All the way back in 2008, I wrote a piece about why economic downturns are good for innovators and bad for pretty much everyone else. 

As we face a recession in 2020 due to COVID-19, this is still true. The pressures of an economic slowdown actually benefit certain innovative companies that had trouble getting wide-spread adoption before the recession. 

Here’s an excerpt from my article from 2008, Recessions promote breakthrough innovations:

When the economy is booming, little pressure is put on expenses. Large organizations often penalized innovators…[and] companies are ok with spending more money on the same software, the same hardware, and the same advertising mix. 

But…economic downturns force companies to reevaluate how they spend money. Companies need to cut expenditures dramatically yet are expected to have the same level of service as when times were good. This forces firms to look for alternatives to what they are doing.

Revenue pressure forces large companies to get creative. And it’s those smaller companies that are already innovating or can pivot quickly that take advantage. This was true in the Great Recession of 2008 and will be true in the recession forming in 2020. The only difference is where the innovation is taking place. 

Hiring is always hard. And if you want to hire someone that is super talented, hiring is always really, really hard. And the stakes are high because the employees are the lifeblood of the business. They are what allows the business to compete. To improve. To grow. 

Some people think that hiring and recruiting in a recession is easier than during an economic boom. But it might actually be harder. 

Here are 5 reasons why hiring in a recession is harder than you think: 

1. A-Players are harder to find because there are more C-Players looking for jobs.

While every employee is vulnerable in a downturn, companies usually let go of their C-Players to save money.   

C-Players are the least-productive employees at the company and companies generally let them go in the first round of lay-offs.

A-Players – those employees who are 5-10x more effective than the average employee – are rarely let go during a recession. They are the company’s best employees. Management should be willing to do anything to keep them around (and if a company does lay-off their A-Players, it has made a huge error and will not thrive in the recession).  

So, with a mass exodus of C-Players from employment and about the same number of A-Players available, the talent pool gets diluted. You are going to get a lot more C-Player resumes in proportion to A-Players than you would during an economic expansion. This makes it harder to identify and hire the A-Players that are available. 

The noise goes up but the quality stays the same. 

A recession forces almost every business to make difficult decisions. 

Whether it’s cutting back on discretionary expenses, finding a smaller office space to work out of, or (worse case) letting go of freelancers and employees, companies must do whatever they can to survive. 

SafeGraph is in a fortunate position entering this recession (we are still hiring and were profitable in 2019). So we will not have to go through the grueling pain of letting our colleagues go (but I have been there before in past companies). However, many of the 100+ of the companies I am an investor in had to do layoffs in the last month and I wrote this piece for them.  

There is no good way to lay-off employees during an economic downturn. But some ways are better than others. 

Here are some rules and tips for those companies falling on hard times during a recession…

Never, ever, lay off your A-Players.

This may seem obvious (why would any company ask its best people to leave?), but countless companies tell their highest performing people to go. This is really, really bad.  

If a company lays off just a few A-Players, first, it loses all of their contributions. Great employees are great because they bring a lot more value than average employees. 

But there are second-order consequences too. The remaining high performers will become fearful for their job when they see A-Players let go and will start looking for work. And once your high performers are looking for jobs, they are not going to be focused on helping the company. 

A company that is experiencing hard times and distress needs all its amazing people focused on making the company better. Never lay off your A-players.

And even if your A-Players are in an area of the company that you need to lay-off (like maybe you need to cut your restaurant marketing team), keep the A-Player and move them to another team to make a contribution. 

It is April of 2020 and we’re entering a significant recession.  As they say, winter is here. 🥶

While each downturn is different, there are common ideas and practices that have been proven to work from one recession to the next. 

Here are some of my thoughts from a geezer that has scars from the crashes of 2000 and 2008.  Some of these are obvious and some are non-obvious but hopefully, they will help you manage your business successfully and grow while others merely try to survive. 

Get the CFO on your side.

The CFO has much more power in downturns than you think — do everything you can to get her on your side.  If you are selling to a company, see if you can sell to the CFO. 💸

If your product can save the company money, they are going to be much more interested in using your services. In a recession, finding cost savings becomes very attractive. If the CFO is your advocate based on the numbers, you are going to have a much easier time selling.  🤑

For example, open-source solutions (starting with LINUX) really took off following the dot-com crash. This is because companies realized that they could replace super-expensive SUN boxes with cheaper (yet still powerful) LINUX units. Many for-profit companies benefited from this trend.

If you are a SaaS company, prioritize customers that are doing what you are doing in-house.  Often you can find companies that are paying over $1 million dollars a year to do what your software does for $60k.  And yes, your software might only do 80% of what their in-house solution does… but is that extra 20% really worth $900k+/year? Probably not. 

This is also true in the B2C world — in downturns consumers look to save money. Groupon was the breakout company of 2009 because they rallied around saving groups of people money. Sometimes capital constraints can spur innovation. 

If you can find a way to save your clients’ money and get CFOs on your side, you can grow your business during a recession. 

Over at SafeGraph, I write about why “Exit Transparency” is so important for companies and employees.

Since publishing yesterday, I got a ton of inbound from other CEOs and founders talking about what they do and also asking about how we do things at SafeGraph. We still have a ways to go at SafeGraph to be great at Exit Transparency (it is very aspirational) but we have made a lot of strides to be better at it.

Exit Transparency is about starting employment with the end in mind. When the employee eventually leaves the company (as all employees eventually do), what do they want to achieve and how to they want to grow.

More at: https://www.safegraph.com/blog/why-exit-transparency-can-make-companies-stronger

Over at the SafeGraph blog, I write about why the Peter Thiel interview question (“what is a heretical view you have”) is so predictive. Take a look.

It reveals that most people hold conventional opinions and call them “heretical.” Almost everyone cannot come up with an answer that most people they know do not agree with.

What makes for a good answer?

One that sparks a unique view of the world and shows the candidate doesn’t think like their peers. This signals that the candidate:

1) thinks differently

2) is open-minded

3) is brave enough to discuss an unpopular opinion

I plan on writing a lot more about why the Thiel interview question (what is an important truth that most people think is crazy) and why it is so brilliant. In the meantime, here is a tweetstorm with my quick thoughts: