Should Small Business Owners Be Worried about a Recession?

Jul 14, 2022 | Growth, Money & Life

There’s a small village in interior Alaska called Anaktuvuk Pass. It sits inside the Gates of the Arctic National Park, the northernmost national park and the least visited park in the United States. Anaktuvuk is an anglicized version of an Inupiaq word that means “place of caribou droppings.”

Villagers hunt caribou as their primary source of meat and use caribou skins for clothing and shelter. Caribou, or reindeer, live in the regions around the Arctic—Alaska, the Yukon, Northwest Territories, Siberia, and Northern Europe. Some subspecies make their homes on the tundra. Others prefer the boreal forest. Some groups of caribou stay in one place, while others migrate with the seasons.

Caribou populations cycle through periods of boom and bust. Every decade or so, the number of caribou will rise, reaching peak abundance. Then, the population will decline again. Caribou populations go through a complete collapse every forty or fifty years, with herds losing 80% of their members in a cycle. Caribou population cycles mimic the climate cycles found in the Arctic. In warmer years, insects wreak havoc on caribou and prevent them from eating their fill. New births decrease as cows are too stressed to maintain a pregnancy. Disease and predation take their toll. But then the cooler years arrive, and the caribou population quickly recovers. Of course, the long-term effects of man-made climate change may permanently disrupt this cycle.

Caribou “do not only migrate through space: their numbers are unfixed in time. There is no one historical moment when the herds are not either recovering or preparing to falter,” writes Bathsheba Demuth in her book, Floating Coast.

The indigenous people who depend on caribou for sustenance and protection from the elements adapted to these population cycles. They change their diets and move to new locations when caribou are scarce. When the caribou population surge again, they migrate back inland and resume the hunt. Indigenous people seek balance—and live with these cycles rather than fighting against them.

While scientists still don’t know the complex cause and effect of caribou population cycles, they know that population cycling has been occurring for centuries. Along with Arctic climate cycling, it’s a natural phenomenon. Surge and collapse. Boom and bust.

Today’s news is full of profoundly troubling headlines, including talk about an impending recession. So today, we’re tackling economic cycles, the causes of recession, how the online business space is a microcosm of boom & bust cycles, and how to think about a potential economic downturn as an independent worker or business owner.

Nature is full of boom and bust cycles. One cycle on my mind as the heat of summer sets in is the beargrass flowering cycle. Beargrass is the official flower of Glacier National Park in northwest Montana. This unassuming plant sends up a long, thick stalk every seven years. The top 5 or 6 inches of the stalk buds and then flowers—hundreds of tiny white flowers in the shape of a bell. You can find beargrass every year inside the Park and on the mountainsides of the Rockies. But on a “good” year, a frothy sea of white rises to your hips as you hike along a single-track trail.

In Braiding Sweetgrass, Robin Wall Kimmerer describes a similar cycle called mast fruiting. Pecan trees belong to the group of plants that don’t fruit every year but instead store up resources over a few years and then produce nuts all at once. Pecan trees don’t do this individually, though. All the pecan trees in an area will take up the task of fruiting together. Kimmerer writes, “If one tree fruits, they all fruit—there are no soloists.”

Cycles are part of life. Some cycles are pretty short—like the mayfly that is born, reproduces, and dies all within 24 hours. Other cycles take millennia to complete, as in the glacial cycles that control the Earth’s ice ages.

Fighting a natural cycle takes vast amounts of energy. It’s resource intensive. But living with, even using, a natural cycle offers balance.

Our economy is unbalanced. Not only in terms of wealth or equity—but in terms of our expectations for what it’s “supposed” to do. Policymakers and bankers manage the economy for continual growth rather than balance. To understand the cycle that causes recessions, we will explore why and how our economic management process works. Plus, we’ll dig into how that management process informs our own decisions as business owners and independent workers.



What Is A Recession?

A recession is a “significant decline in economic activity.

There is no one economic indicator that tips a growing economy into a contracting one. There are many factors: GDP, consumer spending, unemployment, the stock market, etc. The Business Cycle Dating Committee, part of the Bureau of Economic Research, weighs various factors across multiple sectors of the economy (e.g., housing, manufacturing, exports, etc.) and decides whether conditions constitute a recession.

It’s not a scientific process.

