Today’s episode is with Jonathan Slain and Paul Belair. They are the coauthors of Rock the Recession. Are you looking forward to the next recession? Yeah, you heard me right.
Most business leaders coast through strong economic times and never stop to create a plan for the next downturn. But what they don’t realize is if their biggest customer leaves or their best employees start a competing firm, they are in a recession. The savvy entrepreneurs are the ones making plans now so they can be buyers when opportunity knocks. That’s what this episode is all about.
Jonathan spent the great recession huddled in a fetal position on the floor of his office. He actually had to borrow a quarter of a million dollars to survive. He paid this person back and is now a highly sought-after consultant. Paul wasn’t scared when the great recession hit. He invested a million dollars to purchase a business and just five years later, sold it for over 70 million dollars.
He achieved the American dream by using the recession gearbox model, outlined in their book, Rock the Recession. This is going to be a great episode for entrepreneurs who are used to economic upturns and not stopping to think about the next downturn.
Paul Belair: I am a macroeconomic nerd so I study, and I attend conferences. The tea leaves ware such that we are in the later innings of the economic cycle, and we knew from each of our own experiences during the last recession, that there are so many people not prepared and who don’t have a plan. We wanted to come together, collaborate, and share both of our stories about how we survived and thrived during the last recession to benefit other people.
Jonathan Slain: Yeah, I know that it makes for a better podcast if we have a perfect story of how all of this came together, but in all actuality, Paul and I, really in our work with our clients, we started to put together some workbook exercises for them about how to prepare for the recession because we were both nervous that our clients weren’t ready.
From there, the project kind of blossomed into turning into an actual book, but that was only after we spent a year or two putting together the workbook that I referred to.
Rae Williams: I want you guys to define recession for us. A lot of us have this perception that a recession is this big, huge, economic downturn that happens externally that affects our businesses or our personal lives, but I would love a clear definition of what counts as a recession.
Paul Belair: The way we look at it, it could be an economic recession, but just as important, it could be that you lost your major customer. Now, you’re in a recession. Your three lead vice presidents left and formed their own firm. Well, now, you’re in a recession. Your key supplier just told you because of the trade wars that you can’t receive supply anymore. You’re in a recession.
The way we’re looking in a recession is it definitely could be an economic one, which goes in cycles, but just as important and just as impactful to a company are these non-economic events that happen that put a company into a recession.
Jonathan Slain: Yeah, I completely agree. I think sometimes when we’re out talking about Rocking the Recession with companies, business leaders will say to us, well, it’s not the right time, I don’t think a recession’s going to happen for at least a year and so this isn’t really for me.
I think what Paul is saying and our point is that any major shock to your business is a recession for you. Like you said, if your biggest customer leaves, you’re in a recession, regardless of what the economy is doing. If your partner embezzles a million bucks from you, you’re in a recession. It doesn’t matter concerning all the stuff that we’re talking about in the book, it all relates to both an economic recession, or a recession just for your business.
Paul Belair: There is a saying that if your neighbor loses his or her job, that’s a recession. But if you lose your job, that’s a depression.
Rae Williams: I would love to know from each of you, your individual stories, and especially covering the last recession and how you guys navigated that.
Jonathan Slain: In the last recession, I didn’t have a plan. As a result, I learned the hard way that if you don’t have a plan and a recession hits, it’s going to feel like you’re getting waterboarded by the recession. So, I spent the first couple of months of the great recession curled up in a fetal position in the corner of my office, trying to figure out what I was going to do.
The only reason that I ended up surviving it was because I borrowed a quarter of a million bucks from my mother-in-law and so luckily, she was able to help my business through it, but absent that, which I’ve thankfully repaid at this point, we wouldn’t have survived.
Paul Belair: My story is different. I had a plan that my team started working on in 2006 and we transformed the company from 2006 to 2008, changing from being heavily dependent on construction, which is one of the projects, to more of a service model and annuity model. The result of executing on that strategy was that we grew double digits right through the recession.
