I am first and foremost an optimist. I couldn’t be an entrepreneur otherwise. For me, the glass is always half full. However, I wouldn’t have survived as an entrepreneur if I didn’t, when needed, have an alternative Plan B for when reality turned out to be different than I had hoped it would.
If you are in the world of advertising, media and technology, you have lots to be hopeful for. Schools are reopened. Businesses are back open. Ad spend is up. The stock markets have come back. Venture capital is flowing like never before. Everyone who wants a job can get a job, more time off, and a raise to boot.
But there is another story unfolding.
According to the U.S. Labor Department, consumer prices in February were up 7.9% in 2022 over 2021, the biggest jump in 40 years, driven significantly by increases in the cost of food and gasoline. The Russian invasion of Ukraine, and its horrific atrocities, shows no signs of slowing down, and military experts and historians alike now tell us to prepare for a long, drawn-out, multiyear war. Finally, we have a global economy that is still shaken by a two-year-old pandemic that upended our supply chains, requiring companies to take much more inventory risk than they have in years past, all funded by historically cheap debt.
Inflation, at least for a short period of time, doesn’t slow down the advertising world too much. As the costs of consumer good go up, so typically do the costs of ads purchased to drive those sales. However, as the inflationary costs impact consumers’ ability to spend -- and optimism for the future -- consumer spend goes down, stores order less, factories produce less, and the next thing you know, we wake up from years and years of go-go days and find ourselves two quarters deep into a recession.
As all who have been through them know, recessions are bad for economies and bad for most folks. They are especially bad for those who work in the world of advertising.
What do you do differently if a recession is in the offing? Potentially, a lot. Cash matters a lot when things slow down. Revenue becomes scarcer. Expenses bite harder. Business plans take much longer to execute. Large, fixed cost structures can be deadly.
Who you sell to matters. Some businesses are much more resilient than others when it comes economic slowdowns. It’s much better to be selling low-cost essentials than premium brands targeted to the middle market.
Flexibility is paramount. Having time, options and control is under-appreciated when things are good; it is unbelievably valuable when things are tough.
Apologies if this seems like a Throwback Thursday #TBT to those of us who have run companies through the Russian currency crisis of the late '90s, the bursting of the dot-com bubble, 9/11 and the Great Recession.
I’m all for optimism and believing that a recession isn’t in the offing next year. But, as I was reminded at a breakfast earlier this week, hopefulness is not a strategy. What is your recession strategy?