Protecting yourself from recession isn’t always easy. You’ve probably been through a recession or two in your time. And so for people who haven’t done this, it’s not fun. It’s not an exciting time. But I think the first thing that leap to mind for me is not to panic because for a lot of people, that’s the go-to strategy, and not necessarily the best one. And you recognize that, okay, things might be different here. Just as they were during the pandemic. They’re different, but it doesn’t mean that you can’t succeed, even while others are struggling.
David: Hi, and welcome to the podcast. Today, cohost Jay McFarland and I will be discussing the idea of protecting yourself from recession. Welcome back, Jay.
Jay: Yeah, thank you for letting me be here. This is a big word that I’m hearing a lot now. The potential for recession, you know, we have a lot of inflation. We’ve got supply chain issues. You’ve got real estate issues. And so it’s something I think every company should be saying, “okay, what are we going to do if things start to turn south?” Because we really have enjoyed a pretty aggressive economy even through the pandemic.
David: Yes we did. I feel a little bad even really talking about this topic. Because I feel like, for some people, they are just getting past pandemic stuff and quarantine and all that kind of thing.
David: And things seem to be going reasonably well with a lot of businesses at the moment. Sales are up in a lot of businesses compared to last year. But everything we hear in the news is very concerning. And so I thought, okay, well we should at least discuss this. Not from the standpoint of how bad things are, but what can we do about it? Because that’s really the big thing.
Jay: Yeah, you know, I work with a lot of restaurants and I watched them pivot during the recession. And a lot did very well, but they had to be very smart. Like let’s shut down our dining room. Let’s go delivery only. Let’s go drive-through only.
Jay: And it’s something they were kind of deciding on the fly. It made me realize that every company should have a plan, not just like “let’s hope this doesn’t happen. And if it does, we’ll figure it out when it does.”
David: Yeah, it’s really amazing. Because some restaurants did really badly and others, who were able to make that switch, have now not only done well during a difficult time, but they’ve also created a secondary revenue stream for themselves. Whereas before they might not have done takeout, they might not have done a lot of that sort of thing.
And those restaurants are doing great now because they still have all the people who are picking stuff up, but then they also have people coming in. But when we look at this, I think, you know, the idea of a recession and thinking in terms of, okay, well, what are some things we can do? And I’ve been through them before.
You’ve probably been through a recession or two in your time. And so for people who haven’t done this, it’s not fun. It’s not an exciting time. But I think the first thing that leap to mind for me is not to panic because for a lot of people, that’s the go-to strategy, and not necessarily the best one.
And you recognize that, okay, things might be different here. Just as they were during the pandemic. They’re different, but it doesn’t mean that you can’t succeed, even while others are struggling.
Jay: Yeah, and for me, it’s always an issue of, okay, we know we’re going to have to have cuts. We don’t have the revenue coming in. And so where do we start?
And oftentimes I see the cuts in what I consider to be the wrong places. Like, okay, the first thing to go, it seems like always to me is marketing, right?
David: Marketing, right.
Jay: And that’s the number one off the top. And that’s the one that could potentially keep you alive.
David: Yeah, it’s a great point because when you think about what people do during difficult times, whether it’s a recession or something else, you’re right. That’s a go-to thing. And that’s what really creates opportunity for the people who think it through and recognize that while everyone else is cutting back, now’s the time to be moving forward. So the fact that other people might be cutting back actually creates more opportunity for you if you’re not taking that similar action.
Jay: I like that. So they’re kind of giving up market share to just, you know, preserve the bottom line. And that opens up a whole new world for you, of brand new customers to bring in the door during a difficult time.
David: Yeah. I remember years ago hearing, I believe it was Earl Nightingale, talking back in the day about the idea of, if you look at what the majority of people are doing and you do the opposite, you’ll generally do pretty well.
Now that’s a rather cynical view. I don’t really love the idea of the cynicism aspect of that. But in some cases, it’s really true. If you look at the majority of businesses, the majority of businesses are not as profitable as a smaller segment of them who are doing the right things. So if you’re looking at emulating, what other people are doing, who are not doing well, that’s not likely to be a good strategy. So the idea of not following the crowd is probably a pretty good thought, whenever you’re dealing with any sort of adversity in your business.
Jay: Yeah, absolutely not following the crowd, but also being aware. Like I’ve had circumstances where we know that if a recession hits, there’s going to be a certain part of our cost of good sold that are going to be higher. And so we’re going to store up on those particular items. If they’re not perishable items, right?
We saw this with the chip shortage. One or two car manufacturers said, you know, maybe we better get ahead on these chip shortages. And it saved them because they were able to look ahead and project. And everybody else is freaking out and it had a huge impact on them. So having some forethought about what you can’t live without and having a plan to be able to get that I think is huge.
David: I think so, too. And it also makes me think in terms of the idea of stashing some money while you can, right? I really think right now is an excellent time for people to score. To really sort of line up the customers you need, line up the business you need and really strike hard now so that you can get ahead of it.