It’s also a process that lags behind the indicators. Because the economic indicators that signal a recession have to decline for a sustained period, a recession might begin six months or more before it’s officially labeled as such.

Political and economic institutions funnel immense resources into maintaining continual growth.

Research, collaboration, historical analysis—they pour time and energy into keeping the line always going up. They’ve effectively set the expectation that constant growth is natural—and when growth slows down or even reverses, that’s unnatural.

We expect the gross domestic product to tick up every year. We assume a baseline inflation rate that allows salaries to rise and assets to appreciate. We take policy action to ensure that the population keeps growing and new jobs are constantly created.

Yet, as hard as we fight it, the economy cycles.

According to Investopedia, the average economic cycle in the United States is about 5.5 years. But the length of the cycle and its phases can vary dramatically. Each economic cycle is comprised of 4 phases. The expansion phase sees gross domestic product rising, household incomes increasing, and production ramping up. The peak of a cycle makes us feel confident in the economy—maybe, a little too confident. During the peak, growth maxes out, and imbalances occur. The peak then leads to a correction—or the contraction phase of the cycle. Growth declines or reverses, and employment rates drop. Finally, the trough is the low point of the cycle and the start of a recovery leading into a fresh expansion phase.

For a time, economists and policymakers assumed that economic cycles were natural, like the caribou’s population cycle.

But just because something happens frequently doesn’t make it natural or inevitable. Economists and policymakers believed they’d discovered how and why cycles occurred—enough so that they could manage the economy with careful monetary policy. But especially since the 1970s on, when Nixon severed the connection between the dollar and gold, things have been weird.

Since the 2008 recession, the usual indicators of economic cycling confounded economists by repeatedly providing conflicting data points. All signs pointed to a downturn in 2017, yet the economy continued to grow. Signs pointed to recession again in 2019, but the economy continued to grow. We know that 2020 brought an economic shock and financial disaster for many people and companies. But it was more of an anomaly than a full-blown recession. After the initial shock, corporate profits continued to soar, and money poured in from the federal government. 2020 was an economic crisis for some, but for others, it was payday.

Most mainstream economists agree that the economy just doesn’t make sense right now—and it hasn’t for some time. All of the things we thought we knew about economic cycles and early indicators of contraction have gone out the window.

So how did we get here? Where are we going, economically speaking? And what does that mean for you as a small business owner or independent worker?

First, another brief ecological digression.


Predictable, But Not Natural

A few years ago, I started to see signs around town warning me to “stop the spread.” No, these weren’t publicizing ways to prevent infecting others with COVID-19. This was well before the start of the pandemic.

The signs were urgent announcements to stop the spread of the spotted lanternfly. The spotted lanternfly is an invasive species in the US, South Korea, and Japan. It was first cataloged in the US in Berks County, Pennsylvania, in 2014. Berks County is just to the northwest of where I live. It took until 2016 or 2017 for me to have heard much about it. And I think it was 2018 when I started seeing those signs. I saw a couple of lanternflies that year, but not many. By 2019, they were everywhere. Today, lanternflies are all over the northeast, mid-Atlantic, and even stretching into the south and Midwest.

The lanternfly’s preferred habitat is a tree, also invasive, commonly known as the tree of heaven. It’s taken over the sides of highways and proliferated through areas with less active maintenance. And it’s most dense when the sticky summer heat is at its worst. Last week, I told Sean that that tree looks humid to me.

I hate it. One of the most disappointing parts of returning to Pennsylvania after a road trip to Montana or Maine is noticing the subtropically green tree go from nonexistent to sparse to suffocating along the side of the interstate.

Invasive species cause quite a bit of damage to an ecosystem—upsetting its balance.

As they multiply, they strain the ecosystem’s natural resources: water, food sources, and habitats. The most “successful” invasive species often push out native plants or animals by gobbling up all the food in an area first. While native species are used to vying for resources with the usual members of their ecosystem, they have difficulty adapting to invasive species because they exploit the ecosystem in new ways.

An ecosystem can boom and bust as an invasive species takes hold over time. An ecosystem in balance can quickly be pushed off-kilter when a new predator or aggressive plant moves in. That new species seems to boom while the native species go bust. Then, as the new species take over, it can overextend itself—and the invasive animal or plant goes bust. Eventually, another new species move in because they find something to eat and start their own boom. Ecosystems do cycle naturally—like in the Arctic. However, an invasive species often causes a predictable but not natural cycle that can completely reshape the environmental contours of an area.

