The recession-proof playbook

Strategies and tactics from founders who've been there

Founders

Recent headlines state, "Unemployment Claims are 'Stubbornly High' as Layoff Persist" and "Pandemic bankruptcies: A running list of retailers that have filed for Chapter II."

With reports like these, I felt more than a little crazy asking founders, "Is now a bad time to start a business?"

The answer, I imagined, was obvious.

Except it wasn't.

The five grounded and deeply experienced entrepreneurs I interviewed didn’t recommend building a cement bunker stockpiled with snacks, Twitter, and a 3D printer. They didn’t even recommend waiting until the economic graphs look prettier and upward-ier.

Their surprising and consistent take was it’s not only possible to start a business in a depression, it’s possible to thrive as one, too...if you keep certain things in mind.

Here’s who you'll hear from:

Rand Fishkin

Rand Fishkin

Co-founder and CEO of SparkToro. Previous co-founder and CEO of Moz (2004).

Hiten Shah

Hiten Shah

Co-founder of FYI. Previous co-founder of KISSmetrics (2008) and Crazy Egg (2005).

Amy Hoy

Amy Hoy

Founder of Noko and co-founder of Stacking the Bricks and 30x500. Built three businesses around 2008 and generated $1M ARR.

Alex Hillman

Alex Hillman

Founded Indy Hall in 2006; co-founder of Stacking the Bricks and 30x500.

Jason Resnick

Jason Resnick

Founder of Rezzz and NurtureKit, multiple podcasts, and a business coaching program. Previous founding partner at Wajig (2009).

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And here’s what’s ahead of you:

  • How much does the economy really matter?
  • 4 opportunities founders can find in recessions
  • The #1 way to de-risk a new business venture
  • 3 additional strategies you can use to minimize risk
  • Why self-care matters... especially in hard times
  • Additional resources and links

We’re in unfamiliar territory here

The US economy officially entered a recession in February 2020. And while the circumstances of this recession are unique, historical data indicates we’re not getting out of it quickly. In the last 50 years, US recessions have had an average length of 12 months.

Via First Round Review Via First Round Review

That’s a bit unsettling. Not only because we’re unsure when we’ll get out of this, but because most of us are unsure how to navigate this downward landscape while we’re milling about it. The last major downturn was ‘07-’09, so the current climate isn’t something most SaaS founders have walked through as business owners.

It’s also a sharp juxtaposition from what the economic landscape has looked like. In the past decade, business has been good—really good—for SaaS founders. A16z remarked, “We’ve been in a bull market for enterprise software-as-a-service (SaaS) for over 11 years, and it has been all about growth. Not only has the number of SaaS companies exploded, but companies like Slack, Zoom, and Shopify have grown into multi-billion dollar public companies during this time.”

SaaS might’ve been a no-brainer in the last decade, but things have changed. Many entrepreneurs are wondering if they should still dive in...to any business at all.

How much does the economy actually matter?

Let’s start with this big, hairy “recession” word.

It’s usually coupled with furrowed brows and gloomy mouth turns (“we’re in a recession,” he said, glancing down into his foamy beer), but it’s less often defined.

A recession means there’s a notable dip in the entire economy for an extended period of time. A “dip” refers to higher unemployment and drops in the stock and housing markets. A recession becomes official when the country’s total value of goods and services (GDP) has declined for at least six months. (This marker stems from economist Julius Shiskin in the yesteryear of 1974.) It’s an imperfect measurement, but it’s one many folks still use.

In layman’s terms, a recession is when the economy has looked like it’s going to crap for more than half a year.

That sounds depressing, but there are two things to keep in mind here:

  1. Recessions are expected, normal, and cycle around every so often.
  2. The term recession is a macroeconomic term— it describes the big-picture economy. It references the forest (whole economy) not the trees (people, households, industries). That'll come back up later when we dive into four opportunities that pop up in recessions.

Now that we’re on the same page terms-wise, let’s take a backward glance at how recessions have impacted startups before we look forward.

What's happened to tech startups in past recessions?

Some of the most well-known tech names started during—or right after—big recessions. Microsoft started in April 1975, one month after the sixteen-month 70s recession. Apple followed in 1976. In the most recent recession (‘07-’09), WhatsApp, Venmo, Square, and Slack all lifted off in 2009. Airbnb took off in August 2008.

The fact we all still know these names indicate the SaaS model may be resilient.

Research backs this up. According to data collected by SaaS Capital, there were 17 public SaaS companies in the Great Recession (‘07 to ‘09). One, Omniture, was acquired by Adobe. The other 16 all stayed in business.

Via SaaS Capital. The Great Recession is shaded in gray. Via SaaS Capital. The Great Recession is shaded in gray.

Overall, SaaS Capital concluded, “The SaaS model is resilient to economic downturns. No company became insolvent or declared bankruptcy, and actually, over 80% of the companies continued to grow through the recession and were able to achieve profitability in fairly short order.”

That’s the data, but what do the people who’ve been there say?

The founders who weathered the data

All five of the founders we spoke with started or ran businesses around the Great Recession (‘07-’09). And, much like the public SaaS companies in the data above, all five experienced some form of growth or success during that time frame.

When we asked these founders for their take on how the economy impacts startups, one piece of advice several founders gave is look, you can’t control the overall economy. In fact, Hiten Shah suggested putting it out of mind—at least when it comes to your startup.

Hiten co-founded Crazy Egg (2005), KISSmetrics (2008), and now FYI. He’s advised or invested in over 120 companies, including Buffer and Slideshare. And he’s someone who experienced growth during the last recession—but not, as it turns out, because he obsessed about the economy.