Store up some cash. Obviously, you’ll need to watch your expenses if this happens. And I’m not saying this is going to happen, I’m hoping it doesn’t.
David: This is really a preemptive kind of episode to say, Hey, listen, if some of these things start to happen and we’re already seeing things, as you mentioned, supply chain issues, inflation, everything costs more.
It’s a challenge for a lot of businesses. But it doesn’t have to be a real issue to the point of threatening your business. If you take some really common sense actions now,
Jay: Yeah. Or like you mentioned, it could be an advantage because you thought ahead and so you don’t have to raise your prices. Or you don’t have to lay off where your competitors are. That suddenly positions you in a place where you can bring on a lot of new market share.
So a recession could actually be something, you know, I hate to think in those terms, Hey, let’s have a recession so we can grow our business. But good planning and forethought can actually put you in exactly that place.
David: Yeah, and it does, in some cases become a survival of the fittest type of thing. Which means now is a really good time to get as fit as you can possibly get in terms of, okay, what types of customers am I going to home in on? How can I engage my customers in a way that I’m able to retain them? And we’ll be talking about that in a future podcast. But really getting things lined up now while things are still reasonably good. Obviously, we’re always dealing with issues here or there in the economy, but getting the things lined up now so that we’re in a better position to thrive when other people are struggling.
Jay: Yeah, we talked about cost of goods sold. We talked about putting money away, having a savings just in case. What other types of things should people be looking at in possible preparation for a recession?
Well, I think looking at the types of clients that you’re interacting with now and the types of clients that you might need to interact with later. When things are good, people tend to take whatever business comes through the door.
However, when things are not as good, you want to be more selective. And I think the time to be selective is actually before that type of thing happens. And look at, okay, what are the businesses that are better positioned to have the cash, to be able to continue to do things, the ones that are likely to continue to need your services, even when others are throttling back.
So I think client selection is a big one. I think looking at your own internal structure, your cost structure to say, are there expenses that I have now that shouldn’t be here that I could cut back on? And again, this isn’t about being frugal. This is the kind of thing we should really be doing all the time, anyway. Looking at expenses and saying, “is there stuff in here that’s been around for years and I haven’t even looked at it and it’s unnecessary?”
What are the things that I’ve been paying for, for a long time, that are no longer necessary and throttling back on those type of things. And once again, I don’t even like talking about this. Because I feel like it puts sort of a scarcity mindset out there, which is the opposite of everything I’m all about. But I believe it is smart, it is prudent to at least be thinking about “how can I be as lean as possible and continue to move forward as much as possible now, so that if and when things get worse, we’re at least positioned to be able to do the things we need to do and make it better.”
Yeah, I love that you focus on the type of customer. Because depending on your business model, you may not experience a recession at all. You may have more people coming to you because of your style of business. Or you may get hit dramatically. So I think just being aware of that. Let’s just, you know, project forward, if a recession hits, does that hurt us or does that help us?
And I think also thinking about ways to pivot. Going back to my experience with restaurants, one of the things that happened is food trucks suddenly did really well. Because they didn’t have dining rooms.
Jay: You could wait outside, so you could social distance. And so suddenly everybody wanted a food truck, because they couldn’t get a restaurant. And so this was a perfect example where I would’ve thought, man, this is going to kill food trucks. And actually it made them thrive. So, just sitting down and having meetings about, okay, what would this look like?
Are there pivots that we can make? What costs can we reduce in the meantime? Are there position reassignments that we can do? Because obviously you’d love to keep your staff, if you can.
Jay: And not lay anybody off. But to me, it’s just what you’re doing. I know you say you don’t want to scare anybody, but what you’re doing is you’re saying have some forethought. Think about this now, if it doesn’t happen, then great.
Jay: But if it does, you have a plan and you’re ready to go.
David: Yeah. And if it doesn’t happen, you are so far ahead of everybody else, anyway. Because you’re already more lean. You’re already more focused in terms of the customers you’re going after. You’ve done all the things to prepare for the storm. And if there’s no storm, , it’s even better for you.
David: And if there is a storm, the fact that you’ve done that is going to certainly position you ahead of others. You raised a great point as well, which is the idea that some people will do better. It’s not like everybody’s going to do worse. Some people will do better and it’s going to be the ones who are prepared.
Jay: Yeah, absolutely. I know you’re going to be workshopping this all week. How do people find out more and get involved?
David: All right. Well, if you’re already an Inner Circle member, you can just log into the membership site. We can address your questions, concerns anything you wanted to discuss in there, free to do so.
Otherwise, if you’re not a member of our Inner Circle, I would encourage you to join us. Just come to TopSecrets.com/ic. That’s TopSecrets.com/ic. And you can join in the conversation with us.
Jay: Yeah, it’s great. And an important conversation to start thinking about it. Again, neither of us hope that this R word happens, but there are some warning signs out there and even the smallest recession can impact certain types of businesses in a big way. So it’s a good time to start thinking and planning about it.
David: Yeah. Agreed.
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