The economic cycles we’ve experienced in the 20th and 21st centuries were not natural.

But they were predictable.

Pre-capitalist economies certainly cycled. Drought, famine, disease, and war could disrupt an otherwise stable economy. But capitalism introduced new variables into the system. At first, market systems did a lot of good. The industrial revolution did improve the standard of living for most people in Europe and North America. But as capitalism evolved and became more entrenched, capitalists found ways to extract value from the system without regard for the effects. Neoliberal capitalism removed many checks and balances on private companies, capital, and markets, transforming the economy starting in the 80s. The invasive species have had a field day.

I think what’s always tricky to reckon with when we talk about capitalism is that market forces have created many things that make our lives better today. Technology, health science, accessibility of food and water, and transportation—the profit motive has led to real innovation. But at the same time that it’s led to real innovation, it’s led to real damage and gross inequity. The innovations that make my life easier make many other people’s lives much harder. Capitalism, as a system, teaches us to see these trade-offs as inevitable. As natural.

The invasion of new economic predators, we’re led to believe, is good for growth.

Historian Timothy Snyder calls this the “politics of inevitability.” As he told Ezra Klein back in March:

What the politics of inevitability does is that it teaches you to narrate in such a way that the facts which seem to trouble the story of progress are disregarded. So in the politics of inevitability, if there is huge wealth inequality as a result of unbridled capitalism, we teach ourselves to say that that’s kind of a necessary cost of this overall progress. We learn this dialectical way of thinking by which what seems to be bad is actually good.

Because the politics of inevitability assures you that whatever the good things are, they’re being brought about automatically by some invisible hand, right? The market is like Mom. You know, it’s going to take care of you with that invisible hand. And you don’t have to think about what the values might be, what you actually desire. You lose the habit, right? You never perform the mental gymnastics of stretching to figure out what a better world might actually be because you think you’re on track to that better world no matter what happens.

“Profit” and “growth” are the prevailing values of capitalism.

What’s valuable is what creates profit or growth, or ideally, growth and profit. Profit is expected to grow continually. So any action that makes it easier for profit to grow is an action that the system sanctions.

Companies spurn regulations that might make it harder to make a profit—things like a higher minimum wage, health insurance standards, and environmental policy. But they love codes that make it easier to profit—think patents, trademarks, and other forms of intellectual property protection. Companies might claim to have values like fairness, inclusiveness, respect, accountability, and trust. But those values are typically only operationalized in service of growth and profit.

As Snyder points out, the politics of inevitability have trained us to see the harm this can do as a necessary component of progress. The bad stuff means we’re doing something good! The effects of this progress are natural and welcome. We learn not to question the system or its values—what better alternative could there be?

As Professor Pangloss would say, it’s all for the best in the “best of possible worlds.”

The politics of inevitability is really what we’re talking about when we talk about economic cycles as being natural.

Capitalism is the inevitable result of all human progress—so if the economy cycles in capitalism, it must be a normal, even welcome, part of how things work. Right?

But humor me. What if we take a different perspective instead of looking at economic cycles as an inevitable feature of the best of all possible worlds?


What Drives the Economic Cycle?

What fuels the expansion phase of the economic cycle? And what is happening in the contraction phase as a result? First, we’ll look at potential answers from a macroeconomic angle, and then I will demonstrate the same phenomenon within the online business space.

During the expansion phase, capitalists learn how to make money in new and novel ways. Financial innovation drives growth. Value is extracted from the economic ecosystem at increasing rates. Capitalists seize on resources and commodities to grow their wealth.

By the way, a “capitalist” is just someone who owns capital—resources, commodities, or financial assets—and uses it to generate profit. For example, a “venture capitalist” is someone who funds a business before it scales up so that they can profit from the future value of that business.

Let’s look at this financial innovation in action.

In the 1920s, before the Great Depression, new forms of consumer credit, financial speculation, and trade protectionism fueled growth. Investors took advantage of cheap money to play the stock market—long before most people even knew what that meant. Loans backed by loans backed by loans fueled growth and profit. Once the market became disastrously over-leveraged, the stock market tanked, and there was a run on banks.