His words of wisdom: while the world feels particularly uncertain now, this is nothing new. It’s always been that way. What’s more, he doesn’t think economic uncertainty is a reason to panic. “I tend to ignore the economy because those are factors not in my control. It’s not like I pretend it doesn't exist,” says Hiten, “It's more so realizing there are only certain things we can control.” Hiten can’t control the economy, so he doesn't spend time worrying about it.

Alex Hillman, co-founder of Indy Hall and co-conspirator behind Stacking the Bricks, throws similar caution on economy-induced panic. “...the tricky part,” according to Alex, “is people think of the economy as this one sort of monolithic thing. It's either doing well or doing poorly. That's the mistake. The economy is no one thing.”

Alex cautions it’s easy to over-index bad experiences you read about and imagine the entire world is spiraling down. But he encourages founders to remember the economy is “a meta-layer of things that statisticians and analysts and economists look at. Yes, it's present, but it's not one thing.” In other words, don’t forget there’s more to the forest here.

And really, it’s the macro-ness of economies and recessions that makes them outside our control. We can’t stop them, start them, or significantly influence them. Which is why experienced founders caution obsessing over it. That said, it is worth looking at how recessions have created opportunities in the past. Because while you can’t control what those are, you can control how you react to them.

What this means for you...

  • A bad economic outlook doesn’t necessarily mean a bad outlook for you or your business
  • While the circumstances around this recession are unique, many successful businesses took root in the recessions of yesteryear
  • The macro-economy is outside of your control, but it creates opportunities you can take advantage of

4 opportunities for startups in every recession

Counterintuitively, an economic downturn can be a great time to start a business. Alex Hillman says a downturn, “...weeds out all the posers, all the fakers, all the people who are just kind of riding on the easy opportunities, which clears out a lot of the noise.”

That’s bad news for bloated startups, but it’s great news for lean ones.

What’s more, Alex has learned a bad economy can turn up a whole new set of problems or accentuate problems that already existed. In other words, a poor economy actually presents many opportunities...if you know where to look.

Here are 4 distinct opportunities the founders we interviewed identified.

Opportunity #1

Recessions create new and stronger needs

KISSmetrics, one of the companies Hiten Shah co-founded, took off in 2008-2010.

“We focused much more on what was happening in our own business,” Hiten reflected, “and how we could adjust. We learned we needed to focus on needs. Building and creating services, products, and goods that people actually need—not things we would describe as a want. Because there are a lot fewer wants when this kind of situation hits, and there are a lot more needs, and some of them might be new needs.”

Hiten says the key during times like these is delivering on needs—not desires. That’s not the normal strategy founders take, though, and a need isn’t always easy to find.

The way Hiten approaches this in his own businesses is, first, gather a mountain of customer feedback and data (more on how he did this later). From there, he recommends scoring the behaviors you identify along 3 factors:

  • Painfulness
  • Urgency
  • Frequency

Hiten advises, “You’re looking for problems that score as high as possible on all three. That's when you have something that's a need.”

Diagram

Three out of three is ideal, but two out of three can also cut it. Hiten explains, “Something can be frequent and super urgent, and that's great. Or something can be urgent and painful but not as frequent. And that's great too.” However, he cautions founders to be careful with low frequency issues. These can work, but they’re tricky since frequency is one of the main drivers for retention and engagement.

The point of this whole exercise is to “help you understand what kind of behavior you're going after, what kind of problem you're looking to solve, and whether it falls under a want versus a need.”

Hiten Shah

"..really think about the shift that happens during this time. We go from a world where you can create a business for something people want, to a world where you have to create a business for something people need. So, what you want to do is figure out, ‘What do people need?’ And, ‘How can I deliver upon their needs, not just upon their desires?"

Caveat: needs are powerful, but you can capitalize on wants as well

While needs are powerful, not every founder we spoke with agreed with a need/want dichotomy. Some founders have successfully capitalized on both.

Amy Hoy, who started three businesses around 2008, argues for more nuance: “If the behavior is there, there's no meaningful distinction. Yes, some needs/wants supersede others… I need food, and I want pizza, but if I'm starving, I'll eat anything.”

Hoy explained, “A lot of wants are very strong. On the flip side, a lot of times we see folks who need to learn or do something — sometimes desperately! — but they A. don't know it, B. are in denial about it, or C. even do know and accept it… and still don't act.” Her business partner, Alex Hillman, adds, “There’s nothing wrong with wants. Wants are good...as long as they want it enough to pay for it.”

Which brings us to another opportunity—following the new flow of money.

Opportunity #2

Businesses focus on maximizing their dollars

Despite wince-worthy headlines, Amy Hoy has heard from many bootstrappers who are growing right now. This is partly because customers are nixing default expensive services and leaning on more affordable options instead.

Amy experienced this herself in 2008-2010. Back then, Amy and her husband were doing freelance data visualizations for big companies like Pepsi—and they were booked solid.

Amy remembers, “...the high-end darling firm that had been the ‘default choice’ until then had a huge staff and a slow, enterprise-y process which (until 2008) big corporations loved. We, on the other hand, got great work done faster and cheaper, because it was just two of us and we were very streamlined. Our hourly rate was high but our projects still cost much less. They shrank; we grew.”

Contrary to popular fears in 2008, most businesses weren’t running out of money—they were just getting smarter about how they spent it. On the Stacking the Bricks blog, Amy explains that in recessions, “life goes on. People still need and want stuff. And critically, so do businesses. They may have less money, and they will be more cautious, but the economy doesn’t grind to a halt in a recession.” Rather, businesses become what Amy calls maximizers. They want to get the most out of their money.

