Why You Should Start a Service Business Midst a Recession

Welcome to today's episode of Black Belt Startup with Feras. Thank you for tuning in. What's new in the world of entrepreneurship, folks? I know exactly how some of you feel— that gut punch when the headlines keep screaming about layoffs, shrinking budgets, and a spiraling economy. It's scary, and I totally understand. And some of you who are into entrepreneurship are probably thinking this could be the worst time to start a service or a consulting business. Now, we're not officially in a recession, but people are talking about a recession, economic downturns. Who knows what will happen in the near future? But I want you to be ready, and I want you to think when there is a bad economy or when there is a recession It actually could be the opposite. It could be the best time to start a services or a consulting business. Because see, when recessions hit, big businesses retreat like turtles into their shells because budgets get slashed, innovation stalls, talented people, some of the best out there, find themselves unexpectedly available. And that, my friends, is exactly when nimble entrepreneurs shine brightest. This isn't just theory. According to the Kauffman Foundation, about or over 50% of Fortune 500 companies, they started during recessions or economic downturns. So a lot of these big names, these big brands out there, all rose from chaos. Now, why am I talking about service businesses? Why is it, I think, you're in a better position to start a services business during this recession? Well, simple. One, they're less capital intensive, they're faster to launch, and they're easier to adapt. Flexible, you know, when you have a services business, you have more flexibility to pivot and change with market needs. And then you're able to tap into recession resistant sectors like healthcare, education, and finance. And again, this is not just theory. I've lived this firsthand. When I was laid off in 2003, the economy was still reeling from the dot-com crash. Layoffs were everywhere. The job market was dry. It was really, really rough. But instead of waiting on things to turn around, my co-founder and I took a different path. We launched a consulting business focused on tech services— services, that is consulting, not products. And what I learned from that experience is that if you can package your expertise, whatever you have— your hard skills, your soft skills, um, resources you have— if you can package all of that to meet urgent problems, and then you keep your operations lean, you can thrive while others play defense. Yes, bad economic times come with confusion, sleepless nights, and endless second-guessing, but at the same time, you can turn this uncertainty into your biggest entrepreneurial opportunity. But before we dive into the how, how you can do that, how you can start a business and thrive in a bad economy, in a recession— before we do that, a couple of housekeeping items. One, whether you are watching or listening live or tuning in later, I'd love to hear from you. Leave me a comment on whichever platform you're on. Facebook, LinkedIn, YouTube, X, Instagram, um, wherever you are, let me know what are, what are the struggles you're going through. You started a business and you're not getting your first client. You have clients you're struggling with hiring to deliver. Maybe you haven't done enough financial planning and you don't know what to do next. Maybe you have, you have some big wins, or maybe even some small wins. I'd love to hear from the community. Leave me a comment. If it's something a bit more maybe private send me an email at feras@startupwithferas.com, and I'm more than happy to reply to you. And then in these episodes, in these podcasts, we, we do answer questions from the community. Typically I cover a, a business topic, and then I go into the questions we get from the community and make sure that you get the answer that will help you start and scale your business to 6, 7, and 8 figures. All right, so now that this is behind us and tech is working seamlessly like it should be, let's dive into how to turn— why this is a good time for you to start a services business even if we get into a recession. Hopefully we won't as a country, as a society, but in case we have bad times ahead of us, how to do that. So you're thinking, you're probably thinking, okay, recession opportunity, I hear you, but how exactly do I capitalize on this? Well, I have, I have a number of steps and I want to walk you through this one by one. And if you are, again, if you're going through this, um, this process of starting a business and, and you have questions about it, just let me know here in the comments. But the number one thing I want you to do is start by studying recession-resistant industries. Remember what I said earlier is I want you to map your skills, your hard skills, your soft skills, whatever resources you have, your network. You want to map it to a business. This is how you turn your idea and your skills into a business. So first understand that and then look for recession-resistant industries. So think about healthcare, education, financial services. These sectors keep going strong, recession or not, because even when wallets tighten, people still need to care for their health, improve their skills, and manage their money wisely. And this is not an exhaustive list