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The 2000s dot-com crash drained local businesses. Will history repeat itself in recession 2022?

By Vishal Thakur 26th May 2022

Some Wall Street investors and businesses still recall the dot-com crash, and this year’s stock market route is gathering feelings of déjà vu. Recently, many e-commerce and other businesses have experienced a steep decline in sales, owing to consumers only buying necessities. 

Well does it seems as if the early 2000s-style dot-com crash is knocking on their doors again? 

This article will look at a few strategies that recession-proof companies use and how your business takes inspiration to stand even during these tough times. 

The growth over profits era is back

growth over profit era: Tookan

The dot-com bubble burst led to a short but painful recession. Are markets heading in that direction now? According to Harvard economist Jason Furman, the next recession is unlikely to be as bad as the Great Recession, the early pandemic, or the dot com crash. 

In both eras, Wall Street emphasized growth over profit, and retail investing expanded aggressively. As a result, during both economic expansions, growth-focused companies were the top performers. 

The dot-com era and today’s investors have been willing to pay up for market share gains and future earnings, even when those models have yet to prove themselves financially viable. The 2022 bubble is not similar to the 2000 dot-com crash as it is not only about the stock market, but also includes private “angel” investments.

Mark Cuban believes there isn’t a lot of real cash in many start-ups, despite the huge investments they are getting. That fact will eventually become apparent, but investors will be stuck.

According to Peter Thiel’s book: Zero to One, many entrepreneurs and investors who got stuck in Silicon valley started going back to the bricks (globalization), which we all know resulted in the 2008 real estate crash. 

However, there were a few dogmas created after the dot-com crash. Despite the crash, a few companies believed in technology rather than globalization, which we will discuss further. 

Here is what the dot-com crash taught businesses and investors that will guide them today in 2022 and in the future: 

  1. It is better to risk boldness than triviality
  2. A bad plan is better than no plan 
  3. Competitive markets destroy profits 
  4. Sales matters just as much as the product 

When times are hard, great companies rise

during tough times companies grow: Tookan

When the economy is going through a downturn, your product-market fit should be brought to the forefront to check whether it can stand the tough market or not. A recession or a pandemic can be a unique opportunity to acquire customers if your product-market fit is good in the new reality. If you focus on making your cash flow neutral or positive, reinvest revenue quickly, and with good unit economics, a crisis is an opportunity. 

Those companies with short CAC/LTV payback periods and those which can grow without reducing their cash balance are the best. When your CACs are significantly lower than they were before, efficiency isn’t as important as taking control of the market. Taking action aggressively after the environment settles may be the best way to achieve growth. 

Since most startups didn’t possess viable business models such as generating a cash flow before the dot-com bubble, they were overvalued. As a result, a bubble grew rapidly for several years.

On the other hand, companies like Amazon, eBay, PayPal, Oracle, Booking Holdings (Formerly Priceline), Coupons, etc. were some of the great companies that managed to survive the 2000 dot-com crash. 

Also read: 10 lockdown business ideas for 2021

Similarly, in 2022, Zoho, Zerodha, Jungleworks, MuSigma, etc. are some of the startups that are profitable and even managed the 2020 pandemic smartly. 

Through reorganization, new leadership, and redefining business plans, some companies were able to adapt to the dot-com bubble. That is what today’s businesses, especially small and medium, must learn from them.  

Recession 2022 Impact on Small Businesses

recession 2022 impact on businesses: Tookan

Recessions result in job losses, a drop in real income, declines in industrial production, and a drop in consumer spending.

However, what impact does this recession has on small businesses? Some of them are:

  • Reduced cash flow
  • Fewer profits
  • Decline in demand
  • Marketing constraints
  • A decline in product quality

Positive aspects of the recession 2022

Despite the recession, there are a few silver linings to look at. Businesses can also reinvent themselves by seeking ways to cut costs during recessions. To protect yourself, you might try a new business model with lower associated costs. Additionally, some businesses may not be able to stay open, reducing competition.