Our profit margins grew rapidly, and we basically kicked ass all the way through the recession because we had a plan and we executed on it.
Rae Williams: What is the first step that we can take when preparing ourselves to be recession-proof?
Jonathan Slain: We put together a model, and we’re calling it the recession gearbox. The first gear is you need to assess. In that step, you assess where you’re at versus your competition, versus the rest of your industry, and really, it’s about benchmarking. That is what Paul did before the last recession, he got a good benchmark of where his company was and where it needed to be.
On our website recession.com, we’ve got that step for free. So, if companies want to go there and go to recession.com/ready, they can take the free assessment to figure out how well prepared they are for the recession.
Paul Belair: I would highly encourage everyone to take that assessment, it’s free, it gives you a lot of great information, and it tells you where you’re at. That’s a great starting point.
Rae Williams: Tell me a little bit about what you’ve seen happen or what you will predict to happen if people are specifically not preparing in this way.
Paul Belair: I think, first of all, you can just lose the business. If you have a loan with your bank and you’re in a recession, you’re not able to make the payments, then all sorts of bad things can happen. They can take the business, they can take your house if you have personal guarantees, or you can have a bankruptcy.
So, that’s really the negative side, but maybe even a bigger deal if we’re really thinking this through, is that you miss out on big opportunities. I mean, sure, there’s all the risk and the negative stuff that can happen, but even worse is watching your competition leapfrog you and using the recession as an opportunity for growth, because even though recessions bring a lot of downside, and a lot of companies go bankrupt, on the other side of that equation, there are opportunities to buy the companies that go bankrupt.
There are opportunities to buy their assets, to buy all their equipment, and to hire their talent, which no longer has a place to work. If you don’t have a plan, you miss out on all of those great opportunities to really leverage and grow your business.
Have a Plan
Jonathan Slain: You have to have a plan, but you also have to be buttoned down. Your balance sheet has to be strong, your customer relationships have to be strong, and your strategy has to be strong. Then you can pounce.
Rae Williams: What if we are actually coming out of a recession, whether it is that we lost that big client or something that happened within our business, and we are trying to prepare for the next time, but also simultaneously cleaning up the mess from before. What are your tips for navigating that kind of situation?
Paul Belair: When a recession happens, you’re going to go break the glass that’s covering your plan, and you’re going to take it out of the case, and then you’re going to be able to execute immediately. That plan should include all of your big-picture ideas and how you’re going to grow. That would be where a new pivot happens to buying other companies, or when you buy other assets, or when you hire talent.
Then, if it’s a negative thing where all the stuff that I mentioned isn’t working and you’re floundering, then part of our model is to have an emergency brake. If it’s not working and if you’re like listen, Paul and John, this all sounds great, we’re supposed to buy their companies but right now, we’re dying, we’re running out of cash, and we’re in a real crisis.
Then you would activate your emergency brake, which is going to be all of the things that you’ve agreed that you’re going to do when you start to see your business declining. Let me put it this way. Imagine if you saw your business go down in revenue by a million dollars. You drop from 10 million in revenue to nine million. You already knew what expenses you are going to cut to reduce your overhead so that you could remain profitable or at least not lose money.
You need to do all that when you’re not emotional, you need to plan it out in the cool rational light of day because if you’re in the middle of a recession, if you’ve just lost your biggest customer, if you see on CNN that the economy is dropping precipitously, it’s hard to act rationally. It’s hard to make optimal decisions unless you’ve already planned out which people you’re going to lay off, what order you’re going to lay them off in, and you’ve had conversations with them about what that’s going to look like, so that you can do it in a way that’s orderly, instead of in a panic.
Jonathan Slain: The conversations are with the leadership team. We have a tiered system for cuts in the emergency brake. The first tier is the easy-to-do cuts, the second and third-tier get more into people. We are firm believers that companies don’t have enough A players. A players are players that you would kill to get into a new company with you if you were starting a new company.