by any means, and We have an entire livestream on these industries you can watch. But the idea is map your skills, map your resources into a recession-resistant industry, and you'll identify opportunities that will help you stand out from those who are impacted. So that's number one. Number 2 is you always, always, always as a business owner, and if you have a business idea, you want to be solving Real problems. Now, when we have bad economic turns, we have recessions, things are shaken up. So people's habits, needs, pain points, they also shift and maybe they shift quickly. So solving for real and also urgent problems will help you stand out and will help you start and scale that business. So maybe yesterday's bestsellers are today's forgotten products, but there are new problems and gaps that emerge, and those gaps and those problems, they need immediate solutions. So this is where entrepreneurs, you know, this is when it's time to move quickly and identify and creatively solve for these pain points. And those of us who move quickly are the ones who will survive and thrive in the recession. And ask yourself, what is causing real tangible pain point right now? How can the expertise that you have become the painkiller for those people who are desperately searching for what people are searching for? So first we said, Look for recession-resistant sectors, industries. Again, think broadly— healthcare, education, some essential consulting. You know, if, if you thought, you know, during, during COVID it wasn't a recession, but it was, you know, it was a big hit on, on the society, on the economy, you know, hospitality was impacted big time. Later, people had saved money or had access to cash, that economy recovered. Initially, I remember we were in digital marketing. This is after the acquisition, and there was an initial shock to the system that everybody sort of, let me stop, let me pause spending on marketing. But within a few weeks, companies realized that they want to do more things digitally. So actually, saw a, a quick, very, very, very quick recovery. So, and we were there to, to receive that, that increased business. So, so look, look at sectors or areas in the economy when there are needs and there are urgent problems that people have, and you want to be there ahead of others solving these. So those are 2 points. The 3rd point is about how you run your business, how you conduct your business. And I want you to embrace lean operations because when it comes to bad economic times, to recessions, cash is going to be your oxygen. And to keep breathing freely, you must stay lean. So start simple. Start with a minimal viable offer, but something that's incredibly effective, and then test and refund rapidly. If you have an idea you're not sure about, you know, don't start something that's going to take you 6 months to launch. You want to be able to solve these urgent problems quickly, even if you're not 100% sure about the idea, you don't offer all the services that you wish to offer, start with something small, sell, get feedback from the market and then, then expand. Also, in terms of lean operations, when it comes to marketing, of course you can run paid ads. That requires cash, but you can do things guerrilla, the guerrilla marketing way. Uh, think also things you can do organically. Maybe start being more active on social media. Maybe you can do more direct outreach. Maybe you've been hesitating to pick up the phone and call people, but cold calling still works, right? And there we can talk about it if you have a question about it, um, just, just let me know. But, but you have to look for ways to, to save on cash. Um, be, for example, start going to more networking events, anything that connects you directly with clients without having to pay a whole lot of money on ads or things that requires, again, financial investments. You can also, in terms of running a lean operation, you can also negotiate favorable payment terms. So you can maybe negotiate with your vendors. You have to pay your vendors. Maybe instead of paying net 30, you, you pay net 45. Maybe with clients, instead of— if you're a consultant and you charge, you get paid, you negotiate 50% upfront, 50% When things are completed. Maybe you can do 50% at 25, 25, 25% midway through. So look for creative ways to delay when you have to pay people and expedite, accelerate, accelerate when you actually get paid. Again, other clients might be in a similar boat and they might not be willing to do that, to negotiate better terms. But others might be doing really well and they appreciate, they appreciate your services and they might be willing to give you favorable terms. And sometimes I've seen it where they give you favorable terms now and then maybe in 6 months you can, you can, um, go back to the original, to the original terms. So be creative in preserving cash. As I said, one of them, you know, one of the ways is not spending on marketing and do do organic types of activities and then negotiating favorable terms. The 4th point here is on diversifying and expanding your revenue streams. So if you rely on just one service and maybe one client type or maybe one vertical, during tough times, you have to think outside the box. If you do, for example, a one-off type project, can you creatively think of ways to add a recurring revenue angle to it? This way you sell something for $5,000 and maybe there's $100 a month of maintenance. And if you get 10 clients on this maintenance plan, you get $1,000 of maintenance revenue. Not too shabby, right? So think of ways to— the types of services that you offer, maybe you can diversify those and also Maybe you can, if you've been focusing on clients of maybe mid-sized clients and those clients, those types of clients were hit hard during a recession, maybe I can start to work with smaller businesses. And maybe those smaller businesses would appreciate what I offer and they could maybe pay me less, but I still have some cash flow to cover my expenses. So again, your margin, your profit margin might get impacted, during bad times. Again, if your business is thriving because you happen to offer something that everyone needs, you might be in the— you might end up making more money. But let's say in the case where you are, your margins are impacted. So the goal in this, in this tough period is to stay afloat, to, to, to maybe cash flow positive. Maybe you're not making those margins that you used to make before. So be, be creative in how you can how you can find ways to diversify and expand your streams. Now, you can potentially, like ideas here, you can potentially add complementary services. So if you offer some installation, some maintenance, some support, maybe you offer a digital product, maybe a course, maybe some sort of tiered packages for support. Maybe you can do things that I was just speaking with a founder in Canada the other day, and they're planning on offering a service to do with fitness and lifestyle. And it's someone actually come, they would come to their office and go through that service. They're gonna go through the, you know, sign up for the service they have, but they also have an idea to do something that is where you go to the people's office, to the people's offices, or to go to their homes. So maybe historically you've done things where people come to you and come to a store. Maybe you can have a delivery or something delivered at their place of work or at their residence. So again, think of ways where people, you know, have now You know, things shifted based on the shift in the economy. So what you offer also has maybe to shift, has to be repackaged. You might have to find sort of an adjacent service that you offer, but the idea is to explore ways to diversify the service type, the client type, potentially the industry. This way, if you're like— if you have relied heavily on maybe a couple of industries and they're likely to be impacted by recessions or by bad economic times. Can I start proactively get clients and get some traction in another industry? Those things, you know, you want to be proactive about. Good. And again, if you have any questions, any comments, things, maybe experience you've had during a previous recession, maybe in the early 2000s or 2008 or later, please let me know. I'd love to hear from you on how you also dealt with it or how you've seen other people deal with growing, maintaining growing and thriving in those times. The next point is on— it's more internal. This is for you as a business owner, as an entrepreneur, to consistently or continuously invest in your skills. Because this is the golden rule in entrepreneurship. The market always rewards adaptability, and the more skills you have, the more resources you have, the, the more you, you can, you can be adaptable. So, so your greatest asset during tough economic times is your skill set. So use this time to get ahead. Invest in upskilling yourself. Leverage your past experiences, of course, and learn how to creatively solve these new challenges. So when you are, as, as a consultant, when you are so valuable, when you have a lot of skills and you have the certifications and maybe the awards, and maybe, you know, you write about it, maybe you speak about it, people recognize that you are the person to go to. And you solve a real problem, real problems, you know, you become so valuable and so uniquely skilled with this continuous learning that clients cannot afford, uh, to just not work with you, right? Say the clients want to work with you because you are solving these real problems and you are so valuable to them, even during, you know, the toughest economic times. They might they might ask you to reduce that retainer by 25%, by 50%. You have to, to be adaptable even, even on, on that, on the business side. But in terms of the skills, maybe, maybe, maybe in the past you're the founder, you're the business owner, you're great in, you're great in sales and marketing, and you're out there, you know, meeting clients. And then because you're doing well in sales, you've hired someone to do project management for you. And the business is doing well. And during this, this tough economic times, you are getting the, the clients yet, but now maybe not at the same rate as previously. So maybe now you have to do some of that project management work. So learning new skills and preparing for these times by learning these skills and having more arrows in your, in your quiver will, will prove invaluable, uh, when, when things, external things happen to us. So, so again, um, we have a couple more points to go, but to summarize this, this last point, entrepreneurship is always about learning. So, so invest in learning new skills, people skills, hard skills, industry skills. All of that is