Rand Fishkin

“...there is opportunity for entrepreneurs to recognize who still has dollars...and shift their business's positioning, marketing,...towards those areas where there's still opportunity.”

Practical tip: adjust your startup positioning to appeal to maximizers 👇

To appeal to maximizers, you may need to tweak your product’s positioning.

Rand Fishkin, the previous CEO of Moz and current co-founder of SparkToro, explained, “there is opportunity for entrepreneurs to recognize who still has dollars...and shift their businesses positioning, marketing,...towards those areas where there's still opportunity.” He says, “folks are looking to cut budget, so if you provide tools or services that help them save money right now, those opportunities are also growing.”

In good economies, positioning your product as something that makes money is a good move. But in poor economies, this is bass-ackwards—businesses gravitate toward products that save them money.

Opportunity #3

Layoffs mean a large and talented hiring pool

Rand has done a lot of hiring in his years as a business founder, and he knows what it’s like to struggle finding great talent. “In good economies, from 2012 to 2016,” Rand recounts, “I was trying to grow Moz from 50 people to a couple hundred. It was brutal trying to hire software engineers, especially here in Seattle.”

In poor economies, though, hiring can be a lot less painstaking—at least on the talent-scouting side. Many individuals will (unfortunately) find themselves out of work or, in the case of some contractors, will find themselves with significantly less work. This is hard on the individual, but it means a strong hiring pool for businesses in a position to hire.

Opportunity #4

Niche markets may expand

Several founders we spoke with were quick to emphasize niche-level impacts.

Amy Hoy says the impact of an economic downturn, “depends on who your audience is, and what your product is. Some things shrink, others grow. Many value buyers move to safety during a bad economy — they cut back on exciting and optimistic extras and vanity projects and over-priced products and services, but they still want to stay in business, so they start to get creative and hunt for alternatives. Others invest because they see an opportunity.”

For example, Rand Fishkin started Moz in 2007, and he launched their big software product the day Lehman Brothers collapsed in ‘08 (how’s that for bad timing?!). Yet Moz managed to reach profitability three months later and Rands says they “...had an incredible run of seven years of extraordinary growth during a rough economic cycle.”

Looking back, Rand doesn’t think the macro-economic picture has a huge impact on starting a SaaS business, but he does think it’s worth tracking the sector you’re going after.

For example, digital tools, remote work, toys, games, and entertainment are on the rise right now. Industries like home equipment and hardware, home renovation, and groceries are seeing healthy demand as well.

Average revenue in 2019 vs. same-week average revenue in 2020. Image and research via Womply.

While some of these industries are thriving because of COVID-19’s impact, others fall into the “recession-resistant” industry category. This category historically includes consumer staples, grocery stores, alcohol manufacturers, beauty products (go figure), some health services, and funeral services.

Take a look at the top 10 stocks in the S&P 500 in 2008. Several are in those recession-proof categories.

Via Investopedia

Word of caution, though: this data isn’t a failproof map for what will do well in the current recession. Each downturn is unique. We know, for example, airlines aren’t doing so hot this time around due to travel and border restrictions. However, tracing what industries have historically done well gives context for what can do well in the future.

What this means for you...

  • Economic downturns can be a great time to start a business
  • There are 4 clear opportunities in recessions: (1) new needs, (2) new business spending patterns, (3) a talented hiring pools, (4) niche-level expansions
  • Tracing what niches have done well in the past can provide context for the future

Okay, but...isn’t starting a business in a recession super risky?

Most people label starting a business as “a big risk.” The main reason is it could fail. Amy Hoy has a bone to pick with this logic.

She points out, “Nobody says ‘petting a dog is risky’ — even though some dogs bite. Why? Because lots of dogs don't bite. If you stick your hand through a chainlink fence towards a stranger's slavering Rottweiler, nobody blames dogs in general… they blame you.”

“Businesses,” she explains, “are the same; the risk is in the earliest choices you make, not the inherent nature of business.” According to Amy, one of the problems here is too many founders follow an archetypal story, “like the outsider who spots a new problem, or the scratch-an-itch that somehow makes it big.”

The pattern from there is predictable:

  • The founder gets a bolt of insight
  • They pursue a passion idea
  • They try and back-fill evidence the idea is a good one (“validation”)
  • They hunt to figure out who will pay best

Amy says, “No wonder most of these types of products don't catch on; they weren't designed, from the ground up, to reflect the real buying behavior of customers with money.” They were designed around the founder and popularly misunderstood notions like validation and product-market fit.

Instead, Amy recommends an approach she’s been teaching and practicing since 2010. That approach is (in her words):

  1. Choose an audience that pays for things
  2. Really study them to find out what they do
  3. Build something you know they will buy (based on their actual buying behavior)
  4. Build trust with educational content (ebombs) rather than SEO (which could be taken away from you at any time)
  5. Don't quit your day job until you've got a stable income stream.

Did you catch Amy’s #1 step? It’s all about the audience and the customer. Whether the economy is booming or spiraling, they’re always your best starting point.

Amy Hoy

“These are the same rules I've been teaching since 2010 because they work great in a bad economy and even better in a good one.”

The #1 way to de-risk your startup: customer research

Every founder we spoke with preaches and practices hands-on customer research. From pre-leap to building beta, here are a few specific ways you can do that.

How to do customer research if you’re already in your niche

For some founders, their startup path begins with productized consulting. This approach, where you offer services or skills for a set fee, gives you close contact with industry buyers. It also gives you a front-row seat to observe what customers find painful enough to spend money fixing.

If you’re working in the niche you plan to serve—via consulting or a fulltime job—and want an even closer look at those pain points, steal a play from Jason Resnick’s client book.

Jason regularly holds temperature calls with clients. A temperature call is a conversation where Jason explores how the client is doing outside of the current project.