We go through the process with you on our tiered system, and the last set of cuts is the most dramatic. Writing that out and seeing how much pain executing that would focus the mind and your strategy so that you never get there.
I echo what Paul is saying because, in the great recession, I experienced that I was going through the phases of grief. The first phase of grief that we talk about in the book is denial. I was in such denial that we were in a recession and I thought things were going to get better. So, I tried to just keep things stable for the next week and the next week and the next week and things weren’t getting better.
I didn’t react quickly enough because I had to process all the emotions. I think what Paul is saying is dead on. If I had had a plan where I said, “When it gets to this level, I’ll do this,” that I figured out before the great recession, I would have been at a much better place and bounced back a lot more quickly.
The Leadership Team
Rae Williams: Two-part question here, what is it that leadership needs to understand and needs to have in order to prepare?
And then why is this important in general to the company for the leadership to have that preparation knowledge a step above everybody else?
Paul Belair: Okay, so the reason you want to have an economic dashboard that you track and monitor is it gives you insights so that you are better prepared to execute on your plan before anybody else. Right now, the clients that Jonathan and I work with have record backlogs. They are very busy, and they can’t even contemplate a recession. Although there are signs, the yield curve is inverted, a lot of things are rolling over like housing starts etcetera.
There are signs out there that there’s a potential for an economic recession. At the minimum, the risk of a recession is increasing quickly. So, if you are not tracking that then you’re an ostrich with your head in the sand, and you are going to get hit upside the head and surprised by the recession. If you are tracking it, you are going to start dusting off your recession plan and start looking at the first-tier cuts. So, you are going to proactively do things so that when the recession hits, you’re in a position where you can pounce and take advantage of the opportunities that are going to present themselves during a recession.
Rae Williams: Do you guys have any great examples that you would love to give of companies or individuals who have taken your advice and followed this formula and come out on the other side?
Jonathan Slain: We haven’t been through a downturn in terms of a company that we are working with, and who are working through the workbook at this point. But in the book, we’ve got a bunch of examples from other business leaders that we talked to, and we sought out, over the past year, the stories of leaders that didn’t just survive the recession, but that used it and thrived in it.
For example, in one of those stories we talked to Christie Hefner, who was the former chairwoman of Playboy Enterprises. She talks about going into the great recession that they had planned for it because they knew that in a recession, people are less willing to spend money on gas, and so they drive around less. So as a result, they go to newsstands less. Playboy knew that they were going to have to increase their marketing spend if they wanted to stay relevant with their market and with their audience because people would be less likely to be out and about at newsstands.
I think it’s interesting thinking through a story like that from a great businesswoman about how bigger companies really do spend a lot of time thinking about the macroeconomic effects of a recession, and how they are going to lead their company to make decisions like increasing their marketing so they stay relevant during downturns. Then beyond that, there are several other stories in the book from other great business leaders about how they used the recession to grow their businesses.
Rae Williams: Then for each of you, I’d love to know, what is your favorite piece of advice to give people as they go into this?
Paul Belair: From my perspective, it is take the assessment, see where you stand, and get started now.
Jonathan Slain: I think the top thing I’ve learned over the past couple of years from working with Paul and from the whole process of writing the book, was that the companies that kick ass in a recession are the ones that are willing to upgrade their people. If you’ve got great people and you are willing to continuously upgrade them as Paul mentioned earlier, the A players–the people that you would want to have on your team if you had to start your company over from scratch.
If you’ve got people like that around you, you can really figure it out and survive anything, and thrive. That is a big lesson learned for me that in the next recession, I want to continue to be surrounded by great people.
Rae Williams: Do you guys have any insight or input on how culture and building culture factors into this when we are in the preparation phase?
Jonathan Slain: I think Paul and I know that we’re both proponents of company culture being one of the key tenets of how you can recession-proof your business, or how you can prepare to thrive in a recession. I get that this is not a new concept that you need to have a good company culture. A lot of Rock the Recession is really just good basic business hygiene. So, it’s the things that you should be doing for your company regardless of whether or not you think that the next recession is a day off, a week off, a month off, a year off, or a decade off.