In the late 1960s, increased military spending due to the Vietnam War led to precarious growth. Sure, the government was spending money—but the defense industry was getting rich.

In the 70s, we get the Great Inflation—a combination of currency speculation, dramatic increases in oil prices, and short-sighted political maneuvering at The Fed.

In the late 90s, investors went all in on internet companies. They poured billions of dollars into unproven startups that lacked any sort of revenue model. The Nasdaq—the exchange where most of those stocks were listed—grew 400% in just a few years. But then, the bubble burst. That led to a 76% decrease in the value of the Nasdaq stock exchange over two years and prompted the 2001 recession.

And finally, the Great Recession in 2008 resulted from the subprime lending crisis—a speculation scheme I covered in Episode 377. Investors were so enamored with their new financial products and money-making schemes that they failed to see how precarious their positions actually were. They sold out average and unwitting consumers—and as a result, millions of families lost their homes and their retirement savings in the collapse.

In the case of each of these recessions, the Fed took action to cool off the economy before things got too bad. The recessions happened anyway. When policymakers get in on the act, it’s always to protect capital and get the economy back on a growth trajectory. They do this, ostensibly, to help “families” or “workers,” but there is rarely direct relief. Monetary policy still assumes a trickle-down approach.

Looking at these recessions through the politics of inevitability, it all seems natural.

Growth happens. Trying to control or regulate that growth just leads to a painful contraction. Milton Friedman might say: The Fed should mind its business and let the market do its thing. Milton Friedman is not my favorite economist.

Free market economists and politicians wave off legitimate questions by telling us to pay no attention to the men behind the curtain.

But if we dare to draw back the curtain, we might wonder how acting in favor of growth and profit will solve a crisis created by an insatiable appetite for growth and profit.

It’s only unreasonable to think growth is a higher priority than stability if we assume that the continual growth of profit is the best of all possible systems. What if stability was the highest value in our economy? Or sustainability? How might the economy of the last 100 years look different?

Okay, that’s a look at economic cycling from a macroeconomic view.

What about in the online business space?

As I’ve been working on this piece, I realized how much the online business space could be read in this same way. To be clear, I’m describing the loose industry of service providers, information marketers, and coaches/consultants that operates online rather than a cycle in an individual business. Most businesses will have their ups and downs. But the market as a whole has followed a remarkable boom and bust cycle of its own over the last decade-plus.

When I started in 2009, it was near the peak of the affiliate marketing and blog advertising boom. So much so that the experience of using the internet was beginning to suffer. No Federal Reserve stepped in to try to correct the market—but Google and Amazon did. The advertising market crashed, and affiliate marketing was no longer an “easy” play. Early internet entrepreneurs went back to the drawing board.

By 2012, “launching” was the new boom. At first, people were making money launching their own products. But in no time, people were launching products about launching. Once enough people learned how launching works, consumers became skeptical, and it was harder to extract profit through launching. So the newly minted launch experts and those who had built their entire marketing strategy around launching needed to pivot.

By 2015, high-end courses were all the rage and making people loads of money. By 2017, people were asking whether high-end courses were over. By 2019, membership sites, communities, and masterminds were the ticket. And by mid-2021, those offerings were spent, and “cohort-based courses” became the new way to make money.

Someone recently asked me when the online course market was going to return to normal.

My answer was that it’s not going to. That’s not to say someone can’t make money with an online course today. I mean that whatever fuels the next expansion phase of the online business space will be a different kind of product or tactic. People will experiment with new ways to exploit the market until someone lands on a quote-unquote no-fail strategy. The people who pick up on it early will make bank. The people who pick up on it toward the peak will likely lose a lot of money in the crash.

I don’t begrudge anyone the opportunity to make money. And I’m not going to suggest that the people surfing the wave of each boom and bust in the online space had some nefarious scheme in mind. I genuinely don’t believe that’s the case.

However, just as companies unquestioningly make decisions based on profit and growth, online business owners unquestioningly make decisions on profit and growth. If one way of making money begins to offer diminishing returns, then whatever way of making money seems to be “working” must be the next thing to do. We always look for ways to extract more value from the system rather than constructing business structures based on stability or sustainability. We don’t mean to be an invasive species online—but that’s the role we find ourselves in repeatedly.

The profit-at-all-costs game will continue until the playing field is saturated with unsophisticated players.