Jason Resnick

"Sometimes it's harder with other clients to get them to open up. But usually...it's all about the format of the question. Because business owners love to talk about business."

How to hold a great temperature call 👇

These calls come down to a lot of why’s that and how do you feel? type questions. To hold a good temperature call, you need to be curious, listen well, and ask good questions. Jason recommends starting with a prompt like how’s business? Because, as you know, “business owners love to talk about business.”

From there, you can start new threads or dive deeper into mentioned one with:

  • What problems do you have this week that you’re trying to solve?
  • How did you feel about that thing?
  • Why is that a problem?
  • How have you tried to solve that problem?

Jason uses these questions to “...get the ball rolling. And what happens is it disarms them [the client] a little bit too. They start to open up a little bit more, and you can ask harder questions.”

This is a great exercise for three reasons:

  1. It helps you identify new opportunities, even if they’re in between the lines.
  2. It could surface a need you already offer services for.
  3. It helps you see how to improve. Another question Jason has learned a lot from is, “how could I be more awesome?”

Jason used to do temperature calls as formal quarterly calls, but he’s since made these more frequent and built-in. If you’re looking to set one up with your clients and already hold regular calls, Jason recommends this script: “Hey, on Thursday when we talk, I'd like 10 minutes to just talk and take a temperature and see where we're at and just hear what's going on in your world.”

How to do in-depth research the “Sales Safari” way

Whether you’re in a market or not, few people who have a better process for evaluating opportunities than Alex Hillman and Amy Hoy, founders of Stacking the Bricks and creators of the 30x500 academy.

Where many founders start with an idea and try to reverse-engineer it, Amy and Alex start with a customer base and the pressing problems they have.

Amy and Alex’s Sales Safari, the opportunity-finding approach they use and teach, is all about research and observation. Amy explains, “People talk a big talk, they want to convince you (even themselves) — that's the danger of customer interviews.” Which is why the Sales Safari is, “all about observing what they actually do when they aren't performing for you. Do they buy things? Read, use, try, and recommend things? Switch products over and over looking for the right fit? Complain about the stuff they do pay for, but never switch? That's key.”

Alex elaborates the first pass of the Safari is going to watering holes where your audience hangs out online. He encourages founders to look for “places where your audience is talking about their problems, talking about things in general. You want to understand their language, understand the jargon they use, understand the way they bring up problems, how often they bring up those problems, things like that.”

Alex Hillman

“What should be your top concern is who you're selling to, who you're creating things for, who you're serving. That should be your number one concern all the time, every time, no matter what the economy looks like.”

Pro-tip: pinpoint the REAL issue 👇

Alex and Amy’s process goes way deeper than surface-level observation, though. As you watch your audience, you’ll need to parse out what you observe. Because what the audience says they’re struggling with may not be the real issue.

Alex gives the example of an audience talking about conversion rate issues. Some founders would look at this and think, “oh, conversion rate is the main problem.” But Alex cautions this may not be the case.

For example, the conversion rate may suck because the business isn’t getting customers. Or it could be tanking because the business’s growth rate has changed or slowed. These are two different issues with two different price points. A customer’s willingness to pay for a solution that takes them from zero sales to one sale will be much lower than a customer wanting to go from 100 to 250 customers.

This is why stated problems are more like clues than anything else. Alex asserts the founder’s job is to, “interrogate the clues and say, ‘Why is this here in the first place for this population?’...You have to look at the environment. Go a little Scooby-Doo on the situation. Investigate, look for more clues.”

This can be a lot of work, but Alex’s encouragement is “the work that your competition will never do to really understand your customer” So, it’s well worth your time and effort.

Amy Hoy

“There's no single 'yes or no' answer when it comes to something as complex as the economy. That's why I always say you've got to do your research and see what your audience actually does!”

What this looks like: two real-life examples of succeeding with customer research

One misconception about customer research is it’s limited to the pre-product stage. It should play a huge role there, but it’s not the only stage where insights are useful—not by a long shot. This is why experienced founders practice something called continuous research. At every stage of product and business development, they look to customers for guidance.

Continuous research is a pretty idea, but it’s admittedly difficult to put into practice. One of the best ways you can learn how to prioritize and do this is to watch how other founders have done it. So, here are two stories of how Rand and Hiten incorporated research into pre-launch, launch, post-launch, and beyond in their current products.

Example #1

How Hiten and Marie Prokopets built FYI with open-ended questions and surveys

Hiten Shah started building out his current company, FYI, a few years ago with his co-founder, Marie Prokopets. In those early stages, they asked potential customers, “What is your number one challenge when it comes to creating and sharing documents?” The responses were a gold mine.

Hiten explains, “it turns out, people said their number one challenge is finding documents across all the different apps they use.”

FYI Homepage Hiten and Marie’s initial research laid the foundation for FYI’s value proposition today.

But, much like Alex and Amy advise in their Sales Safari, Hiten didn’t stop there. He went all Scooby-doo and kept digging.

He and Marie asked other open-ended questions that prompted customers to tell a story. For example, “Tell me the last time when you looked for a document and couldn't find it. What happened?” After talking with 50 or so people, Hiten realized not being able to find documents was an emotionally charged experience for people.

Once Hiten gathered a lot of this kind of customer data, he did an analysis. As he explains on productboard, he did 24 hours of manual analysis on 163 pages of interview notes. He wrote, “I read like a human and try to find trends. What I’m looking for are emotions, the emotional points, what makes people go ‘that made my life easier’ or ‘I don’t care for that.’”

Hiten Shah

"We wouldn't have understood that emotion if we didn't ask for stories."

