Heading into a recession, it’s hard not to have a “prepare for the worst” mindset—especially with layoff announcements from tech giants and media companies (Robinhood and Snapchat have each laid off over 20% of their staff). Peloton fired 2,800 people at the top of 2022, the first of three major waves of layoffs at the company now totaling over 4,000 people laid off just this year. Shopify let go of 1,000+ people in July. And according to a PwC Pulse Survey, 50% of employers are reducing overall headcount.
Perhaps news like this justifies preparing for the worst. But people don’t talk about the opportunities a recession can bring.
When there is a downturn in the market, medium-sized businesses and large public companies get hurt the most, which gives small businesses and new businesses unique advantages. Medium-sized businesses don’t have the cash flow to support themselves, and even though large public companies have cash reserves, recessions force massive layoffs to keep stakeholders happy. Small businesses, on the other hand, have more flexibility and can find ways to adapt to volatility, which is why it’s crucial that small and new business owners remain optimistic during a recession.
RECESSIONS REVEAL SIGNIFICANT ADVANTAGES FOR SMALL BUSINESSES AND
I started Jukin Media from my apartment in 2009, during the last Great Recession. My first employee worked from a folding table and chair in my living room for minimum wage. A decade later, Jukin was sold for $100M+ after expanding to nearly 300 employees and four offices globally.
Jukin wasn’t an anomaly. Uber, Airbnb, Netflix, Slack—all of these companies were built during the last recession. If you own a small business, or if you’re contemplating starting a new business, here’s why you should remain optimistic heading into a recession.
SMALL BUSINESSES DON’T HAVE THE SAME OVERHEAD ISSUES THAT MEDIUM
COMPANIES OR LARGE CORPORATIONS HAVE TO DEAL WITH
Capabilities in technology combined with shifts in workplace norms make it easier than ever to start or run a business from a computer or smartphone. Generally speaking, the costs and time it takes to start a small business are minimal—especially compared to years past.
Small businesses typically spend less on salaries and wages, as well as insurance, compared to medium and large businesses. Larger companies with multimillion dollar risks have much more at stake. Small businesses are also less likely to spend on travel, utilities, tools and integrations, and other additional costs that medium and large companies are required to account for considering size.
Another key, often overlooked factor is the demographics of people at small businesses versus medium-sized companies and large corporations.
At Jukin, we had a very young workforce, especially in our early days. It was more cost-effective, of course, but perhaps more important was that younger employees were hungry to prove themselves. We hired go-getters who wanted to punch above their weight class—people who weren’t afraid to fail. And we genuinely cared about the goals and aspirations of our talent, especially talent that came from corporations that made them feel like a cog in the machine.
As a small or new business, realize the advantages you have against large corporations heading into a recession. Keep your eyes open for talent laid off by larger companies and take advantage of the fact that medium and large companies will likely stall in growth while the recession persists.
DURING A RECESSION, SMALL BUSINESSES ARE STILL ABLE TO SCALE QUICKLY
Since larger organizations have more overhead costs to account for, it’s much more difficult to scale than it is for a small business with fewer restrictions during a recession.
Startups don’t have the same red tape as corporations when it comes to hiring, and if large companies announce massive layoffs, people are more willing to work for less. Plus, talented people who are laid off by corporate downsizing often feel attracted to smaller companies, which means small businesses are more likely to find talented employees at a cheaper rate during an economic downturn. Small businesses often emphasize a “family” or “we’re in this together” mentality that many corporations lack. During these times, people seek places where they feel valued, and small businesses are just that.
Plus, consumer behavior changes significantly during a recession—often to the benefit of small businesses. People are eager to support small businesses during hard times, especially when major corporations with high-earning executives announce massive layoffs.
Thinking on a percentage basis, a small company scaling 300% is much different than a medium-sized or large company scaling at the same rate.
SMALL BUSINESSES ARE NIMBLE AND ADAPTABLE, GIVING THEM A COMPETITIVE
ADVANTAGE OVER MEDIUM AND LARGE COMPANIES
Because there’s less overhead and less red tape around operations, small businesses can pivot, test new models, and create hybrid roles for existing or incoming employees. Startup founders play the role of sales leaders or marketing execs, or find another way to contribute to business operations. Small businesses have more flexibility to move employees across teams as needed, while the process for corporations to do the same is much more involved.
At Jukin, we saw everyone as a utility player. Our young workforce was eager to gain experience in as many aspects of the business as possible, and leadership was committed to playing whatever role necessary to keep growing. I remember acting as our finance team, still handling invoicing for clients years into Jukin, just as I had done when it was myself and one other employee in my living room. We stayed lean and scrappy, and really didn’t grow out of that phase until the economy rebounded years later.
Another huge advantage small businesses have during a downturn is adaptability. Aside from internal structure, small businesses can be flexible not only with their prices, but with terms and conditions for their clients, too. Corporations and medium-sized businesses likely have too many stakeholders involved in customer acquisition to be adjustable on terms or pricing. Small businesses are able to provide additional services, change terms, and jump through various hoops to earn business and build rapport with customers.
For us, we knew it was important to get customers in the door. We believed in our product and knew that a good first impression would undoubtedly create a long-term relationship. We customized pricing and terms, and even added services to land clients—something corporations don’t have the luxury of doing.
Medium-sized businesses and corporations have too much standardization. Large companies have margins to worry about, revenue targets to hit, and stakeholders to keep happy. Startups, on the other hand, are just trying to prove their model. What matters at startups is growth, and sustained growth, which is a lot easier to do without the restrictions larger companies have.
SMALL BUSINESSES CAN DEMAND A HIGH MULTIPLE DURING A RECESSION
High-growth startups can be extremely attractive to bigger companies during a recession. Small businesses need to be prepared for potential acquisition.
You might think that, during a downturn, large companies are more inclined to hold off on acquisitions. However, the opposite is true. During a recession, a large corporation is less likely to practice normal spending habits. For instance, during “normal” times, a $100M company might look to acquire a company bringing in $20M to $30M in revenue. But during a recession, smaller, high-growth companies are more attractive.
I remember our early days at Jukin—still very much at the tail end of the Great Recession—receiving a lot of interest from medium-sized companies. We were a high-growth asset and, from their perspective, we were worth the investment considering our track record and affordability. We were much more attractive to larger companies because we were small, which, during “normal” times, would not have been the case. Normally, companies doing sub-$10M in revenue would be entirely overlooked. But because bigger companies need to think frugally during a downturn, we garnered a lot of attention that we otherwise might not have.
Small businesses should be prepared to demand a high multiple during an economic downturn. If you’re small but high-growth, and can prove to be an asset to medium and large companies, take advantage by being ready for major acquisition opportunities.
BE FORWARD-LOOKING AND OPTIMISTIC
Of course, there are disadvantages of being a small business owner or starting a new business during a downturn. Consumers are less likely to spend money and the cost to run a business might outweigh business coming in the door. But these disadvantages still don’t take away from the incredible, unique opportunities for growth only small businesses experience.
Stay optimistic heading into a recession. Take advantage of being able to have flexible product offerings, customizable terms, and a hybrid team structure that medium and large companies don’t. Be on the lookout for great talent laid off by corporate entities, and prepare for unique acquisition or partnership opportunities that otherwise wouldn’t be on the table.
As stressful as an economic downturn can be, small businesses need to stay positive, seek opportunity, and take advantage of the freedoms they have compared to larger companies.
Jonathan Skogmo is Founder and CEO of Jukin Media, a digital-first media company powered by user-generated video content. Under his leadership, the company has grown to more than 175 employees with offices in Los Angeles, New York, London, and New Delhi.