5 strategies to manage your business in a recession 2022

recession proof strategy 2022: Tookan

Every business dreads the word recession. Yet, it’s especially troubling for small businesses that may not have the same financial cushion as larger ones.

While some believe a recession is coming, others say one has already begun. Either way, you should develop a recession-proof strategy for your business now. If the economy continues to slide, it will be much harder for your business to remain afloat.

Well, you don’t have to panic. You can prepare yourself for the turmoil of a recession.

How healthy is your business?

As consumer spending and available capital decline, a business may feel the pinch. All companies will face unique challenges during a recession, but here are some of the most common ones:

  • Cut product size, quality and benefits – and raise prices.
  • Companies may feel that expanding operations is no longer feasible.
  • Reduced productivity and morale among employees. 

By using data, we can tackle these challenges head-on. Even if the metrics indicate that your company is suffering, it’s vital to understand what they are telling you.

Here are some questions to consider:

  • Are your products or services inefficient?
  • What is the maximum amount of talent we can afford? To what extent can we stretch talent?
  • How much money does it take to maintain or exceed current production?

Introducing a change

Once you’ve identified your business’ trouble spots, it’s time to make changes. Some of them are:

  • You may need to realign your staff or reorganize your organization
  • Ensure that your products and services continue to meet market demands
  • Raising benchmarks and projecting growth

Don’t stop marketing

Businesses must do what they can to remain at the top of their customers’ minds during a recession. Everyone experiences stress during recessions. As a result of so much stress, it’s easy for businesses to get forgotten or overlooked.

Here are a few ideas to get started:

  • Send regular, content-rich emails to current customers.
  • Follow up with ghosted prospects.
  • Make a compelling offer to win back lost customers who have not heard from you in a long time.
  • Ads that retarget prospects online can help you bring them back.
  • Consider social media contests, sales, and events and post regularly

Work with your employees to meet their needs

While a recession hurts everyone, your employees have to be more efficient and productive than ever. Understanding the needs of your employees will help you reach this goal. Pay attention to your employees. The recession is going to affect their homes as well.

Here are some actions to consider:

  • Offer intangible perks: Allow employees to take time off or work remotely. 
  • Focus on mental & emotional health: Help employees understand how mental health issues can affect their work.
  • Take advantage of your employee assistance program: These programs can be great assistance to employees dealing with a variety of issues.

Recession-proof your business

When business owners understand that recessions are normal, they are better prepared. Those who prepare for all possible outcomes will do their best.

Steps to take:

  • Plan for the long-term: Prepare leaders well in advance for training, productivity, communication, and mitigation.
  • Be proactive: Don’t panic once a recession hits; instead, evaluate your company’s health whenever you can.

e-Commerce & quick commerce during the recession 2022

e-commerce and quick commerce during recession 2022: Tookan

Technology has accelerated the growth of food delivery and e-commerce jobs during the last couple of years. Customers are now paying for tasks that they used to do free of charge before the pandemic. As a result, it has created new jobs such as fulfilling orders, preparing food at grocery stores, providing curbside pickup, delivering groceries and food, and developing technologies that allow online ordering.

Recession-proof industries 

2022 recession proof industries: Tookan

On the other hand, due to the increasing fuel prices, many quick commerce companies have still not increased the wages for the delivery partners. 

As a result, delivery partners are struggling to thrive. They no longer want to work with the companies that pay them less. 

Delivery companies, on the other hand, are struggling to make profits out of each delivery this year. Also, many small businesses have stopped using their services due to the higher commission rates. 

Conclusion

While there are some similarities between 2000 and 2022, they do not resemble a bubble. 

In the past two decades, businesses and investors have learned from their mistakes and are much more mature today than they were then. 

To survive in these tough times, all businesses need to think about how to perform due diligence and fundamentals.

For local businesses, technology is a boon to survive and become profitable in the long run. 

Many local businesses all over the world have started using their own delivery management systems, it’s time for you to take advantage of tech and make your customers happy and satisfied. The best part is you no longer have to give commission to the third parties for every online order. 

Know more about delivery management software or get in touch with our experts. 

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