3 Lessons That Helped Me Navigate the Last Recession

Unless you’ve been in business for more than a decade, it’s unlikely that you’ve had to manage a crisis of this scale. Most small business owners who persevered through the 2008 financial crisis agree that this time, it’s different — the levels of unemployment and resulting economic impact have the potential to cause a much deeper, longer lasting recession.

In the summer and fall of 2008, I was president of Merced Systems, a company I had co-founded seven years earlier. We were taking in about $30 million to $35 million in annual revenue and had just made an acquisition in Europe, which added a new layer of complexity to our operations.

As the recession transformed from a possibility to a reality, we grew nervous. We had been growing profitably since 2003 and had our expenses under control, but we were very much a backend-loaded, Q4 business. We were heavily dependent on large deals, and we had no idea how deep or long the recession would be and, therefore, how we’d be affected.

Unlike the present crisis, the Great Recession unfolded over time. We had about a month to plan, and we built our assumptions upon our experiences during the recession that followed the dot-com boom. We knew we had to make some hard decisions, so we chose to reduce discretionary spending, including on travel and marketing, and to undergo a 15% staff reduction. Our executive team also decided to forgo all bonuses, though we didn’t ask anyone else to do that.

In terms of planning, we envisioned three scenarios: revenue being largely unaffected by the crash; revenue taking a moderate hit in the 20% to 25% range; and more than half of all revenue evaporating. We created a plan for managing expenses under each scenario. Luckily for us, the impact to our business turned out to be moderate, and our revenue was back to normal by 2009.

The Lessons We Learned

Reflecting on that time, I can point to three qualities that allowed us to persevere when many others failed:

1. Be disciplined.

During the Great Recession, we had a constant war-room mentality. We built a schedule to form our plan, and we met often. Everyone on the executive team was familiar with every deal, so we intensely focused on each one to assess its probability of closing and what we could do to help. We were also judicious about spending. We froze hiring, reduced the marketing budget, slashed travel costs, and put plans in place for dealing with each of the three scenarios we thought might be plausible. No one knows how bad a potential recession will be or how long it will last, so I recommend developing a worst-case safety plan to deal with it.

2. Be decisive.

Were we confident in 2008? No, not at all. It’s hard to be confident when you have to rely on assumptions, but people who act quickly tend to do better and have more options later on. We felt it was better to be more decisive. We knew we couldn’t let hesitation affect our conviction to make big decisions. In uncertain times, it’s easy to get caught up in emotions like fear or overreact to the latest piece of information, whether good or bad. You have to be willing to make the decisions that will ensure that your business survives, even if that means furloughing employees, reducing hours or implementing a reduction in force. We thought that if we overreacted by cutting, we could bring back budgets and teammates. But if we underreacted, we put the company at risk.

3. Be transparent.

There’s always the temptation to hide bad news or paint a rosier picture of negative circumstances. Resist the urge to do this. In our case, we were as clear as possible with our team, our customers and our investors. We let them know how our business was doing and what steps we were taking to ensure that we’d be able to operate, serve our customers and fulfill our mission well into the future. With employees, we were clear about the state of the business and what we thought would happen next. Unfortunately, we were not able to keep everyone, but we eventually came back stronger than before.

No one knows how bad a potential recession will be or how long it will last, so I recommend developing a worst-case safety plan to deal with it.

Economic recessions can be uncomfortable times because they're often accompanied by heightened uncertainty. However, one thing is certain: Recessions eventually end. This one will too, and when it does, you'll be a better, stronger business leader because of it.

Photo: Getty Images

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