the Great Depression.
Warren Buffet once said, “Be fearful when others are greedy and greedy when others are fearful.” In other words, the best time to make an investment is when prices are driven to disproportionate “lows” thanks to the fear in the marketplace.
The same logic holds true for many businesses. Problems like recessions and economic downturns can seem like death knells for some businesses. But it’s also important to keep a positive mental attitude in these tough times, to recognize that there might be opportunities here where there weren’t opportunities before. If a recession leaves a hole in the market, might your business be able to fill it? If a recession shows you an opportunity you didn’t recognize before, was it really so bad to begin with?