Six Counterintuitive Ways for Smart Entrepreneurs to Handle the Recession
April 16, 2009
In contrast to the common perception that the Great Depression was a time of suffering for all Americans, in fact about a third of the population maintained their standard of living, and another third of the population did better in the course of the 1930s than they had done before.
Hard economic times can provide excellent strategic opportunities for entrepreneurs who are willing to buck conventional wisdom. With this in mind, here are six counterintuitive principle-based ways for wise entrepreneurs to thrive during recessions.
1. Raise Salaries
While most businesses use downturns as excuses to cut back on investments in employees, smart business owners will do the exact opposite and capitalize on the opportunity to build leaders. The principle behind this is that people are the only true assets. Show strength, vision, and most importantly, gratitude to instill a culture of production and loyalty, rather than fear, and to get the best out of your people. It's common sense that people who feel valued perform better.
2. Spend More
There are two general types of liabilities: consumptive and productive. Productive liabilities are attached to a corresponding asset that provides an increase in cash flow. The common tendency is to shrink budgets when hard times hit. The smart approach, however, is to identify where your money will have the most impact and increase your spending in that area -- even if it means borrowing money to do so.
3. Meet Less, Empower More
Far too many business meetings are unproductive, too lengthy, and involve unnecessary people. Empower your people by setting clear expectations and boundaries and then letting them make decisions and lead in their sphere of influence. Give them more responsibility and then follow through by holding them accountable.
4. Liquidity, Liquidity, Liquidity
Many businesses fail because of the classic "asset rich and cash poor" syndrome. When money is tight, and especially when you're uncertain when the situation will change, you can't afford to lock your money up in retirement plans; you need control and liquidity. Ultimately, your business is a far better investment than a 401(k), especially since it can provide ongoing cash flow without the worry of depleting principal.
5. Focus, Not Diversification
When times are hard and people become fearful, they will often take a shotgun approach to business, shooting as much as possible and crossing their fingers and hoping they will hit something. The best entrepreneurs, however, pick up a rifle, identify the right target, and nail the bull's-eye. The more difficult the economic environment, the more important it is for you to focus on your core passions, values, and competencies.
6. Embrace Change Through Education
Recessions are times of great change and upheaval. Those who struggle often do so because they cling to the past. It's critical for you to stay on the cutting edge of innovation through a lifelong pursuit of education. The most successful entrepreneurs are those who are constantly reading, attending seminars, engaging with mentors, and exposing themselves to new adventures and ideas.