079 - How to survive a recession
How your vegan business can not just survive, but also thrive in a financial downturn. The idea of a recession can be scary, but no matter how good the economic outlook is you will still see companies fail – and no matter how bad the economy is, some people will be making more money than they ever have before.
In this episode, David looks at the practical steps you can take to get your business ready for an economic downturn but also explains why a change in consumer behaviour may also present a lot of opportunities for your business to grow.
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Hello and welcome to episode seventy-nine of The Vegan Business Tribe Podcast with myself David Pannell, co-founder of Vegan Business Tribe. And if you have a vegan business, or are thinking of starting one, then Vegan Business Tribe is here to support and inspire you not just to build a vegan business, but to build a SUCCESSFUL vegan business.
And today we’re going to tackle a topic that a few of our Vegan Business Tribe members have started to talk about in hushed whispers, and that’s about the possibility of – dare I say it – a recession, and what impact that’s going to have on their businesses. It has been a hell of a time for the economy, first with the pandemic and then with various governments of the world seeming to do everything they can to de-stable the geopolitical scene, from Brexit to the war in Ukraine. And it’s left business owners with a lot of uncertainty of what the next few months will bring. So we’re going to take a long look at what your business can do during a financial downturn, not just to survive it, but to actually prosper in it. Because although change can bring uncertainty, it also brings opportunities for businesses too.
Before we get started though, just a quick reminder that this podcast is only a small part of everything we do at Vegan Business Tribe. If you are looking for help to grow a vegan business, no matter what stage you are at… so maybe you’re at the point where you’re looking to scale up your business, or you’re trying to find investors or raise finance to take you to the next level, or even if you’ve just got an idea for a vegan business at the moment and you want to get some feedback on the idea or get some advice on how to get started… then we’re here to help you. Just take a look at our membership site at veganbusinesstribe.com – which is where you will find lots of information, videos, courses, masterclasses, online events and a whole community of the most amazing people you will ever meet – because they’re all vegan!
Our membership site is also what funds Vegan Business Tribe, so even if you just want to contribute to making sure that we can keep putting out this podcast every week, and to keep doing all the work we do to champion the vegan business scene around the world, then just click on the big join button on the homepage so that you can see everything you get as a member.
OK, so the idea of a recession can be a scary concept if you run a business. As a consumer, you have some options when there’s less money coming in. You can make cut-backs, you can have nights in instead of nights out, you can just spend less and buy less stuff to make sure that you don’t run out of money by the end of the month. But as a business, if your customers simply stop spending with you, that can be catastrophic for your company. You’ve still got rent to pay, you’ve still got suppliers to pay and you might have staff that you don’t want to lay off but they still need to take a wage home too.
In the UK, the last great recession we saw was in 2008 and 2009 when we had over a year of negative growth on the back of the banking crisis – and it was a tough time for many people, as it also was in many other countries including the US. We lost banks like Northern Rock and major UK high-street retailers like Woolworths went bust.
But while some businesses were having a horrid time, 2008 is also when we saw the launch of companies such as craft beer company Brew Dog which is now worth more than 2 billion. Companies that were offering innovative new ways to find and buy products like notonthehighstreet.com found that their userbase surged by a million new customers at the start of the last recession – and in fact, Not On The Highstreet saw the same boom in customers during the coronavirus pandemic.
And this is the first thing to remember. No matter how GOOD the economic outlook is, you will find that some companies fail. And no matter how BAD the economic outlook is, you will find a bunch of people making more money than they ever have before. And the reason I remember the last recession so well is because I launched a business myself right in the middle of it. The business was really focused on cost and undercutting the market and the recession was when we had our best time – in fact, the business struggled when the economy started to improve and we had to change our whole business model to adapt.
But it can genuinely be a scary time for a business, especially if you’ve never traded through a financial downturn before or if you are a smaller business without cash reserves. And although I will never say that an economic downturn is a good thing, it hits people hard, it can actually be a time for real opportunities also.
Now, I’m not going to predict what’s going to happen over the next six months, I’m in no way an economist. But the combined effects of the Covid pandemic, geopolitical action, military unrest and everything else that’s going on at the moment, people are fearing about the financial outlook in many different counties. And when the economy hits a rough patch then people’s spending patterns change. The types of products and services they buy changes. How long it takes to make a decision changes. People reevaluate their outgoings to decide what is necessary and what is a luxury that they may be able to do without. They consolidate their purchases or start to look around to see if they can get a product that solves the same problem from someone else at a cheaper price.
