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5 Ways to Fight the Downturn

With a little common sense and a lot of hard work, your business can boom in any economy.
Magazine Contributor
Owner of Make a Living Writing
5 min read

This story appears in the August 2008 issue of Entrepreneur. Subscribe »

We asked these entrepreneurs who made it through two recessions--and not only survived, but thrived--for their tips on coping with slow times.

The entrepreneurs come from different sectors and regions of the country, but a few common themes emerged. They all agree that discipline developed in a downturn can lay the groundwork for long-term success. Once you're focused and running lean, you're ready to make the most of the upswing when it comes. Their key advice:

Overhaul the business model
Does your business plan still make sense? The founders of staffing firm Hire Dynamics in Duluth, Georgia, asked themselves this question just a few months after opening their doors in 2001. Initially, the company focused on industrial warehouse and call center staffing, says co-founder and CEO Dan Campbell, 37, who started the company with college roommate Jon Neff, 37. After 9/11, the call center industry went into a slump, so Hire Dynamics diversified into two other niches where hiring was still brisk: sales executives and pharmacists. "Even during downtimes, we still go to the drugstore for our prescriptions," says Campbell. The company expects 2008 sales of $50 million.

Melissa Rolston, 50, and Randy Rolston, 52, co-founders of Victorian Trading Co. in Lenexa, Kansas, were forced to contemplate a substantial change to their business plan in the early '90s. Founded in 1987 as a retail card maker and mail order catalog operation, the company found customer orders drying up when savings and loan troubles tanked the economy and interest rates skyrocketed. At the time, Victorian Trading Co. had a half-dozen employees and annual sales were about $3 million.

The couple began selling their products to retail stores. While margins were lower, the larger orders and lower marketing costs made wholesaling a viable alternative, says Melissa. Today, Victorian Trading Co. has grown to six catalog divisions and 180 employees, and sales are expected to top $20 million this year.

Don't stop marketing
When the chips are down, companies need to get their name out there, says Barbara Weltman, coauthor of Small Business Survival Book: 12 Surefire Ways for Your Business to Survive and Thrive. "You don't necessarily have to spend more money," she says. "You have to market smarter."

That's advice Mary Naylor followed when her first business, Capitol Concierge, hit the early '90s downturn. The company provides large office buildings and their tenants with concierge services.

Naylor surveyed existing customers to learn their event calendars so she could be sure Capitol Concierge's services were included. "We mapped out when their decisions would be made and identified opportunities to grow our business," she says.

Capitol Concierge made it through the slump and its sales more than doubled before Naylor sold the company last fall. Naylor, 45, is now co-founder and CEO of 10-year-old VIPdesk, an Alexandria, Virginia-based provider of virtual contact centers and concierge services that expects sales of $12 million this year.

Cut expenses
When revenue slows, it's time to slash overhead. But it's important not to lose critical personnel.

Ascendant Technology, started during the economic slump in 2002, rented out its CFO part time to outside parties to help pay his salary, says co-founder and presi-dent James Deters, 33. The Austin, Texas, IT services company pulled through the downturn and expects 2008 sales of $55 million.

At Seattle compensation data provider PayScale, also started in 2002, founder Joe Giordano, 40, offered his first engineer an equity position in the company in exchange for a pay cut until the market for venture funding improved. This year, PayScale is expecting $9 million in revenue.

Look for creative ways to save beyond staffing, says Weltman. "You can barter for goods and services," she says. "If you normally travel [for business], maybe just videoconference."

Keep the cash flowing
When less revenue is coming in, manage cash flow aggressively. Following 9/11, Victorian Trading Co.'s sales plunged and the company was close to bankruptcy. Melissa says she personally called more than 200 vendors to negotiate better terms, which meant she could keep cash on hand longer.

At Capitol Concierge, Naylor says she had her staff focus on making sure clients paid promptly. "We revised all our client billing cycles and started billing a month ahead," she says. "Then, we'd make calls the day invoices were due."

Find the upside
Don't get discouraged in a downturn, says growth consultant Andy Birol of Birol Growth Consulting. Many niches often pull through unscathed. Find them and use the discipline you've developed during the bad times to flourish as the economy recovers. "Don't assume demand has vaporized," he says. "It hasn't, but the way demand is getting met has changed."

At Victorian Trading Co., Melissa says that after learning hard lessons from two recessions, she tries to run the business as if the economy is always down. "I think the recession is a wake-up call," she says. "After what we survived in 2001, we are so empowered, I think we could survive anything."

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