"I choose not to participate in the recession." - Someone Clever

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This is for anyone willingly responsible for an outcome in their business or life.

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I've been thinking a lot about making it through recessionary environments.

And it comes down to a pretty straightforward thing.

Cashflow.

But also, there's more.

Here's the context:

Historically, we’ve found that economies operate in cycles, primarily through debt and inflationary cycles.

Individuals and businesses in an economy go through periods of increased spending when they can borrow money easily. Eventually, people in that economy lending money become less willing to do so, borrowing gets harder, everyone has to cut costs to keep going without the crutch of extra borrowed money, and the people who can’t survive the cost-cutting get taken out of the game.

Similarly, countries tend to print money, encouraging spending and borrowing within their country, making the previously mentioned debt cycle even more extreme. Until the impossibility of printing fake dollars to get real work from citizens shows itself, the economy crashes, and a politician says they’ll never do that again. And the cycle repeats when someone else decides to take control of the printing press for themselves.

All this is to say that economic cycles have been happening for centuries.

This means you can learn how to deal with them.

(Side note: If you’d like a more complete explanation of the debt cycle of an economy, watch this excellent video by Ray Dalio, one of the most respected investors of our time.)

​Ray Dalio's YouTube Video​

So, when an economy is said to be “doing well,” it’s often said that “cash is cheap,” meaning interest rates are low. It’s easy to borrow money for business experiments, take risks, and even play games with debt to the point that they find what seems like “infinite money glitches” where they can borrow simply as a lifestyle.

During times like this, innovation and growth are often valued. Slow-growing, bootstrapped (businesses that don’t take a lot of money from outside investors or lenders but reinvest profits to grow instead) companies aren’t respected. Venture-backed startup companies use the large amounts of cash they’ve been given to take bold risks. And those founders get written up in the newspapers for their “adventurous spirit.”

But when money gets “expensive” and people aren’t willing to lend or invest it, many founders disappear as their companies go bankrupt. And bootstrappers get put on the front page of magazines for their “persistence” and ability to be a bastion of support for their employees during these “trying times.”

What relevance does this have to you about operating during a recession?

One reason is that anyone can behave like the founder of a bootstrapped company.

Anyone can ensure they don’t spend more money than they make. And that's where you start.

That’s the basic idea of how to make it through a recession.

Budget properly. Find a way to be a stabilizing force.

Don’t die.

This is why everyone becomes focused on cash flow and, ultimately, profit, during recessions. It’s the simplest metric for a company that might make it through the recession.

Now, that’s wildly boring, and you might say it’s not that simple.

Because it’s not.

Additionally, there are advantages to taking on investors, debt, and engaging in other risky actions. There’s the potential for a big upside. And a lot of bootstrapped companies miss out on this during the good times because they’re so caution oriented. Yes, they survive the hard times, but they often fail to meet their potential while startup companies are skyrocketing around them.

There are other ideas to consider when dealing with a recession.

As I’ve been thinking about them, they seem to fall into three major buckets. And, interestingly, they match the traits of a good leader.

The budgeting, spoken about earlier, could be referred to as stability.

The next comes from an important truth:

The people willing to push during the hard times win.

Recessions are often the time of the greatest opportunity of all. Because, one, if you can make it through at all, you’re more financially stable to take advantage of the growth available once the economy begins to soar again. Two, if you survive when others don’t, you can take market share from those who went out of business. But three, more interestingly, if you introduce a product or service during a difficult time and it helps others through, you’re often rewarded with outsized returns.

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Some of the largest companies of this century were founded during terrible economic times:

• General Electric - 1892
• General Motors - 1908
• IBM - 1911
• Disney - 1929
• Hewlett-Packard - 1939

(For reference, the Great Depression was from 1929 to 1939)

And more lately, Google, Salesforce, and Facebook were all started right before economic meltdowns.

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Why? Because a good business makes life easier. And these companies introduced innovations.

When life is already easy (when money is “cheap” and the economy is booming), people are caught up in their projects and willing to deal with the extra energy or wealth expended by doing something “the old way.”

But when the economy takes a downturn and life gets hard, people become willing to change direction to survive. And if a business provides something that helps people “make it through,” it makes a lot of money.

I won’t review the whole list, but General Electric made energy access cheaper. Something essential to efficiency and profitability.

And Disney provided low-cost entertainment that could give people joy when they really needed it (fun fact, alcohol and other entertainment industries tend to make a lot of money during recessions).

These three things appear in many different ways. But more and more, I’ve noticed that stability, innovation, and entertainment tend to win during hard times.

So what does this mean you should do today?

Be a rock, a comfort, and a source of forward motion.

Stabilize yourself and the people around you, be someone others would want to be around, whether through inspiring feelings of comfort, safety, or entertainment. And be an innovative force that provides people a better way.

These are the three things to do during a recession.

If you do these things, not only will you be able to make it through a recession. When you’re on the other side, you will have positioned yourself for explosive growth.

The stability you’ve maintained will remove the need for recovery when things improve, the comfort will draw people to you, and the innovation will prepare you to take advantage of cheap lending or investment capital when it becomes available.

This is also how to make it through the hard times as an individual.

Be a rock, be a comfort, and be a source of forward motion.

This is how you win the long game.

This could also be referred to as helping people survive, take a break, and move forward.

Sound familiar?

It’s called living.

And the more you can contribute to those three fundamental aspects of living, the more you can win.

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If you’d like to have me as your coach, I accept a small number of clients. I currently have space for three or four. If you enjoy my writing, then we're likely a good fit. Click here to work with me.

Best,

Josh Terry
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