When approaching this subject of economic cycles, it’s important first to define what an economic cycle is. An economic cycle is the fluctuation of the economy between periods of expansion, or growth, and contraction, or downturn. These fluctuations can have either devastating or positive effects on entrepreneurs.
This is not meant to serve as an investment or financial guide. However, I’ve put together seven basic principles based on the Podcast episode with my husband Greg, a former registered investment advisor who consistently follows the market. My hope is that these steps will help entrepreneurs maneuver and even thrive through some of the challenges based on changes in the economy. (Also see Financial Principles)
Principle One: Reduce then Expand
Many remember the downturns of 2001, 2009 and the recent 2020. During an economic expansion, production increases, younger workers are hired and the market expands. Life is good. But during a downturn, life is not as good.
Similar to the music stopping in musical chairs, production stops with too much product. Credit is much harder to obtain. During this time, start by cutting production or reducing output to stay afloat. This takes a hard evaluation of all areas and leads us to our next principle in making cuts.
Principle Two: Let Go of Non-Producers
Figure out what’s not working and costing you money, time and energy. This is a tough one when realizing you need to let staff members go. In many businesses, those people have become your extended family. It is much easier to hire than fire, so with every new hire in an upturn, evaluate carefully.
This same principle applies to product. As an artist, I really have to evaluate this area carefully because I love to create. As the past producer of dozens of CDs, I worked hard on evaluating each product carefully in accordance to what was selling but was not always successful. However, I am finding some of those products are now selling with a different marketing approach. I hope this encourages many artists who may be reading this to look hard at your content. Just don’t be afraid to cut bait if your marketing dollars are in a sinkhole.
Principle Three: Re-imagine the Future and Re-confirm Your Value Statement
Economic downturns bring a reshuffling of the deck and I have asserted it levels the playing field. You want to look hard at what the next expansion will offer. This takes taking time out to think and study the market. There are plenty of articles and information to accomplish this task.
You also want to evaluate what you used to sell that still has a demand. Is your delivery system still viable? Restaurants had to go through a huge reshuffling experience to just survive during 2020. Many of them now have implemented delivery systems they will maintain through any economic change. Ask the question, What does the economy need that I can provide? Your selling proposition should include that answer. Most every value statement should also include some sort of experience.
Principle Four: Update Technology
The uptick in using technology has never expanded so quickly as in 2020 with all things becoming virtual. There are many subscription services now available that use artificial intelligence to act as an assistant to your business. Although I usually caution entrepreneurs to not be subscription poor with too many monthly fees! (See Technology Tools)
From hiring out virtual assistants through companies like Upwork or tasks through Fiverr or Toptal, more and more options are being made available daily to help you stretch your dollar. To prepare for a downturn, keep your recurring costs low. Also recognize you are the customer of your vendors. If they aren’t giving you what you need, it may be time for a change or they should adopt to the changes you need.
Principle Five: Focus on Profitability
I love to focus on the principle of low-hanging fruit as I’m a farm-girl at heart and we have a number of fruit trees. The fruit I pick first is at eye level or below. Since I’m not fond of ladders, I can put off climbing at least for awhile. For low-hanging fruit in your business, sell what you’re good at. However, selling is not necessarily profit. (Download Economic Cycles graphic here)
You can’t buy groceries with sales. I added my Learn Music Again program in 2020 because it’s low-hanging fruit as far as my vast writing, performing and teaching experience. I realize many clients are horizontal and will cross over to my other programs and even though I’m not losing money, I expect this to be more profitable this next year. Meanwhile, I’m redefining my sales process to provide more of an experience using video and offers to generate quality leads in all areas.
Principle Six: Design a New Sales Strategy
Without sales there is no profit. Something I’m constantly reminded of is that marketing is not sales, but sales needs marketing. Lots of businesses love to focus on how wonderful their service is and hope it will sell itself. But if you can’t sell it, is it truly wonderful? If it is, triple your focus on sales.
Selling skills can be fixed much faster than a poor product can be improved. If an artist, writer or inventor, you probably will have accumulated a lot of product. Using an economic downturn to evaluate that product to repurpose it and revise your sales strategy could actually save your business. During COVID, we heard of distillers using their large distilling vats and their access to alcohol to produce hand sanitizer so intensely needed during the pandemic. They have not only survived, but thrived. (See article: Take Opportunity)
Principle Seven: Anticipate the Next Correction and Don't be Caught Expanding into it.
This is a very important principle to immediately apply. Individuals that study the market intensely can predict trends, but still not completely predict a full downturn. The principle here is to expand when it’s easy to make money, save, and then de-leverage during downturns.
It’s better to miss opportunities than be forced to fold. Greg gave the biblical illustration of Joseph who gathered grain in large vats for seven years, anticipating a time of famine for the whole land. In fact, they stopped keeping track because the supply was more than they could even measure. (Genesis 41:49) By doing so, Joseph circumvented starvation, economic crisis and even the collapse of a country. The illustration stands as a great principle for today. Have plenty put aside for times of famine and economic downturn because economic cycles do happen, for both expansion and reduction. Similar to Californians ideally having supplies for an earthquake, everyone should be prepared for economic cycles!
Expand when it's easy to make money...save...then de-leverage during downturns.
Thought Leader, Keynote Speaker, Author
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