From there, Hiten and Marie put together a small team and created an MVP in five days. Then every week, they tried to talk to 10 people who used the MVP. This surfaced additional—and critical—findings. They scrapped the MVP, ran user testing on fresh prototypes, and then launched early access to a rebuilt FYI.

In early access, Hiten and Marie used a combination of surveys and interviews to continue gathering feedback. Marie told User Interviews, “In the early access survey, we always ask a question about competitors. And then in the interviews, we always ask people what apps they're using and how they are solving the problem.”

Via User Interviews

That was months ago, and Hiten and Marie haven’t stopped there. In fact, I recently received a survey email for FYI days ago, so I know they haven’t. And for good reason—it works!

In case you’re thinking Hiten is an anomaly here (“But he’s HITEN SHAH!”), here’s another founder who’s taken a similar approach.

Example #2

How Rand crafted SparkToro with surveys, interviews, and quantitative data

Rand didn’t start building Sparktoro with a sparkly idea. He started with something much less sexy; he started with conversations. Rand told me, “We started our market research for our product with interviews, basically talking one-on-one with people who own and ran agencies, with founders and marketers at small and midsize in-house brands, both consumer and B2B.”

Securing these interviews was easy thanks to Rand’s network. Over time, he’s built a large following through conferences, events with Moz, blogging, and his social media accounts. So, he tapped his following for email, social, phone, and in-person interviews. Rand had these conversations in 2018 and 2019, and they informed who SparkToro would serve.

Rand Fishkin

"We started our market research for our product with interviews, basically talking one-on-one with people..."

👉 Tip: You don’t have to have nearly half a million followers to do something like this (though that, of course, helps). Alex Hillman noted, “Selling to an audience you belong to is probably one of the easiest ways to de-risk a business...especially if it's your first business.” What audiences do you already belong to?

Rand used a small segment of the people he interviewed as model customer types: agency founders, head of outreach for in-house marketing, head of content marketing, and head of PR. Rand and his co-founder, Casey Henry, then positioned and marketed the initial product announcement to these people. They attracted around 30,000 signups (!!) who wanted in on early access.

Folks who expressed early-access interest received an email survey link. Around 4,500 people filled this out. Rand then spent two full days (4-6 hours per day) manually combing through those survey responses. He said this wasn’t especially fun work, but it went quicker than expected because “a person can look through a hundred job titles in a big spreadsheet, pretty quickly.” Those titles helped Rand confirm which customer “buckets” he was targeting.

Around April 2019, Rand released the “Alpha-y” version of SparkToro for a small number of people, including investors. From there, he and Casey did two rounds of beta invites over the summer—about 400-500 people total.

SparkToro Beta Product Rand announces beta invite emails.

Rand sent these beta invites by hand to every invitee. He explains, “it was essentially a, ‘Hey, would you be willing to give the product to spin? If so, let me know.’ That way we made sure that we got people who were actually interested.” He received 70-80% follow-through and many invitees ran some searches on the initial product.

Potential customers gave feedback on their searches in two ways:

  • Via email: Customers would reply to Casey and outline what they tried, what worked, what didn’t, and what frustrated them.
  • Via survey: About sixty days after customers created accounts on SparkToro, Rand sent them a survey. Roughly 100 heavy users provided feedback this way.

If three or more people expressed a strong desire for a specific functionality or mentioned something broken, and the update fit with the product vision, Rand and Casey prioritized it. Around the end of 2019, they overhauled design, UI, and UX (with Monty Hagan) to address the feedback they received.

The overhaul went well, evidenced by “patterns of usage and user feedback. It was just much more positive overall. People were running more searches, they weren't confused about what it did, they weren't confused about the results.” On the quantitative side, Rand elaborated they saw around 150 people in the beta cohort run searches. Of those 150, 75 ran 10 or more searches, and they didn’t reach out to Rand and Casey for help. The launch was in sight.

Notably, before Rand even launched, he already had around 200 active customers thanks to a robust beta program, the help of Elevate, and a long-term email centric campaign.

Some of those 200 were at a promotional rate and/or using free SparkToro Credit. But by launch on April 22nd, 2020, Rand and Casey had over 100 full-price paying customers. A mere four months later, at the end of August—and in the midst of the pandemic and shifting economy—full-price customers totaled 219. At the time we published this article, Rand is already a stone's throw away from profitability, with ~$29k MRR for August (SparkToro will be profitable at ~$35k MRR).

And this is no accident. Like Hiten, Rand heavily leaned on customer research to deliver a product his customers love.

SparkToro today

What this means for you...

  • Know your customers inside and out is the #1 way to de-risk your startup
  • If you’re already working in a niche, regularly interview your clients through temperature calls
  • Hang out in public spaces and observe your customers; gather clues
  • Look for the hidden pain behind the obvious one; don’t jump from observed pain to built solution
  • When you’re building a product, involve customers every step of the way (MVP, alpha, beta, launch, and beyond) with surveys, interviews, and behavioral data

Three more ways to de-risk building your business

As Hiten's and Rand's stories illustrated, understanding your customers is one of the most effective ways you can de-risk a B2B SaaS product. But there are a number of other things you can do, too. Smart financing, lean operations, and a network of experts can all de-risk your business even further.

#1

Explore your funding options—VCs aren’t your only hope

VCs admit raising money in an economic downturn is difficult. First Round Review cautions, “If you do decide to raise capital in this climate, remember the fundraising process will likely take much longer now. Plan for six months, not the shorter timeline that some startups have enjoyed in recent years.”