super valuable to you in all times, but especially during tough times. The next point, and we have 2 more to go, the next point here is on risks. So when we have challenges, you know, and we have to pivot, we have to maybe find a new service to offer, maybe change the industry that we know inside out, at times we have to take risks. And what I want you to do is to take smart Calculated risks, because let's be honest, every successful business was once just an idea before someone that— this— the idea— the idea owner decided to, to have that leap of faith and start a business. So, and there's risk in taking that leap, leaving your full-time job or, or, or you know, maybe after a layoff you decided not to look for a job and start a business, you are taking a leap and you are taking a risk. You're going on a path maybe that you haven't traveled before. So I always advise entrepreneurs that you have to have enough, not just passion, but you want to have you want to build this, this muscle, this risk muscle, and, and, and, and take calculated risks. And, and how do you take calculated risks is by doing proper planning, proper vetting of ideas, making sure you have, you have the right business partner if you have a co-founder with you, make sure that you are learning all the skills that you need to start a thriving business, not just technical skill that you know, but also sales, marketing, people ops, you know, HR, all of those things you need to learn. So, and all of those require, sometimes require us to get out of our comfort zone. You know, maybe we've never hired people. We've never maybe managed people. And now I'm the business owner. I'm the CEO and I have to manage a group of 5. How, you know, I don't know how to do it. So, So, so you're— when you're hiring, when you are shifting your, um, maybe to a new service line or to a new industry, all of those decisions involve risk-taking. So, so I want you to take calculated risks. And the number one thing to keep in mind when we talk about calculated risks is by preparation, by learning, by asking subject matter experts in those areas that we are about to make a decision on. Because in a recession, if we just take reckless leaps, are going to be very costly. They could be deadly. But when we take on calculated risks, they pay off handsomely. So ask yourself, how do I build this risk muscle? Do I need to, for example, simplify a service that I have, or maybe do I want to double down on it, right? Start with maybe something. Do I need to potentially move from working with small, small businesses to mid-sized businesses? And gradually, as I get traction with the mid-sized businesses and I have better revenue, I have better margins, do I gradually let go of these small businesses? In a polite way and maybe hand them off to a friend of yours in the industry. But that, that, that is risk, letting go of revenue. But you're doing it— excuse me— you're doing it because you now you'll free up time for you and your, your team, if you have a team, to take on more projects that have higher revenue and higher margins, right? So, so this is a risk, letting go of some business, or again, going into a new industry, uh, but But that's one way to think about it. Before I send a letter to all my clients, you know, I do it maybe in a gradual fashion, right? The other thing is about also marketing. Before I just go and spend a lot of money on ads or just, you know, maybe I can spend a lot of money on, you know, I want to go to all these conferences, do it step by step. Try a local conference. Get to learn how to pitch, how to speak with people at networking events, you know, develop a list of potential rejections you'll be getting, like FAQs. So look at what your competitors are doing. All of that, you take smaller steps before you take on a bigger step. The other thing is also about pivoting. Should I pivot slightly, offer a modified service, Or maybe a huge pivot because we're going into a dead end, especially in a bad economic turn. So there's really no pill that one would take and, okay, I can take risk now. I think it's a muscle you have to build in your business and also in activities you take outside of business because it's more of a mindset, is getting out of our comfort zones. Yeah. Right? Getting out of, you know, out of maybe taking on a new hobby, maybe taking on, you know, things that are really hard to do. Maybe I'm not ready to run a marathon, but maybe I can run, you know, 5K. That was, that's the first one, right? I did okay. Maybe I go 10K, right? Or maybe in martial arts, you know, I obviously, if you're into Aikido or trying Aikido, you don't want to take a huge big fall before you learn how to do Some easy roles, right? Some some fundamentals. So so so the idea here is in business and outside of business, you want to take some steps. You want to follow the steps I mentioned earlier so that you build this risk muscle, and then you'll be in a better position in in in in making. You'll be in a better position to to to to take calculated. risk, uh, take on, uh, taking, taking on risk. And, and, and hopefully, um, over time you develop this intuition. And in addition to data and in addition to asking others, like, you'll know yourself that this is the right thing to do, this, to make this decision. All right, the last one I want to cover is on related to running a lean operation, but it is