5 Strategies to Win During a Recession

April 21, 2020
James Whittaker

Check out this episode on the Win the Day Podcast

“Necessity is the mother of invention.”

Plato

Shout out to Greek philosopher Plato for one of the best and most concise quotes ever: Necessity is the mother of invention. When you absolutely must do something, like your life depends on it, you’ll be much more determined and resourceful to see the impossible and make it a reality. This quote is the secret sauce that helped bootstrapped startups became household names, as we’ll go through later.

Speaking of necessity, there’s a good chance that the pandemic (now in its sixth week of mandated quarantine) has made it more necessary for you to think creatively of how you'll provide for your family and re-evaluate what's really important in your life.

[In case you missed it, check out 8 Ways to Make Money from Home. I’ve been getting some really great feedback from it so thank you to everyone who reached out.]

So, what’s been going on in the world!? Well, we’ve seen the stock market recover. When, at one stage, it looked like it was going to halve in value, the major indices have rebounded strongly. At time of writing, the S&P 500 index is only about 17% off its previous high in February, and the NASDAQ is the same price as it was in November 2019. It seems a little odd, given we were at the end of a record 11-year bull market in the US, and since then COVID-19 has gutted economies around the world with unemployment, death, travel bans – you name it.

Above: S&P 500 10-year daily chart (via Macro Trends)

And a lot of that is difficult to just kickstart once more. The majority of companies, who were probably running a little fat to begin with – which is just what happens when times are good – are not just going to click their fingers and give all the same people their old jobs back.

I understand the reason the market has rebounded so strongly is because the worst-case scenario has been taken off the table. At one stage, it seemed countries like the US and Australia were going to get overrun, with a shortage of hospital beds, ventilators, and staff, but that just hasn’t been the case.

An article last week in major newspaper The Australian suggested the government’s reaction was in fact a huge OVERreaction. The article noted that only 2% of available ventilators in Australia were being used, which didn't take into consideration the other 3,000 ventilators that are on their way.

In California, where I live, it was predicted to be one of the hardest hit spots, which didn’t eventuate. In fact, last week Californian doctors and nurses have even been flown to New York to help with patients there. And New York, the real epicenter in the US, has now stabilized its healthcare and is sending ventilators to other states, like Michigan and Maryland.

There’s a report from Stanford scientist John Ioannidis that offers an interesting insight, suggesting that in pretty much everywhere around the world – including some of the COVID-19 hotspots – that the virus represents the same threat that simply driving your car does. He concluded:

“The COVID-19 death risk in people <65 years old ... was equivalent to the death risk from driving between 9 miles per day (Germany) and 415 miles per day (New York City). People <65 years old and not having any underlying predisposing conditions accounted for only 0.3%, 0.7%, and 1.8% of all COVID-19 deaths in Netherlands, Italy, and New York City."

Reports have come out about doctors getting paid more to diagnose COVID-19 in patients. Essentially, doctors are paid up to three times as much, even if there hasn’t been a lab test to confirm the diagnosis. Obviously this would inflate both positive cases and deaths attributed to COVID-19. And even Johns Hopkins, who runs the website that is considered the gold standard of reporting for this whole pandemic, admits that its numbers are just estimates.

So there’s still so much uncertainty, and we have no idea how accurate the 175,000 deaths attributed to COVID-19 actually is. That doesn’t give us a great deal of comfort, since we only know that we don’t know anything. Obviously this has huge ramifications for when things open again. It’s hard to create a plan without the data.

Last week, the retail figures for the month of March were released, and showed the biggest decline since the Commerce Department started tracking this data nearly 30 years ago. Retail sales fell 8.7% in one month alone, which is obviously an important metric since consumer spending drives two-thirds of the US economy.

Another interesting development is that countries have started to pay their own companies to relocate production out of China as part of their own stimulus packages. What’s most interesting is that the incentive is not necessarily to come home—it’s to leave China. We know that China has been very militant in the South China Sea and with many other things, so this is a non-confrontational way that neighboring countries can fight China’s influence.

