How to Prepare Your Business for a Recession

Things are looking grim:

  • The S&P 500 is down 20% YTD (source).
  • Tons of layoffs at big tech companies: Klarna laying off 10% of staff. ClickUp laying off 7%, On Deck laying off 25%, Cameo laying off 16%, Rivian getting ready to lay off 5%… and so many more that’s it’s impossible to keep up (source).
  • CPI — aka inflation —at +8.6% over the past 12 months (source).

We’re seeing this in our business too:

Sales data for Originals 2022.
June 2022 was down 21% year-over-year, a marked change from previous months.

It feels a bit like we’re all squirrels nervously stacking food for a cold, dark, long winter.

As I prepare our businesses at AppSumo Originals and Albedo for dark times ahead, here’s what I’m thinking.

1) Understand the foundation — start tracking your key metrics better. Think like a pilot of an airplane. What indicators do you need in front to tell your position, altitude, speed, and other important things? Think both leading AND lagging indicators. Too many CEOs and leaders follow lagging indicators (e.g., revenue, which is really impacted by other levers first and we often find out revenue too late). Right now, I’m looking at trends like web sessions and conversion rate further up-funnel to understand trends.

2) Save where you can — Get your business finances in order. The question I’ve been asking myself for the past couple months: “Where are we spending money right now, and where can we cut?”

Often, our “must-have” tools can be either be: A) Renegotiated at a lower price; B) Substituted for a lower-cost alternative. For example, we use SendGrid to power our backend email deliverable sending for customers on our product SendFox. We were paying ~$2,000 per month in overage charges. We simply increased our tier and it cuts down our bill by 30% every month.

And, “nice-to-have tools” should be revisited and dropped where not necessary. Think ROI. What’s the ROI you’re getting for your spend? The tools should either be mission-critical to your business by saving you tons of time or making you tons of money. As the AppSumo CEO Noah Kagan told me recently, everything has to be “ROI+” right now.

3) Every downturn represents an OPPORTUNITY — Revisit your product messaging and angling. First, trim the fat. Then, add on muscle. After you’re operating as leanly as possible, think about pivoting your messaging to talk to your customers more appropriately in the present climate. My great business coach Jackie Schwabe mentioned how she’s seeing more results from organic content and Google AdWords (and less results from Meta/Facebook).

At AppSumo Originals, we’re focusing our messaging on helping customers cut cost on their expensive software with our lower-priced alternatives. A new economic climate means a chance to reposition and come out on top. Pay attention to customer sentiment.

4) Put on your personal oxygen mask — Have 3+ months in personal “emergency” savings. You can’t focus on your business if you’re terrified about putting food on the table or ending up homeless. It’s important to have a safety net in case your business goes under. This great article from Financial Samurai gives some helpful data: “Since 1980, the three bear markets have lasted between three months and 2.1 years. Therefore, it’s best you have enough cash to cover three to 36 months worth of living expenses.” My personal thought is this recession will last till about July 2023.

The sooner you start preparing for this recession, the easier it will be when #$%^ really hits the fan.

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