Whether in macroeconomic cycles or in the online business space, the unsophisticated players compete for the dregs of the resources and commodities left over. The referees—policymakers, bankers, and financiers—try to keep the game going as long as possible. But at some point, even they can’t keep up the rouse any more.

The game ends. The players left on the field have nothing. The players who left the game at its peak made serious money. The market correction or economic contraction lasts however long it takes for capital to figure out how to exploit resources and commodities in a new way. And then the cycle begins again.

The only way out of the cycle is to adjust priorities.

We’d need to start valuing stability and balance over continual growth and profit. While some leaders are voicing this position, big systemic economic change is unlikely to happen soon.

The good news is that this is something that, as small business owners and independent workers, we can enact on our own. Our businesses may still be impacted by the economic cycle and the profit motives of others. But we can prioritize stability and balance. We can avoid the small-scale boom and bust that happens online every time someone starts making big money with a new social media platform or offer strategy. We can stop looking for the latest silver bullet and start basing our business decisions on the needs of all the humans involved.

We’d have to give up our addiction to FOMO, but we’d run more sustainable and generative businesses. And we also wouldn’t have to live and work in fear of the next recession. Maybe we’d discover that there is still a natural cycle to economic development—but my guess is that a cycle that’s not driven by exploitation for profit wouldn’t leave so many people picking up the pieces every five to ten years.


So What’s Going On in the Economy Right Now?

Panic has been bubbling up through the cracks in our economy throughout 2022. Inflation is way up. Rents are way up. GDP contracted in the first quarter. Is a recession inevitable?

In 1971, Nixon unpegged the value of the US dollar from the price of gold. Since then, the dollar’s value has “floated” in currency markets. Before that decision, our economy had a fairly concrete amount of money available. And that meant that economic cycles were relatively more predictable. But after the dollar was unpegged, central bankers had more wiggle room. They could manipulate the amount of money available through interest rates. With interest rates low, lenders are incentivized to lend more. And investors are incentivized to take on more debt. That effectively increases the amount of money in the economy. We also tend to see lower unemployment rates when interest rates are low, but that measure lags behind GDP and asset prices.

The Federal Reserve sets the interest rate banks use to calculate the interest rate they will charge borrowers. That interest rate is the rate banks charge other banks when offering overnight loans. But that interest rate also affects the prime rate—the interest rate banks charge to their most creditworthy customers.

The Fed has a “dual mandate.” That means it’s tasked with keeping prices stable and working toward full employment. But the Fed only has one tool to do that: interest rates. So the Fed manages interest rates to keep the economy from overheating and then breaking down or stagnating and prolonging a downturn. A few weeks ago, the Fed announced the most significant interest rate hike in 30 years, with more increases expected. The goal is to add some friction to the housing market and stock market, which, in theory, slows overall demand, which, in theory, slows the rapid rise in prices of everyday items.

Of course, the economy is an incredibly complex beast. Trying to manage it with a single tool is like trying to recreate Rodin’s The Thinker with a sledgehammer. One tool is hardly sufficient for maintaining even a facade of equilibrium.

Economist Rana Foroohar explains on The Ezra Klein Show:

But the Fed can’t do what policymakers can do, it can’t change the story on Main Street. It can’t build a new factory. It can’t re-skill all of us to do better jobs that are higher up the food chain. It can’t change that story.

We’re currently in the longest economic expansion phase since records were kept in the 19th century. Or, that expansion has just ended—depends on who you talk to. The Fed pushed interest rates down to nearly zero after the housing crisis. And they left them there for years as the average worker or property owner saw no substantive change in their situation. Employment rates improved—but wages remained stubbornly low, and rents quickly outpaced income growth.

Now, as wages have finally started to improve for some and labor is seeing a resurgence of energy, the Fed has raised rates. Policymakers wring their hands about a looming recession. After all, aren’t we due?

Elon Musk “has a super bad feeling,” and Jamie Dimon says a hurricane is coming.

They announce to their employees and shareholders that things don’t look good economically speaking. Similarly, Americans respond to poll after poll expressing pessimism about the economy over the next 6 to 12 months. Pundits mention this shared melancholy as further evidence that the next recession will occur sooner rather than later. But when Musk or Dimon express their concern, and you or I express concern, we’re not talking about the same things.