on cash flow. I want you to obsess over cash flow. Because revenue is good, profit is great, but cash flow is the bloodline, the lifeblood of a small business, especially again during tough times. Because some clients might not pay you, you know, vendors are knocking on the doors, you have payroll, you have rent to pay, you have expenses. So if you're not obsessing about cash flow and how you manage cash flow, I want you to think about it. And again, this is another muscle to build and whatever, like you don't have to wait for a recession or bad economic times to practice this. Obsessing over cash flow is a good habit to have in a business, and when things are really going well and you have amazing cash flow and you have amazing profit, you know, you can obviously spend and invest and do and share with your team. All those are great things to do, but there is a science and there's, there's an, there's an art to cash flow management. So, so for example, um, accelerate your receivables, you know, so you can get paid faster. Like if you finish a project and let's say you tell your clients, you know, in your contract that you get paid upon you know, upon completion. So if you wait 5 days to send the invoice to the client, that's 5 days before you get paid by the client. So, so this, this in your DNA and in the company's DNA, you know, accelerating the receivables by sending invoices on time, by following up if clients are not paying, uh, you email them, the email went to their spam folder. So you want to get paid faster. You want to offer maybe potentially even incentives for upfront payment. So there are a lot of ways for you to structure a contract, a deal with a client to get paid faster. You can tell them, again, I gave you an example earlier on, instead of getting paid at the end of the project, maybe 50% upfront, 50% at the end, or maybe 50% upfront, 25% in the middle, 25% at the end. So the idea is to find creative ways to get paid, get money in your bank account the fastest. The second thing is we talked about delaying your payables slightly by negotiating better payment terms. I think, who was it, sir? Richard Branson. He said in one of his books, I read this a long time ago, he said, I always paid my vendors But sometimes I was, was very, very late. They didn't have money, you know, when he was building, I think, his first business. There were some really tough times and they had no money. So, so yes, sometimes you have to delay paying people, uh, but as they say, leaders eat last. So if money is tight, make sure everyone else is taken care of, especially if you have employees, and then you sacrifice more. Maybe you have to pull money out of your saving account your savings account. But, uh, but sometimes you have to delay things, and, and it's just the, the reality of, of the situation. And be upfront with people, be open with them that, hey, cash is tight, I'm working on things, uh, just, you know, give me another week or 2 or what have you. And then ideally, uh, during good times, you keep— you know, you kept— you've kept and you keep a cash reserve as a buffer, as a cushion for unexpected times. So during— you want to be a frugal founder. If you're serious about growth, being frugal, I think, is a good habit, is a good way of life. Again, take care of yourself when you're making it, you're making it big, enjoy yourself, take care of your family, spend on your employees, have fun, whatever your lifestyle is, But it's very important to know that peak economic times or great economic times don't last. Just look at the stock market, look at the housing market. There's always fluctuations. So you want to make sure you have a cash reserve, ideally, you know, 3 months, 6 months of runway if you can, in a low-risk maybe investment account or in a place where you can have direct access to that and quick access to that cash so you can cover your expenses as you're planning your recovery, maybe from a big client that— who left because they were impacted heavily, you know, by, by the downturn. So, so controlling cash flow is really important, and I think if you control cash flow, you can control your future even in the worst economic storms. So that's, that's really it. We covered 7 points on how to on best practices to start a business that could potentially thrive in a recession. It does require some planning. It does require some change, I think some change in behavior, how we run the business. But all these muscles that I want you to build, whether it's the financial muscle, is the mindset on how to deal with, you know, with situations, um, and be able to, you know, this adaptability muscle, you know, know, taking, taking risk and, and calculated risk muscle. All of that, um, these are important muscles to have. And if you can survive and thrive, uh, through an economic pattern, through, you know, when the economy is bad, uh, you can do wonders when, when things are going well. So these are the things I wanted to cover today. And again, if you have questions, I'm really interested in your experiences, how you dealt with similar situations. I learned a lot from the community, so if you have something to share, don't hesitate to do so. And before we leave, if you are benefiting from this content, if you're finding this useful, please like, subscribe, and also share with others. 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