Josh Kopelman, a founder of First Round Capital, provides some historical data on this. In a First Round Review post, he elaborates, “In 2008, the average Series A company raised $4M on a $28.5M post. In 2009, it was considerably less with an average of $3.5M on a $14M post — half the valuation of the year before. And there were 30% fewer Series A rounds overall.”

Of course, there are exceptions. We’ve had one Krit client prove it is possible to raise substantial rounds during an economic downturn, but it’s likely they’re an anomaly. In most downturns, it makes sense to consider common alternatives such as self-funding, bootstrapping, friends and family rounds, or angel investors.

Those aren’t the only options either, though. For example, Rand took a particularly out-of-the-box approach when he started building SparkToro. Nearly two years ago, Rand and Casey raised $1.3 million from angel investors. Then—here’s where it gets interesting—these investors put money in an LLC. The LLC pays the investors back from profits SparkToro earns, meaning, the investors own distribution units and participate in profit sharing.

Rand Fishkin

"...our pitch and our goal is we want to be a profitable, sustainable longterm company—not a 'we're going to try to be...VC backed unicorns or die trying.'"

This is different from the classic venture model, and that’s intentional. Rand didn’t want to, as he told IndieHackers founder Courtland Allen, “be forced into a growth at all costs” mindset where 10x year over year wasn’t enough. Instead, Rand’s goal is to be a “profitable, sustainable long term company.” Rand told Courtland, “We hope it’ll be our first and only ever round,” and he’s well on his way to making that a reality. Rand and Casey only used half of their funding to get to launch.

#2

Run as lean as possible, for as long as possible

A big reason Rand and Casey still have nearly half their funding two years into building SparkToro is simple: they stayed lean. Rand says their expenses are mostly limited to Amazon Web Services, data acquisition, salaries, healthcare, research, and marketing.

👉 We don’t go deep into managing business expenses in this guide, but see Additional Resources at the end of this article for some great links that do.

Amy Hoy also advocates a lean approach on Stacking the Bricks. She cautions, “If you deliver real, solid value to your customers, but your business is complex, your running costs are high, your margin is slim, and you can’t survive a small dip in sales… I have some bad news: You’re one of those ‘inefficient’ firms that’s likely to sink in economic slow times.”

To be recession-proof, a business has to deliver a lot of value...and do it efficiently. Amy elaborates, “The lower your fixed costs, especially, the more efficient your operations, the plumper your balance sheet… the more flexible and drought-resistant you can be.”

If you’re looking for an easy way to boost efficiency, Amy’s partner, Alex Hillman, recommends, “the easiest thing people can do and don't is document their process and make sure you're saving what you do either as a document, or a template, or a kit.” Building up these assets helps you play the long-game well.

Speaking of the long-game, there’s an accessible cheat code most founders don’t use.

#3

Don’t play on hard mode: reach out to experts and save weeks of effort

Documentation is one key way to improve efficiency. Another key is not doing everything on your own. Alex explains where most founders get the whole idea of lean wrong is they wait too long to ask for help and outsource. This is especially true of generalist founders who can do a bit of code, design, marketing, and other pieces themselves.

DIY can help you run lean, but a total DIY approach piles sandbags on your progress. Alex reminded me, “You don't have to learn everything the hard way. There's a world of experts out there, who you can buy an hour of their time and save weeks or months, and that is not an exaggeration.”

Alex Hillman

"...one of the things that's a through-line from my career is that doing this stuff in isolation amplifies all the parts that are hard, it makes the hard parts harder."

If you haven’t reached out to an expert before, here’s Alex’s recommendation:

  1. Do your homework: Find out who the experts are in the problem you’re facing.
  2. Research those experts: Find out if they’ve published advice or guidance. Listen to podcasts they’ve appeared on, and see if the way they answer questions is helpful to you.
  3. Contact them: Reach out to them via their website or email, and offer to buy an hour of time.

When you do reach out, show you’ve done your research. Here’s how Alex recommends you do that:

“Hey _____, I listened to you on ____ podcast and I really loved the answer you gave about ____. I was wondering if I could buy an hour of your time to hear more.”

Offering to pay for their time is key, and don’t be surprised if the expert charges $200-$500 for this hour—that’s typical. It’s also well worth it if the hour saves you days, weeks, or even months of testing and guessing.

What this means for you...

  • De-risk your finances by exploring options outside of VCs
  • De-risk your operations by running as lean as possible
  • Save weeks and months of effort by paying for experts’ time

Getting personal: 5 tips for taking care of YOU when you start a business

In all their years of experience, one thing the founders we interviewed aren’t going to tell you is building a business is an easy personal journey. Even if you get everything “right” (and you won’t), building a business puts you in a state of chronic stress, and that can take a nasty toll.

Based on a study by Michael Freeman, TechCrunch reported entrepreneurs are:

  • 2X more likely to suffer from depression
  • 6X more likely to suffer from ADHD
  • 3X more likely to suffer from substance abuse
  • 10X more likely to suffer from bipolar disorder
  • 2X more likely to have psychiatric hospitalization
  • 2X more likely to have suicidal thoughts

There are many nuanced reasons for this, and there’s no one answer to improving mental and emotional health. What’s clear, though, is if founders want to do business long term, one the most essential skills they can learn is how to take care of themselves. Here are five ways you can practice that skill.

Tip #1

Focus on your responsibilities

At the beginning of this article, we mentioned the economy isn’t something you can control—but that’s only part of the story. There are many other things outside of your control, too.

Hiten says, “We, as human beings, believe we can control a lot more than we actually can. And oddly enough, we also believe we can influence more than we can.”

control vs. influence

While that’s initially unnerving, it makes focus (another essential startup skill) easier.