Powerful CEOs of public companies express concern as a way of tempering investor expectations. Stockholders expect earnings to grow continually—making stock ever more valuable. When a company doesn’t produce as much profit as planned, some investors will jump ship—causing the stock price to fall. There’s less demand and surplus supply, so the price must be lower.

Interest rates and labor costs are often the cause of lower-than-predicted profit. And it’s that prediction—that expectation—that really matters. A company can still produce an incredible annual profit but suffer when the bell rings at the end of the trading day. Investors might panic and sell if the company is expected to generate a $30 million profit in a quarter but only generates $25 million. A slight sell-off can cause a more significant sell-off, allowing the stock price—and, therefore, the company’s market valuation—to fall. So when Musk and Dimon tell us to be cautious, they’re letting us know their bottom line might not be much bigger than last year’s. “Don’t get your hopes up,” they say to investors and market watchers.

When people express concern about the economy, they mainly think of their households—or the communities they live in. They might be nervous about their jobs, the price of gas, or mounting grocery bills. Here we are, at the peak of an economic expansion cycle that’s lasted longer than any other since these things started to be tracked, after having come through an economic shock felt unequally by both workers and employers. Understandably, people are getting nervous.

You might imagine that how people “feel” about the economy is inconsequential.

But how people feel is precisely what moves the economy. Our economy is based on consumption—so if people get nervous, they’re less likely to buy new stuff. They’ll start to pay down debt or stockpile savings. Then, companies miss their earnings predictions because people aren’t buying. That leads to investors selling stock, which leads to lower stock prices and potential panic on Wall Street. That panic trickles down to consumers, who start to buy even less. And the cycle continues.

This just further exacerbates the volatility inherent in the system.

But here’s the thing: the same people who respond to polls saying they’re very concerned about the economy also respond that they’re doing just fine financially. Derek Thompson at The Atlantic called it the “Everything is terrible, but I’m fine” attitude. Of course, there are plenty of people who are not fine. Financially they’re not fine; their health isn’t fine; their living situation isn’t fine; their debt isn’t fine. But, on the whole, consumer spending remains strong. Houses in my town are still selling within a day or two of going on the market. Every day I get a new mortgage refinancing offer—something I should have done this time last year.

Yes, the inflation rate is very high. And yes, the stock market has taken a few hits. And yes, even GDP contracted last quarter. But every other macroeconomic factor indicates that a recession is not imminent. Yes, the housing market is slowing down. Yes, household debt creeps up as prices rise. And yes, many jobs still don’t pay enough, offer any kind of stability, or provide benefits. But the prevailing microeconomic attitude is pretty positive.

When I asked my Instagram followers what questions they’d like to see covered in this episode, one of the big ones was: how can I prepare my business for a recession? I have plenty of concrete ideas about that—and I’ll get to them shortly.

The bottom line, though, is: don’t panic.

Your lack of panic isn’t going to turn the whole economy around, of course. But not panicking does make it easier to keep your eye on stability and sustainability. It makes it easier to ignore potential silver bullet solutions that will lead you astray. And your lack of panic will impact your customers and colleagues, the ripple effects of which can do quite a bit to stabilize a small corner of the market.


What Can Small Business Owners Do?

A recession—whether officially declared or we just feel uneasy about the economy for a while—is not a reason to dramatically change what you’re currently doing. And yet, there are some strategies you might consider depending on your current situation and needs.

1. Rethink your targets

First, an economic contraction is an opportunity for proactive contraction in your business or workload. Focusing on what you or your company does best and reconfiguring business operations around that value can allow you to emerge from the contraction with a stronger, more sustainable business—and a less exhausting, less overwhelming workload.

Proactive contraction means deciding to prioritize sustainability over growth. You may choose to generate less revenue or allow revenue to level off instead of pushing for year-over-year growth. Suppose your business generated $150k in revenue last year while you launched new offers and experimented with new ideas (i.e., you worked overtime). In that case, you might decide that your revenue target for 2023 is also $150k but set your sights on streamlining the business so that you can work fewer hours with fewer headaches.

What would it take for your business to do the same revenue as last year, but with only 80% of the sales? Or with only working 30 hours per week? How would you need to plan? How would your offers or your clientele shift?

I learned another way to think of this through the writer Meg Conley. Meg wrote about the difference between predictive dormancy and consequential dormancy. Consequential dormancy is something we’re all too familiar with it. It’s when an organism slows or stops functioning because of unfavorable conditions. Burnout is consequential dormancy. So is needing a few days on the couch after a marathon. Predictive dormancy, on the other hand, is when an organism anticipates the cold of winter, the heat of the summer, or a change in the availability of nutrients and decides to go dormant before the shit hits the fan.

As Meg points out, our culture doesn’t leave much room for predictive dormancy. We push until we just can’t push anymore. We grow until we’ve used up all our resources. But we don’t have to. We can say, “this is good for now. Now, I will rest.”

2. Focus on variable costs

The next tip comes courtesy of an interview I did over four years ago with the founder of The FruitGuys, Chris Mittelstaedt. Chris told me that he realized that he needed to focus on a variable cost strategy to weather the 2008 recession. He told me that before the downturn, the company had gone big on investments in infrastructure, like five new delivery trucks. Once the market started to contract, he looked for ways to grow that didn’t involve taking on debt. He noticed opportunities in new geographic markets that the company could service on a variable cost basis (i.e., they only had to pay shipping costs when they made sales).

When you focus on variable costs, you focus on spending money only when you’re making money. Variable expenses are those that come from delivering what’s been purchased. On the other hand, a fixed cost is money that’s spent regardless of how many sales you’re making.

For instance, at YellowHouse.Media, one of our variable costs is labor. Our part-timers work more when we’re serving more clients. If a new client represents 4 hours of part-timer labor per week, then we know to account for that time in our production costs. On the other hand, our subscriptions to Dubsado, Descript, or Canva are fixed costs. We pay that every month whether we have two clients or 20.

Using variable costs strategically can help you innovate on your business model. By asking yourself how you could tie more of your business expenses to individual sales or clients, you may see opportunities to shift what you’re offering or how you’re offering it—often so that it’s a win-win for the business and your clients, while also protecting you from a sudden shock to sales.

3. Do the math

Similarly, check your pricing. Inflation is real. If you haven’t updated your pricing in the last year or two, it’s time to do the math. What expenses have changed for you? How has your cost of living changed?

Do you need to give your employees a raise or talk to your contractors about whether they’re charging what they need to?

I believe pricing and salary changes need to be done with a community mindset rather than an individualistic one. But I also think that sitting on prices that have remained unchanged for years isn’t sustainable in the long run. How you price your products and pay your people should keep with the values of stability and sustainability for your business.

4. Ditch the boom & bust

Next, think about the business you’re in. If your business sells the secret to the last boom cycle, it’s time to rethink things. It might seem like X, Y, or Z will always be a great strategy, like getting to this strategy was inevitable. But I have to tell you: it’s going to go bust. And it will stop being profitable before the next big thing comes along.

I won’t suggest that any product or service lasts forever. I’m sure Kodak believed there would always be a booming color film market. Some offers aren’t flashy or guaranteed to bring you Insta success, but they do have a history of stability and, likely, a long future of it, too. After all, people do still buy film. If you’re exiting online business’s boom and bust cycle, be prepared for smaller profit margins. But those profit margins can fund a long, happy career with less fear, urgency, and compromise.

5. Stop looking for the next big thing

Finally, abandon the hunt for a silver bullet. No “one weird trick” will protect your business from the impact of a recession. There is no opportunity to jump on in the trough of an economic cycle that isn’t the exploitation strategy that will lead to the collapse of the next cycle. Do you want to be part of the group that sets us on the path to the next crash? I don’t.

In her book, You Belong, Sebene Selassie suggests that we can either be reactive or creative. Same letters, different order. Reacting in urgency or fear to economic indicators or the loss of a client will only lead to hasty business decisions, overdelivering, and exhaustion.

Taking a breath, thinking creatively, and always acting with intention—this is never wasted time or effort.

The economic cycle, remember, is predictable—but not natural.

Yet, we are cyclical beings. It is natural for us to embrace the ebbs and flows of life. We can learn a lot from the caribou, the pecan tree, and the meadows full of beargrass. However you choose to weather economic ups and downs, remember that fighting your own cycle is difficult, resource-intensive work. And the cycle will always win. Rest, relax, and navigate your own way.

What Works offers in-depth, well-researched content that strips away the hype of the 21st-century economy. Whether you love the podcast, the articles, or the Instagram content, we’d love your support