While people are hesitant to accept the likely reality that we are heading into a recession, we’re seeing higher interest rates, less venture capital funding, and widespread layoffs in the tech industry. Despite the uncertainty, there’s some good news: even if we are facing a recession, these moments are temporary. The real difficulty is in not knowing how long they will last.
How do I know this? Because we’ve been here before. Maybe you were a leader or a rising star in your organization, but many of today’s professionals were likely impacted by the 2008 recession. That’s why it’s important to take lessons we can learn from past companies about how they survived and bounced back.
Lesson 1: Stay laser-focused on your core customers
It’s critical to maintain a rock-solid base of core customers. Your number one priority should be meeting their needs.
Any strategic decisions you make need to be aligned to your core customers’ current needs, but unlike “normal” times when you have a pulse on trends, a recession can cause an upheaval in expectations. The combination of uncertainty and external pressures can cause your customers’ behaviors and preferences to change significantly. You need to take the extra time to understand what your customers are facing and adapt accordingly.
Companies that stay focused on their core customers can maintain them and even expand. For example, MailChimp leaders felt immense pressure during the 2008 recession and the company reinvented itself with a “freemium” version of its products. By doubling down on its brand and deeply understanding its customers’ needs they we’re able to stay top of mind for customers. MailChimp built a loyal customer base and increased its market share, thus continuing to flourish after the recession, resulting in its 2021 acquisition by Intuit.
Lesson 2: Don’t stop innovating
After 2008, only 9% of companies “roared out of the recession,” posting results that exceeded peers and their own pre-recession performance. According to Harvard Business Review, “These firms managed a delicate dance, playing both offense (investing in growth opportunities including new businesses) and defense (cutting costs and investing in operational efficiencies) in response to external shifts. Even while reducing overall spending, they were able to carve out resources for new endeavors.”
It’s not just about investing in the next shiny new thing but rather accurately anticipating what’s next and which pain point is likely to endure.
In the aftermath of the dot-com crash in 2000, investors were wary of online companies. Salesforce began aggressively marketing itself as a cloud-based platform with its “the end of software” tagline. Salesforce was placing a bet that even though many online startups had failed, cloud-based products were the future. It paid off: Revenue jumped to over $100 million by the end of 2003.
Lesson 3: Prioritize rapid experiments and quick wins
Just as your customers are feeling pressure from a recession, you may also have limitations to your resources or budget. As previously mentioned, innovation might be how you end up coming out ahead. The key is finding ways to innovate given these constraints, and without the luxury of time to try different tactics. Executing quickly means tightly aligning your product, sales and marketing teams. Any changes need to get into customers’ hands quickly, with the right resources and the right messaging to catch their attention.
In early 2008, Airbnb was launched. At the time, the co-founders had no idea that a recession was looming. Yet the company plowed ahead, serving as an alternative for popular events when people weren’t able to find hotel accommodations, such as SXSW and the Democratic National Convention. By running these experiments in different markets, the company grew and was able to find investors, including a $112 million investment in 2011 led by Andreessen Horowitz.
Lesson 4: Invest where competitors are cutting back
A brief caveat: This lesson only works when you can afford to do so without putting your business at risk. But if you are in a position to invest — whether it’s in talent or other assets — this can be a highly strategic time to do so. The talent shortage has been a major problem for the past several years, and will continue to be a top priority for leaders for the foreseeable future. So this could be the ideal time to make opportunistic hires or acquisitions for your organization.
Harvard Business Review reports that from 2008–2010, big tech acquired hundreds of new companies and patents. “In addition to gaining employees and assets, it’s the right time to gain market share by attracting dissatisfied customers from competitors as they cut down on customer services.”
Lesson 5: It might actually be the perfect time to start something new
It’s actually quite common for new companies to get started during a downturn. There are several factors that can give founders an extra push, whether they have savings set aside, layoffs lead them to reevaluate their priorities, there’s a lack of appealing employment opportunities, or the new circumstances help them uncover new opportunities.
This was the case for Jack Dorsey, who founded Square in 2009 due to lingering distrust in traditional finance providers after the global financial crisis. “There is no better time to start a new company or a new idea than a depression or recession,” said Dorsey. “There [are] a lot of people who need to get really creative to create something new.”
Final thoughts: Great leaders never forget their people.
Uncertainty is stressful, which is why people feel uneasy in the ambiguity of the current economic situation – we don’t know how long it will last. As a leader, your responsibility goes beyond your individual contributions to your company. You need to consider how your people are faring under these less-than-ideal circumstances.
Make sure you consider your employees’ perspective too. How are they feeling? What are they unsure or worried about? We’re more disconnected now than we were in 2008 due to the shift to hybrid and remote work. You need to communicate, proactively build relationships, and do what you can to motivate them. Don’t underestimate the impact of rallying everyone around your mission and vision. Remind your team why you’re doing what you’re doing — and make sure they know how much you value their contributions.