When the dust settles on COVID-19, it looks more and more like China is going to be one of the biggest losers from it.

A company working to develop immunity passports just raised another $100 million in funding. It’s been working with governments to use technology that could be used for things like passports that include vaccination data and medical results to help countries better determine who they let into the country or what they can access in a given country. Clearly, that comes with many complications, but it’s an interesting insight into where the world is heading.

To finish our 'around the grounds' analysis on a humorous note, there was an odd story out of Australia when a couple was fined more than $3,000 for posting a throwback photo to a holiday they were on in 2019. The police ended up revoking the fine, but it’s not doing much for public sentiment when people are seeing police resources being used for things like that.

Thankfully, the health news is starting to appear more optimistic than the complete doomsday scenarios that were once forecast — and obviously that’s a good thing. It’s also a good thing that Wall Street is so optimistic, even though I have serious reservations about it. The stock market prices in the future, not the present, but my gut feel is that there will be more slumps to come as news and data filters through for the rest of the year. As I said earlier, most companies aren’t going to just click their fingers once we’re allowed to leave our homes and everything goes back to normal. Not to mention the uncertainty around how we interact with each other, and what things like travel, sporting events, and other public gatherings looks like.

Plus, in the last four weeks, 22 million Americans have filed for unemployment benefits, which is a truly staggering statistic.

That covers COVID-19! Now, let’s talk about what YOU can do about the situation we’re in. Here are five strategies to win during a recession.

1. Look at what has worked for previous recessions.

There’s a survey that The Hustle revealed earlier this month. They looked at more than 200 small businesses and how they survived the global financial crisis of 2007 – 2009:

The most common strategy of these companies was to cut costs so they could operate leaner. We said earlier that companies get too fat when times are good. That’s why a downturn, where you can determine what the real ESSENTIAL costs are, can be a good thing for the long-term health of the business.

The next most common strategy from this study was flexibility. You heard me say in Episode 23 that it’s important to pivot, not panic. The same strategy is never going to suit your business forever; you need to adapt and pivot as the economy changes, the needs of your clients change, and the entire competitive landscape changes.

Those two steps alone – cuttings costs and pivoting – made up 43% of the approaches used to survive the global financial crisis. But it’s important to remember that huge downturns in revenue force the business to get creative – or the business dies. Think of the earlier quote from our Greek friend, Plato: Necessity is the mother of invention. But if you panic you won’t be able to invent anything.

2. Focus on trends rather than pay checks.

Our last newsletter was mainly suited for those who wanted to make income right now. But here, we’re talking about people who have the means to be able to allocate time to a long-term strategy. The focus should always be on the bigger picture and long-term growth, if you can do it. But if you’re working two jobs to put food on the table for your family, it’s a different story. As much as you can, play the long game.

An example of a trend is the technology that is being used to help companies like rideshare and food delivery services. That same technology will inevitably be applied to dozens of different industries as it becomes easier to operate and more effective. Therefore, your best opportunity now might be to start becoming an expert in logistics tech. Then, when companies start hiring again – which for tech companies is soon because the NASDAQ has been much more resilient than indices like the Dow – you’ll hopefully have developed enough expertise in logistics tech that will get you a foot in the door.

Map that out 5-10 years in the future, especially if you do other things I recommend around establishing the right relationships, and the sky is the limit.

Contrast that to accepting a job as an Uber driver – which is an example of a job for the paycheck. There’s nothing wrong with that – again, it depends on your circumstances. But it’s much better long-term to be handy and familiar, and eventually an expert in, the tech that runs Uber rather than being a driver who will eventually be replaced by automation with no discernible skills to your name.

3. Succeed with what you’ve got.

Apple co-founder Steve Wozniak gave an insight into how he and Steve Jobs were able to create a business that would change the face of personal computing. Wozniak said that wanting to do it for themselves was the primary motive, which made it far more purpose-driven than any salary that a corporation could’ve given them.

