ExploreIterate

How to Prepare for a Downturn, According to People Who Went Through the Great Recession

The Org speaks to people at startups who experienced the Great Recession about what it was like — and what a financial downturn taught them.

Keith Lew / Contributor / Getty Images.
By Rae Witte
/
/
10 minute read

Many millennials’ adulthood is marked by stepping off the graduation stage into a crashed U.S. economy, and if there’s anything that has offered them in the last two years of a global pandemic, it’s that uncertainty is undeniably a part of life.

“I went through the traditional route of going to college so that you can get a job, and I got my teeth kicked in pretty early with what now has a name – the Great Recession,” first-time founder Chase Payne, at Champions Round, an early stage sports betting startup, said. “I wasn’t prepared at all.”

After securing his dream job in marketing at EA Sports after graduating from Virginia Tech, Payne was promptly laid off at the top of 2009. Looking back and remembering the people who he’d assume would prepare him for his career, he said, “There was no one there. They didn’t have the tools to help me.”

Initiated by the burst of the U.S. housing bubble, the Great Recession refers to the economic downturn and subsequent global financial crisis from 2007 to 2009. The unemployment rate in America peaked at 10 percent and the period is marked as the most substantial economic recession since the Great Depression in the 1930s.

As the startup space began to stabilize from the volatility around the circumstances of the COVID-19 pandemic, like huge shifts to in-home entertainment subscriptions only to see huge churn out as the world opened back up, the impacts of a downturn have been creeping in. Tech companies and startups have started to lay off employees as they rebound from the high-growth period.

The Initial Shock And The Decisions Left To Be Made

Looking back to 2008, there was such a degree of uncertainty in the U.S. economy that people wondered whether or not cash was safe and where to go from there as we lost and watched others lose their jobs around us.

“When the bubble burst, consumers were vulnerable as their balance sheets were generally not strong and the resulting recession wiped out jobs,” Annbeth Eschbach, the CEO of fertility and family-building startup Kindbody recalled. Before joining Kindbody in 2020, Eschbach was the founder and CEO of Exhale Spas, a boutique spa and fitness company.

“Asset prices declined, consumers were forced to entrench and reduce discretionary spending,” she said. As a direct to consumer business, the chain of spas she founded were greatly impacted. “Exhale experienced a 15% topline pressure on spa revenues.”

Much like Payne in his first job, Eschbach also remembers feeling unprepared. “We did not see the recession coming, and we had to go on the defensive,” she said. “We downsized and preserved cash, managing day by day. If anything, that time taught me to be looking non-stop for signs of softening – all the time.”

Miami-based Romain Rousseau was a co-founder of fledgling media company HoopsVibe.com, which was doing incredible numbers covering not only the NBA, but streetball and its culture, sneakers and the fashion adjacent to basketball in the lead-up to the Great Recession. “I didn’t like what I was seeing when I went to browse. There was only ESPN and NBA.com,” he recalled.

Founded in 2006, HoopsVibe.com was seeing enough success that Rousseau left his full time role of seven years doing digital marketing and e-commerce at Club Med. “It was kind of a side project and it quickly took off just based on the content we put out there,” he said. “The traffic went crazy. I think I was seeing more visits on my little website than Club Med’s.” The biggest draw was the video content HoopsVibe was creating and hosting.

Rousseau remembers his partner was much more of a worrier than he had been. “He was always trying to anticipate the market and selling stocks ahead of everyone and doing things like that.” By March 2008, the founders had a huge offer to sell HoopsVibe and move on, so they took it. “He was a big influence in that, because I relied on his knowledge to understand that this was probably the best thing to do based on the stock market and the housing market at the time.”

Admittedly, Rousseau said he later regretted selling so early. “The decision we made at the time was definitely influenced by macro market conditions,” he said. Looking back, something he’d offer to founders facing this downturn now is to recognize that a downturn doesn’t last forever, and it will impact businesses in different sectors in different ways.

“Unless you have really short term needs for cash, ride it out,” he said. “I think that if we had waited a little bit, with this whole movement around basketball, NBA and the culture around it that continued to thrive, so would our readership. And, at the time we were, one of the top independent destinations to read about it.”

Granted, the founders made enough from the deal that Rousseau took an entire year – subsequently, during the Great Recession – off to travel, but he believes they eventually could have sold it for 10 times the amount or more, particularly as this was before Instagram was even launched and other social media outlets changed the way we consume online media content.