Realistically, there are three options in any given situation:

  • It’s something you can control
  • It’s something you can influence
  • It’s not your problem

“When you start breaking this up in other areas,” Hiten explains, “you realize there are very few things you're actually in control of when it comes to other people. You can't tell someone what to do and get them to do it. Once you realize that, you can start figuring out, ‘what can I do in every scenario that's under my control?’ And more specifically, ‘what's my responsibility versus what's other people's responsibility?’”

Alex Hillman put it simply: “there are only two things you're in control of, your actions and your reactions.”

And really, you can’t even control what you feel, only what you do with those feelings. Alex says the second piece—reacting to ourselves and others—is the toughest part of self-care for most founders. He acknowledges, “everything about the environment we live in is reactive, and so it's hard to find spaces to practice acknowledging that something happened, but not give it energy if giving it energy is not going to be productive.”

Hard, but not impossible.

Tip #2

Take regular inventory on how you’re feeling using the AM/PM system

Monitoring your reactions requires a good deal of self-awareness. Of all the founders we spoke with, Jason had a particularly effective way of cultivating this.

Jason has a history of depression he’s openly discussed and in 2012, he hit a hard burnout. Following that burnout, he knew something had to change. Jason confesses, “I basically took the next week, after working 12 to 14 hour days, every single night for about four or five hours, dissecting my business and trying to figure out what I was doing wrong.”

He niched down, specialized, and changed his business structure to support sustainable mental health. Now, to maintain mental stability, Jason practices being mindful of his energy levels. That may sound rather woo-woo, but it’s a practical 2x a day habit he’s cultivated.

For every day of the week, Jason has an AM and PM column (originally in a bullet journal, now in Notion). At the start and end of every day, Jason adds a green, yellow, or red light to indicate how he’s doing. Green is good, yellow is meh, and red is ugh.

Jason Resnick's am/pm system An example of Jason's system, bullet-journal style.

The image above isn’t an excerpt from Jason’s actual journal, but the notes accurately reflect what Jason calls the “work-life mesh.” He explains, “What you do at home is going to affect your work, and what you do at work is going to affect your home."

Jason Resnick

"We can't put a wall up in our brain and say, ‘hey, what you think about from 9:00 to 5:00 is not going to spill over between 5:00 and 9:00.’”

Instead of obsessing about a specific work-life balance, Jason focuses on managing the natural crossflow between work and non-work.

Jason caps off his am/pm system with a weekly brain review. “I look to see how I felt on those days,” he says, “And if there's starting to be too many yellows or reds, then I'm like, ‘Okay, well what's going on here? And I start to reevaluate.”

From start to finish, this daily and weekly routine takes 20 minutes, tops. But it’s an effective and visual evaluation tool. Too many yellow or red lights indicate something needs to give or be addressed. Maybe it’s a lack of sleep. Maybe a family death or crisis demands a day off. The point is, this habit helps flag potential burnouts before they happen, so Jason can be proactive.

Tip #3

Realize 60+ hour work weeks are NOT your only option

Over the last few years there, social media has rallied around the idea that working an absurd amount of hours isn’t a badge of honor.

long work hours aren't a badge of honor Overwork doesn't help.

Now, many founders realize 80+ hours weeks don’t make for better products, teams, or humans. Even so, it’s hard for most in-the-thick-of-it entrepreneurs to figure out how to keep the hours down.

Except for Rand. Rand not only avoids 80 hour work weeks, he routinely avoids 50. In fact most weeks, he and Casey work around 40 hours. He attributes the lower hours to three things:

  1. Focusing on high-value tasks
  2. Low communication overhead
  3. Limited channels

On the focus front, he chooses, “not to do things that are not big contributors of value to the business.” Experience has taught him what kind of activities do and don’t move the lever for a SaaS business.

Plus, Rand and Casey have what Rand calls an, “extremely low communication overhead.” Contrary to teams and partners that are always on Slack, Rand and Casey don’t even talk on the phone every week.

Low communication helps, but so does a disciplined approach to channels. Rand elaborates, “I basically have my email and my calendar, and if my inbox is empty and my calendar doesn't have something on it, I don't have things to do. My to-do list is my email and my calendar.” Whatever project Rand is working on—segmented emails, research, landing pages, LinkedIn data—sits in one of those two places. This helps Rand streamline and focus. “We're very, very low overhead,” he says, “We put our heads down and just do our own work that we know is valuable.”

Tip #4

Practice giving yourself space and grace

Rand works hard on his projects, but he knows when to take some time off as well. He and Casey are good about, “giving ourselves the freedom, mentally and emotionally and permission to take time off when we need and want it.” When Rand has a bad workday, he’ll “call it quits at 2:30 PM, walk into the house and I don't know, read a book or play some video games or watch TV with my wife, that's great."

Alex Hillman

...very few things last forever...sometimes today is just bad, and there's nothing you can do about it. Find one thing to do, commit to doing it...and then give yourself a break and try again the next day.”

Building a business and a company that emphasizes healthy habits, like days off and sleep, isn’t just smart—it’s effective. Rand says, “founders have this really stupid idea that it's a badge of honor to get less sleep and more work.” For the skeptics, he recommends this experiment: take a few aptitude tests when you haven’t slept well and compare the results to a day when you have slept well.

You’ll do better on the tests when you slept well, and this has big implications for your work habits. Rands asks, “Is it possible you'll get twice as much done if you sleep two more hours a night? Does that mean that four hours of work is worth eight? Yes. So there’s just a tremendous amount of efficiency to be gained by sleeping seven and a half, eight and a half hours a night.”

