Will Your Company Survive A Recession According To Elon Musk?
People have been warning about a recession throughout most of 2022.
Now, depending on who you ask, we are either about to enter a recession or already in one. Elon Musk is one expert who thinks a recession has already started, and he has hard words for businesses hoping to survive.
Is your business going to survive a recession according to Elon Musk’s advice? Here’s what you need to know.
Get your finances in order
Before discussing whether your business will survive, your finances must be in order. Business owners who do not have their financial situation under control tend to make bad business decisions out of fear or panic.
There are several ways to get your finances to deal with a recession, and not all of them are good. Don’t just sell your life insurance policy, as much as the idea appeals to many young people. It makes you less financially secure, rather than more so. The same applies to your retirement annuities.
What you can do is consolidate your savings, putting them in a secure investment instead of trying risky investments that have the potential for high returns. Budget carefully and try to find room for more savings. In a recession, you may ultimately have to rely on the finances you open up by cutting down on unnecessary expenses.
Now, let’s look at how likely your business is to survive.
Elon Musk’s warning
What does Elon Musk say about businesses in a recession? He talks about companies that are ‘doing things that are silly and not useful to their fellow human beings as being the least likely to survive. These companies tend to come up during economic booms, when ‘it starts raining money on fools.’
He also implores business owners to ‘make sure you’re not running things too close to the edge from a capital standpoint.” Companies need good capital reserves to make it through “irrational times.”
With this in mind, here are ways to assess your company’s readiness for a recession.
Does your product or service solve a problem?
Traditionally, businesses were started to solve problems or fulfil real needs. Grocery stores fulfil your need for sustenance. Car manufacturers solve your transit needs. Banks solve financial problems by providing credit.
However, in 2022 there are innumerable products and services on the market that don’t solve any real problems. They may have a unique selling point (USP) that drives people to pay for them. But without fulfilling an actual need or solving a real problem, these are the first things to go when times are tough financially.
So, if you run a business that sells devices made for slicing bananas, you are going to struggle, even if you’ve managed to do fairly well so far. The same is true if you operate a company that cleans phone covers or run a store that specifically sells green scatter cushions.
These are all obvious examples, but the reality is that if you cannot define the problem statement for which your company solves, you’re in trouble.
Are you living on the edge?
Even if your company provides a product or service that is always in demand, you may still struggle during a recession. This is true if you do not have any capital to fall back on. Living on the edge can work for businesses during normal economic times. But in a recession, when even the most-needed service providers are likely to see a downturn, it is way too easy to fall off that edge.
Unfortunately, it is likely too late to do anything if your capital is depleted. Unless you have a way of making money quickly, you will struggle to stay afloat in a coming (or current) recession.
Whether or not you generally take Elon Musk seriously, his advice here is pretty straightforward. The simple reality is that recessions make life hard for every business and you need to be in a great position to survive. If the above issues apply to your business, it is going to take a gargantuan effort to make it through the recession. That being said, you may be able to get back up and running pretty soon after the economy bounces back.