And although it’s this change in consumer buying behaviour that creates the problems for businesses, it’s also what creates the opportunities. So for a hotel chain, it creates a problem because people cut back on travelling and those that do travel are looking to pay less – but the hotel chain still has all their infrastructure to maintain. But for a company like Airbnb, which allows people to rent out their spare rooms to travellers, every time there’s a slump in the economy their bookings go up as people are looking for cheaper alternatives. In fact, Airbnb launched in a downturn when the founders saw a need for cheaper travel accommodation. And if they see a period of reduced bookings, then it’s no big problem because they have no hotels they need to maintain making the company far more resilient.
And we saw the same change in where people were spending during the coronavirus pandemic. As some companies lost out, others made record profits. Streaming services saw a boom in new subscribers whilst cinemas closed. Those companies that could pivot to provide in-home services, deliveries and experiences saw fast growth whilst those tied to traditional business models couldn’t adapt.
Now, if you think you have a flexible, agile business then that’s great – but that doesn’t mean that you should just shrug off the possibility that we’re heading into a downturn. There are some very sensible things that you can do in any business if you’re facing a slowdown or recession to try and protect yourself against some of the negative effects.
First, you need to decide how much you are actually going to participate in any downturn or recession. And this sounds like a weird thing to say, but during the last recession in the UK I attended a lot of in-person networking sessions. And you would, genuinely, see businesspeople at these events wearing badges that read: ‘I refuse to participate in this recession’. Because a lot of the traditional advice for getting through a recession as a business is to batten down the hatches, to cut all your spending right back, to furlough employees and retreat into your shell until it all blows over and the economy get better. In this case, companies are protecting their core infrastructure and footprint so that they can come out of semi-hibernation when the financial outlook gets better. It’s what we saw VegfestUK do during the pandemic when in-person events couldn’t go ahead – they cut their operations and team right back and moved to online events that they knew wouldn’t bring in much money but kept the brand alive. Now they are returning to the London Olympia in November for what’s looking like it’s going to be the UK’s biggest and best vegan consumer event ever!
And taking this approach can be very sensible, in fact for some companies it may be the only option open if they don’t have any cash reserves. But it does mean that you are also contributing to the downturn by stopping buying from suppliers yourself. Other companies, instead, decide that a recession or downturn is the time to push growth and increase their spending and activity. So one of the things you should do is take a look at your business and see which of those two camps you fall into. It might even be that you have to take quick and serious action first to get your company into a stable cash position, but THEN look to come out fighting because you see the opportunities to jump ahead of your competition rather than go into hibernation with them.
So let’s look at the first of those two options first. Downturns force you into running a lean company, and by lean I mean a cost-efficient business that produces a product or delivers a service as efficiently as possible without waste spend. During the pandemic in the UK, I was dealing with a company who put 50% of their workforce on leave through the government-backed furlough scheme, but at the same time managed to retain 80% of their turnover with just half of their staff. That was a big eye-opener to the management team about how inefficient the business had become. They quickly worked out how to run the business and deliver their core product with only a half of the resources they had been using before. They came out of the other side of the pandemic hugely more profitable with a really lean business as a result of it.
A lot of the time, staff are the biggest cost to a business but laying people off is never an easy process. We have a responsibility to those we employ and, especially in smaller businesses, those around us become our family. So if you are looking to reduce the number of people working in your business, ask yourself this question: do you need to cut down on employees because the company simply can’t justify the number of people you employ; or do you just need to reduce wages to get through what you estimate is going to be a relatively short period of time? Because companies that cut their key staff during a recession then really struggle to grow coming out of it. Recruiting and training staff is expensive, so if you believe you are only facing a short-term hardship then consider other options to reduce the payroll on a temporary basis. Can some staff become part-time for a period or can the company itself move to reduced hours or operate a four day work week? Doing this alone will reduce your payroll bill by 20%. Some of your team may even welcome the opportunity of unpaid leave so that they can work on their own projects or go travelling for a period of time and know they will have a job to come back to.
But if you do decide that you have no option but to lay off staff, then make the decision and take action quickly and decisively. Don’t agonise over it for months hoping that the situation will just resolve itself as your company loses more and more money. The worst thing you can do in your business is have the threat of redundancies hanging over staff, with waves of job cuts coming one after the other – you will just see morale and productivity drop. So if you do need to make redundancies then cut once and cut deep – make all the redundancies that you think you’ll need to make in one go so that you can draw a line under it. Once you have had job cuts in your business, your remaining team needs to know that the action was taken to get the business on a secure footing and no more are coming, that THEIR job is now safe as a result.
A downturn or recession also gives you the opportunity to renegotiate your current contracts with suppliers. Companies will be offering their best prices and doing everything they can to retain customers rather than lose them all together. So if you have a landlord then they may accept a request for a payment holiday for a few months rather than having you go bust and them lose a tenant. Or they may even agree to reduce your rent because that’s better than having an empty space generating no income at all at a time when they know they are going to struggle to re-fill it. Suppliers may give you better and longer payment terms to keep you buying from them. For example, if you have a major supplier who you pay on 30 days after purchase – then moving to paying them on 60 days essentially gives you a month free from payments whilst still receiving their goods. And once you are on an improved contract, it’s very hard for those suppliers to roll you back to the less-favourable deal further down the line! So downturns are the perfect time to shop around for deals on your phone lines, company vehicles, and to take a look at what suppliers and agencies you use – because they will all likely be offering their best deals or favourable payment terms.
Once you’ve done what you can to get your company on a secure financial footing, the next thing you should do is take a good long look at your business, the products you are making or the services you are offering, and work out what impact a downturn will likely have on you. In fact, if a company knows that it is approaching a recession then the leader of that business will normally start clearing their plate so that they can be available to make a lot of quick decisions and focus on directing the business through it. So if you are a business owner who is struggling to even take a breath, then this is the time to start delegating, automating or outsourcing so that you can really concentrate on stearing your business through choppy waters.
Acknowledge how people’s spending is changing. If people are cutting back on going out for experiences and entertainment, can you change your product or service so people can now have an experience at home instead? During a downturn, people are wanting to increase their skills and employability, so can you switch to teaching people a skill or to re-train? Can you teach your customers how to do what you do? Could you even teach your customers how to make your product themselves, you could even sell them the ingredients! This lets them have a product at a lower cost, and saves you all the operational costs of making and shipping the product yourself.
Or maybe you need to switch your market. Just because your country is in recession, other countries might be going through a period of growth. If your home market is going through a tough time then take a look at what’s happening elsewhere in the world. Is this the perfect time to introduce your product or service to a different country that desperately needs it? This is exceptionally easy to do if you offer a service or a digital product, and especially if you target other countries who speak the same language that you do, but even physical products can be licenced in other countries – you don’t need to package them up and ship them overseas yourself. You can find someone in that country who can make your product for you and fulfil those orders direct to local customers.
If you can flip your own mindset it may be that a downturn is actually the perfect time to GROW your business. A change in consumer behaviour always creates potential opportunities.
When companies start cutting back, one of the first things to go is spending on marketing. Cutting back on your advertising budget is a quick and easy win. But, because everyone is doing this you will find that there will be less marketing from your competitors and it’s been shown over and again that those companies that are aggressive with their marketing during a downturn are the ones who come out of it in the best shape. And again, in terms of paid advertising, when everyone else is cutting back on their marketing spend is when you will get the best deals for yours. Magazines will be open to throwing in all sorts of extras and upgrades to get you advertise with them, agree to a six issue deal with them on the condition that they put you on the cover for one of those issues. Just keep asking them what else they will throw in until they exhaust all their possible offers. If your competitors are all putting their marketing on hold, then make sure your adverts keep running, and running hard!
But remember that selling to the people who already buy from you is far cheaper than finding new customers. So focus on re-marketing strategies and keeping your current customers engaged. If you’re going to offer deals, offer them first to the people who have already bought from you because they are the ones who will buy again quicker. Get really good at email marketing and make sure you reconnect with your old customers who may not have heard from you for a while. Even if they are ex-customers who walked away, they will be easier to bring back on board than someone who’s never heard of you – so give them a re-introduction offer and tell them what’s new since they last bought from you.
A recession is also a great time to really single out and go after your competitors. Now, I know that as vegan businesses we view competition differently. If someone else is trying to bring about the same change in the world as you are, then even if they are selling the same thing as you, we would rather support them and work in collaboration with them as another vegan business. But you’re not just in competition with other vegan businesses – you’ll be in competition with non-vegan ones too. So if your competitor is being forced to cut back then really go after them and overtake them. So where are they cutting back – can you come up with an offer that you can sustainably maintain that attacks their core service at a cheaper price to win away their customers? Remember, during a downturn, people still need services and products, they are just looking to get them for the best price. So can you undercut your competitor and still make a profit? Can you come up with an innovative new way for someone to buy, such as leasing your product instead of buying it outright? Can you use invoice finance – which is where a finance company pays the invoice when you sell a product, but then they offer a payment plan to your customer and charge them interest for the privalidge. Can you even give away your product for free?