“If you can convince somebody to want something inside for their own personal reason, they really see something that they want to do and they really feel it in their heart — that’s when you get a lot more done,” Wozniak said. “You can’t motivate people with a high enough salary to do what you will do when it is for yourself.”

Obviously that’s very true. When just a tiny startup, Apple’s biggest weakness was that they didn’t have a dollar to spare. Yet, that ended up being their biggest strength. Wozniak noted that every big win they had at Apple was from having two things in their favor: a tight budget and never having done it before.

The lack of budget meant they were FORCED to succeed with what they had. And never having done it before meant they approached their work without any preconceived notions, which underpinned the innovations they were so famous for.

Wozniak, in particular, became very good at figuring out how to do things inexpensively: “I had no money … I had to get a lot out for the least in. And I was very good at that.”

Adding to his determination, Wozniak was busy creating a product he wanted that didn’t exist. He knew there was a need – a problem – and got to work creating a solution.

4. Profit first.

You’ve heard me talk about having an emergency surplus when it comes to managing your personal finances, but rarely do companies (especially startups) do this. Entrepreneurs, in particular, are far more likely to sink every dollar and minute into their business, which can put them in a very precarious financial position – even if the business starts to take off.

In his book Profit First, Mike Michalowicz talks about how a simple counter-intuitive cash management solution from day one can help small businesses break out of the doom spiral. He does this through a behavioral approach that takes profit first, and then what is left is used for expenses and everything else needed to run the business.

Not only does this build up a cash reserve without really noticing it, like the emergency surplus I just mentioned, but it forces you to run lean, get creative with managing your business, and allows you to ride out any market downturns like we’re experiencing now.

5. Know that it’s possible for YOU.

I wanted to give you examples of some companies that were founded during a recession. My aim here is that you recognize that if it worked for these people, it can work for you too! But you need to be in the resourceful mindset to make it happen, rather than the panic mindset.

Here is a list of companies that were started during a recession:

  • Apple, who we mentioned earlier, was founded on the tail-end of the 1973-1975 recession brought on by the oil crisis. It also had to reinvent itself once more after the early 2000s recession brought on by the dot-com bubble and September 11 attacks. Apple CEO Tim Cook even reiterated in an earnings call recently that “We believe in investing during downturns.”
  • Netflix was founded just prior to the dot-com bubble, and was almost sold to Blockbuster. Eventually, cash-strapped Netflix weathered the storm and is now arguably the world’s preeminent pioneer of consumer video streaming – a great example of thinking differently.
  • Airbnb was founded at the end of 2007, as the global financial crisis hit. Using the circumstances as an opportunity, it offered short-term living arrangements for those who wanted an alternative to expensive hotels. Despite battles with various levels of government, the company is valued today at more than $40 billion.
  • Personal finance company Credit Karma went live in February 2008 as subprime mortgage panic gripped the world. The company’s founder Kenneth Lin shared his thoughts on what that period meant for his company:

    “As the recession took hold, the economy was tough, funding was scarce, and there was widespread distrust from consumers,” Lin said. “I learned in those early days to focus on the long-term. Building and scaling an impactful business requires a drive beyond making money. Having the passion to deliver on your company's purpose will fuel you through the trying times.”
  • Groupon launched in November 2008 as a way of rounding up people to buy a certain product for a group discount. It ended up being perfect timing for increasingly price-conscious consumers and today Groupon is valued at half a billion dollars.

That's just five companies that were launched during a recession, and there’s many more out there too (e.g. Mailchimp, Warby Parker, and Dropbox).


That's it for today! Remember to check out 8 Ways to Make Money from Home if you missed it.

Also, join the Win the Day Facebook group and connect with likeminded people around the world. I’m excited to announce that new segment 'Win(e) the Day' is here to stay and will be held every second Friday night! Grab a drink of choice and join us from wherever you are while I answer any questions you have and maybe even bring in a special guest or two.

Get out there and win the day.

Onwards and upwards always,
James Whittaker

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