All of these things will make your business more valuable. So, if you’re a business leader looking to build value in the business or your department, or if you are looking to sell your business at some point, all of these same steps that we talked about in the book, starting with assessing, and then moving on to fine-tuning your business, and then getting ready to raise and accelerate, those are all the same things that you would do regardless of whether or not you think there’s a recession right now. Culture is a mainstay of preparation.
Paul Belair: Just to echo that a little bit, one of the key responsibilities of being a leader is preparing your company from a risk management standpoint so that you are very agile and no one thing can take you under. So, from a leadership standpoint, I think leaders really have the responsibility to jump on this and have a plan. Employees, when they realize that their leaders have a plan for the next recession, that is going to add to the culture.
Your employees are going to recognize that they are working for a group of people that, quite frankly, have their shit together, and they are going to be proactive, and they are going to do what is best for the company, and that is going to improve their chances of remaining employed. So, they are going to dedicate themselves more to the company.
Jonathan Slain: Originally, the working subtitle of the book was “How entrepreneurs can prepare for and thrive during and build wealth after downturns,” and then as we are going through the process, we changed the word entrepreneurs to leaders because we believe that leaders should lead. As Paul said, a big part of that is not just always working in your business. It is working on the business.
It is looking around the corner at what is coming and making sure that your business is prepared. I think one of the main drivers for both of us is that we’re worried because we see a lot of business leaders right now who are complacent. You know we’ve had a decade of unbridled growth. Unemployment is at record lows, consumer confidence is at record highs, and nobody is prepared for the next recession, let alone looking forward to it. That was the real reason for the book.
We felt that our original contribution to the conversation on recessions is what could you do to look forward to the next recession, not why should you fear it. What are some of the things you could be doing to plan? Really, if you slowed down and did your job as a leader, how could you get ready to pounce in the next recession and take advantage of all the opportunities that they bring?
Paul Belair: From my perspective, having a plan that I executed on and growing double digits during the last recession, what that led to was an acquisition. Someone bought us, and it was an American dream exit. Because I had a plan and my team executed on the plan, we were highly attractive to buyers. We got an above industry average multiple from the buyer, and we all had American dream exists, and that’s what it’s about.
Jonathan Slain: Paul, he is doing his thing again of being super humble, but I mean, that’s why we collaborated on this project. The story that we tell in the book is that Paul and his team, invested a million dollars, and then 63 months later, after what was one of the toughest recessions in history, they were able to sell the business for over 70 times their investment.
I would like to give that a second to sink in, they took a million dollars and over 63 months, they grew it to over 70 million. I think that’s the sort of plan that we want for our readers, and if you’re a small bakery, then we want you to be able to survive the recession and to figure out how you can thrive, and buy ovens from all your competitors that go out of business.
If you’re a large company that is listening to this, then we want you to step up, be a leader, and make sure that you and your team are completely prepared for this, so that you can be looking forward to it, and so that you never have to have those tough conversations doing rounds and rounds of layoffs.
Rae Williams: Do you guys have a parting challenge that you would like to give to people?
Paul Belair: The challenge really is take the assessment, figure out where you’re at, and take action now based on your score.
Jonathan Slain: The book is going to be coming out at a time when we’ve got global geopolitical events swirling around us. I think that the next recession is going to be coming sooner rather than later. The challenge from me is to stop putting this planning off. I think a lot of companies think they have more time for this kind of planning then they really do.
It’s time to rip off the Band-Aid and start to really do an offsite with your team, a meeting to just really think about what you can do to look forward to the next recession, instead of thinking you can figure it out later.
Rae Williams: Awesome. How can people get in touch with you guys if they would like to learn more?
Paul Belair: Our contact info is all on recession.com. They can go there they can get in touch with us, our phone number, email, mailing address, all that stuff is on recession.com.