Now, this isn’t as daft an idea as it sounds. Email marketing platform MailChimp didn’t start to see exceptional growth as a platform until it started offering a free tier. It allowed you to use its core service for free in return for putting a badge on the bottom of your email newsletter, giving it a free advert to everyone you emailed. It’s exactly what we did with Vegan Business Tribe – we launched VBT a month before the pandemic hit, and we quickly switched to a free service so that we could help as many vegan businesses as possible during those early months. And the people who signed up with us during that time became our most vocal champions and gave us the foundation to then launch a paid tier several months later. And we still offer that basic free ‘fan tier’ for those who just want access to our weekly email. And – imagine the sheer panic that your competitor will feel when they see you are really going in hard with a deal if they are already feeling the squeeze! Or even giving away the product or service they are charging people for free. Now, we are getting a bit sneaky here – and as vegans, I know, we like to be nice and we don’t like creating friction and conflict, but you can also use a downturn to discourage and panic your competitors into making bad decisions. Now, I’m not going to divulge if I’ve done this before or not, but I have known companies set up email lists that just contain the email addresses of their competitors, and then regularly send out pretend email marketing with false offers and information that they never intend to make real, just to demotivate and panic them. As I said, you might think that is a bit sneaky and immoral but I can confirm it can be very effective!
If a competitor is making cut backs then that might also give you the opportunity to pinch their best staff too. If someone is fearing for their job then a solid offer from a competitor (in a market they are already familiar with) may mean that they are willing to jump over to your ship without even asking you to beat their current wage.
So to wrap up – of course, a downturn in the economny can be terrifying, and it can be the downfall to many businesses who are simply unable to respond. But I will say this again, from my own 20 plus years of running businesses I have seen that even during the worse resessions a bunch of people were still raking it in, and then during the most prosperous of times I’ve seen lots of businesses go bust. We’re all subject to the same winds, what makes the difference is how you set your sail.
OK, so let’s just have a catch-up of what we’ve just covered in this session in a handy bullet-point take-away of how your company can thrive in a financial downturn or recession.
- When the economy hits a rough patch then people’s spending patterns change. The types of products and services they buy changes. How long it takes to make a decision changes. People reevaluate their outgoings to decide what is necessary and what is a luxury that they may be able to do without.
- And although it’s this change in consumer buying behaviour that creates the problems for businesses, it’s also what creates the opportunities. Hotel chains with all their infrastructure struggle during a downturn whereas a company like Airbnb (who own no properties themselves) thrive.
- Recruiting and training staff is expensive, so look at temporary options to reduce your payroll if you think you are just facing short-term problems. Offer unpaid leave for people to go travelling or pursue their own projects or cut back to a four-day workweek.
- If you do decide that you have no option but to lay off staff then take action quickly and decisively. Cut once and cut deep – once you have had job cuts in your business, your remaining team needs to know that their job is now safe as a result.
- A downturn or recession gives you the opportunity to renegotiate current contracts with suppliers. A landlord may accept a payment holiday or to reduce your rent rather than lose a tenant. Ask your supplier to move to 60 days instead of 30.
- During a downturn, people are wanting to increase their skills and employability, so can you switch to teaching people a skill or help them re-train? Could you even teach your customers to do what you do or make what you make – and even sell them the ingredients to do it!
- Just because your country is in recession, other countries might be going through a period of growth. Is this the perfect time to introduce your product or service to a different country that desperately needs it?
- Use this time to get great deals on your marketing. Magazines and platforms will be open to throwing in all sorts of extras and upgrades to get you advertise with them. Just keep asking them what else they will throw in until they exhaust all their possible offers.
- A recession is also a great time to go after your competitors. Can you come up with an offer that attacks their core service at a cheaper price to win away their customers? Can you come up with an innovative new way for someone to buy, such as leasing your product instead of buying it outright? And if your competitor is panicking and cutting back, then that’s also the perfect time to try and pinch their best staff who are fearing for their jobs!
- No matter how GOOD the economic outlook is, you will find that some companies fail. And no matter how BAD the economic outlook is, you will find a bunch of people making more money than they ever have before.
And that is it!
Now, I am an optimist so I do hope that some of the economic forecasts that we’re seeing at the moment, especially in the UK don’t happen – but also because I’m an optimist, if they do then I know that there will be as many opportunities for you as there will be problems.
And part of that is making sure that you’re really focusing on your business, which is why being part of something like Vegan Business Tribe – if you are really serious about growing your business – is really important. You need to put yourself in the position where you are going to learn, skill-up and come across opportunities which is what the Vegan Business Tribe community is all about. So if you’re not a member already, go take a look at veganbusinesstribe.com and click on the big joining button on the homepage to see everything you get. And being a member only costs the equivalent of buying a cup of coffee a week from your local coffee shop, because we want to make sure that Vegan Business Tribe is genuinely accessible to everyone all over the world.
So thank you for joining us on this one – if you’re listening on iTunes or a platform that lets you rate or leave a review for a podcast, then I would be forever in your debt if you can leave us a quick 5-star review, or just give us a thumbs up or whatever your podcasting platform allows you to do – even if that’s just to subscribe to us. And if you know anyone else with a vegan business then make sure that they know about this podcast too, because you never know – some of this information might make a huge difference in their business.
And I will see you on the next one!