How Can Your Business Can Thrive in a Bear Market?


Opinions expressed by Entrepreneur the collaborators are his.

Markets are cyclical: they go down and flow from bullish to bearish, only to repeat the same cycle over and over again. As they say, history repeats itself. Therefore, how we prepare our startups and companies for another potential bear market can mean the difference between thriving or fighting: preparation is key.

According to this article in The Motley Fool, “Bearish markets tend to last longer than corrections. The longest bearish market in the S&P 500 occurred during the Great Depression and lasted 2.8 years. Since the 1950s, the longest bear market was in the early 2000s when the dot.com bubble burst. It lasted 2.1 years. ” According to this Kiplinger article, “The average duration of a bear market is about 9.5 months and occurs, on average, about 3.5 years apart.”

Related: SPY: Bear Market Here We Come?

Maintaining the same business strategies from a bullish market to a bearish market to grow at any price can be disastrous; it is not worth pursuing all markets in variable macro conditions. To grow effectively in complicated bearish markets, it is necessary to fully assess the cost of acquiring more market share and compare and contrast each market opportunity over another to classify them not only in terms of bullish potential, but also in terms of cost. to achieve this increase. . The investment of time, energy, capital and resources must be weighed more intensely when the risk premium (beta) of bear markets is at stake.

In today’s turbulent, hyperinflated, and globally fragile economic and geopolitical environments, founders must build resilience, manage cash flow, and ruthlessly monitor which expansion plans make the most financial and operational sense to pursue.

You can leave the business quickly if you expand too quickly. You may run out of cash, over-extend your manufacturing and operating lines, and find yourself overwhelmed by factors beyond your control (inflation, unforeseen blockages, shipping delays, unexpected cost increases, cooling market sentiment, etc.) .

Related: SPY: Is this the formation of a bear market?

Here are 10 growth strategies to consider in a bear market:

  1. Have a contingency plan for cash reserves. I like to have at least 5% -10% cash in a business savings account as an interest-free line of credit, so to speak, for unforeseen cash crises.

  2. You have supply chain security facilities / providers in case your principal disconnects or faces unexpected delays.

  3. Limit expansion plans unless the return on capital justifies it.

  4. Reduce excess general and administrative expenses (sales, general and administrative).

  5. Optimize AOV (average order value) by grouping products to increase transactions (gross sales).

  6. Manage it with fewer resources (reduce “enjoyable” benefits such as off-site retreats, meals, travel, etc.)

  7. Raising prices to combat inflation and rising the cost of goods sold narrowing gross margins.

  8. Consider investing capital in long-term opportunities that could now be significantly discounted.

  9. Expand your marketing to only the top three channels and narrow down the rest.

  10. Don’t raise external capital in a “downward round” and lower your company’s valuation. Instead, use the cash flow and higher operating margins to produce the working capital you need. Today, the cost of bank loans is higher with rising interest rates, and the cost of raising venture capital will require a higher percentage of capital at a lower valuation due to public market. Consider how raising capital will now affect your future capital position and the prices of stock options for your employees.

Related: SPY: Why the odds of a bear market increase every day

Historically, bear markets last between 9 and 18 months, so the storm is often justified during this time period. However, with the uncertainty of current global issues, be prepared to alter this historical time horizon and plan your strategies accordingly to mitigate the risk of dissolution.

In my opinion, the good thing is that in bearish markets, the most resilient and successful entrepreneurs are usually the ones who find their starting point despite difficult market environments. Those who can manage their business very well today will shoot up quickly when market conditions return to normal tomorrow.

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