Finding Opportunities Within The Volatility

As Rousseau mentioned, different industries will have different experiences in this downturn as they did in the last, which also can create unexpected opportunities. This is what aided Eschbach and Exhale throughout 2008, 2009 and beyond.

“In the recession, the real estate industry shifted, and many mixed-use developers (condos, residential, hotels and retail) were holding onto some spectacular projects that needed spas, gyms, restaurants, etc., to attract residents and guests,” Eschbach said.

“We had to manage cash minute by minute, and the spa side of our business was very susceptible, but the fitness part is resilient,” she said. Because the fitness side was selling a la carte classes with no membership required, it helped fit into the consumers’ needs and capabilities, and it became a sustainable business that was attractive to partner with for the developers left without tenants.

”All of a sudden we were getting recruited, and I would say I'd be happy to talk through the economics because I don't have the capital,” she said. The developers came in offering to pay for the build-outs, and some even offered to pay Exhale a management fee to mitigate any opening losses. Exhale ended up being able to double its locations with minimal investment of its own money during that time.

The Difference Between 2008 and Today

There are major differences, however, between today and the months leading up to the Great Recession. Neither 2008 nor the Dot Com crash of the late 1990s conferred nearly the level of inflation the economy is currently experiencing. The job market has rebounded a bit since the height of the COVID-19 pandemic, and for a short time, there has felt like a shift in the job market; employees have had the upper hand in applying to jobs, which could stand to change as companies consider layoffs amid VC funding slowdowns and tightening of budgets. Slimmer teams may mean more responsibility on existing staff. Also, due to the pandemic, Eschbach pointed out household savings are high; however, the pandemic has left governmental resources lower than in 2008 during the last recession.

“The current downturn is very different from the 2008 downturn. In contrast, we have been aware of and planning for the headwinds for at least six months,” Eschbach said of her team at Kindbody.

What You Can Do Today

When a recession hits, there’s a degree of shock that accompanies its arrival. Thedownturn currently facing the broad startup ecosystem has been something many companies have been making plans for since the beginning of 2021 and considering even earlier. Although the Great Recession and its potential impact wasn’t clear to him, Payne came to see that some of his team at EA had other ways of being prepared.

“When the process of laying off is not abrupt, especially for bigger companies, people who see that train coming know what to look for quarters in advance,” he said. He learned that preparing for a recession can look like assessing your skill set and seeing where else within the organization you work for you could potentially fit in, or attempting to make a move to a more stable company or industry early on.

When his team shuttered in the winter of 2009, while others got absorbed into other teams, Payne was left without a job, like the 362,392 Americans who were laid off in February alone that year. “I got lucky,” he recalled. “The people that recruited me to EA had ran for cover earlier that year and landed at Zynga.” They asked him to come join them at the company that was then a startup.

Similar to Eschbach’s point of looking for opportunities she wouldn’t have considered outside of the collapse economy as a founder and CEO, Payne came to recognize that just because college, conditioning and landing a job in marketing made him identify as a marketer, none of those factors meant he needed to stay within that box.

Marketing is not who he was, and he realized he has skills that were transferable. “Understanding that your value isn't just exclusive to what you're doing at that moment helps you to see where you can bring value to an organization,” he said. He became a project manager at Zynga.

In addition to upending his understanding of himself and the traditional fresh-out-of-college view of his career, working at a startup afforded him different visibility into the performance and security of a company that he didn’t understand upon graduation nor did he have working a large corporation.

“Unlike a publicly traded company where I can see the health of our company or people judging the health of our company on Wall Street, there is no public validation or discernment, because it's private,” he said. This resulted in him looking inward and becoming more aware and adept to his place in the company.

“I think it then becomes easier to understand, because we have this many people and there's money coming into the business. It costs something for us to be here, right? It becomes really simple,” Payne said.

Ultimately, for anyone working in startups, the takeaways from 2008 are not one-to-one in terms of what’s happening in the economy now. Despite the potential for a downturn today, the way the Great Recession panned out and the circumstances being generally different, preparing and moving through a recession requires nimbleness and learning on the fly. In the same breath as Eschbach emphasized the importance of having a plan and executing it, she said the most important thing to embrace is “change, change, change.”

Sign up now: Stay up to date, level up and hire better with our behind the scenes newsletters at the world’s top startups.