Tip #5

Work on getting out of your own head (hint: it may take someone else)

Admittedly, much of what we’ve described in this section isn’t new to you. You know you sleep is healthy, and you know breaks boost productivity. But that doesn’t mean you do either one of those things. Alex confesses, “All I can do is tell you to do things you already know to do. The truth is, when my coach says it to me, I go, ‘I know,’ and I still don't always do it...that's the human condition.”

Coaches may not be able to make you adopt better habits (that’s out of their control, remember), but they can positively influence you. And many times, other people are exactly what you need to get out of your own head.

Alex told us about three ways you can proactively bring others into your journey:

  1. Silent mentorship: Observe how people you admire conduct their business and lives.
  2. Therapist or coach:* Hire a business coach or meet with a therapist for guided 1:1 input.
  3. Group programs:* If therapists or coaches are out of your budget (and they are for many people), group programs can be more accessible. They provide an expert in the context of other people, which can help with normalization.

*Not all coaches, therapists, and groups are helpful. Do your homework beforehand.

From experience, we’d also recommend a fourth option: do your work in a community of other founders. Whether that’s a closed mastermind, Open Startups, or regularly posting on Twitter, working in public is another way to surround yourself with advice and encouragement. It’s scary but worth it.

Krit Open Agency Becoming an Open Agency has allowed numerous founders to encourage Krit’s founders in meaningful and helpful ways.

Another way you can avoid getting stuck in your head with medication—and this isn’t a shameful last resort. Amy reminded us, there's absolutely nothing wrong with getting pharmaceutical help if you need it. I myself was diagnosed with ADHD not long before this all kicked off and while I had managed it fine before, I can't now, and the medicine is really helping. It's amazing how much easier even difficult things can be when your brain and body are actually cooperating.”

There is no shame in taking medication to manage ADHD, anxiety, depression, and a wide array of other mental, emotional, and physical challenges that make work particularly challenging.

What this means for you…

  • Focus on what you can control—your actions and reactions
  • Check-in on your energy levels every day
  • Remember you don’t have to work 80 hours to be efficient
  • Give yourself space and grace when you have bad days
  • Involve others who will help you step out of your head

Final words of encouragement on building a recession-proof business

Building a business is never easy—especially in a recession. But it is possible. History, data, and these 5 founders show it’s realistic to thrive in a bad economy, and you don’t have to be Apple, publicly traded, or backed by millions of dollars to do it.

If you’re considering imitating any of these founders, here are their final pieces of encouragement:

Jason Resnick

Build a business that reflects the life you want to lead

I had a business coach basically say to me how you look at business is...really a matter of what you want from your personal life.

Have your business back up into that. It may not be the sexiest thing. It may not be the most desirable job on the planet, but if what you want to do is get away from the screen, travel, spend time with your family, that sort of thing...or if what you want is the big corner office with a big, huge team and that's your personal goals, then what business fits into that?

...business has to last. You have an obligation, not just to yourself, but to your customers and everybody that you're responsible for and your family...It can't just be a fly by night thing unless that's super intentional and everybody else is aware of what that looks like. So back the business up into the personal space, look five degrees left or right of wherever you're going, and there might be an opportunity.”

Jason Resnick

"..ultimately, if you build a business around what you think somebody else thinks you should be doing, it's not going to be something that you're going to enjoy three years later."

Rand Fishkin

Now is a great time to watch how other startups work

“...weirdly enough, I really regret not joining a startup or two, before I started my own. I wish I had, even if it was a bad experience. I think it would have really helped accelerate my learning about what I liked and didn't like, and what was involved in building a business and wasn't...I think it took me 10 years to learn things I could have learned in two at somebody else's company.

...And the other thing I would say is, as a founder, especially right now, it's a brutal time to try and raise money. It's a brutal time to try and get a product off the ground, but it is a relatively great time to have very low expenses and give yourself a lot of time to do R&D and polish up a product and talk to people in the market.”

Rand Fishkin

“I think that the biggest thing that we can do is build better and stronger institutions to help stop something like this from happening again.”

Hiten Shah

It’s okay to have bad days, but you still have to do the work

“Look, building a business is one of the most enjoyable things you can do.

And at the same time, it's one of the most frustrating things you can do as well. It’s something you're constantly working on, and there are just so many facets of it.

Get really, really good at doing things you have to do, that you might not want to do. That's different for everybody in terms of how they should approach it for their own personality.

And it's okay if you have days where you just don't feel great, and you don't feel like doing the job. But that doesn't mean you can't do the job. And that's the hardest part of it. A lot of other jobs you can have an off day. As a founder running a business, the off days don't count. You don't get to have those. I know that's a harsh reality, but it's just absurdly true. So, any time you have a light day, please enjoy it. And when you have an off day, remember: It's an off day. It's okay. But you still have to do what you have to do.”

Hiten Shah

"... it's okay if you have days where you just don't feel great, and you don't feel like doing the job. But that doesn't mean you can't do the job."

Alex Hillman

Invest in your customers and communities

“…I've spent my time in the last three months investing in our community...what do they help with now, that maybe they didn't need help with yesterday, or a month ago, or three months ago?

Not knowing where people are financially, a lot of people are either hurting or scared. Now is not the time (by "now" I mean during the coronavirus crisis), to be putting a price tag on everything. But instead be really generous with what we have, as far as we can, with the understanding that things will come back.”

Alex Hillman

"...I would rather be the person who invested in our community, in our audience, in our customer base—so that they even have a chance of coming back—then the person who didn't."

Amy Hoy

Ground yourself in what’s real

“The advice I live — and always give — is to first, ground yourself in what's real, and then look for evidence. A lot of folks personalize the problem, which is natural because when things are going wrong, it feels personal because it's happening to you.

But this isn't happening just to you or me, and this isn't the first time it's happened in history. There are always things and people to learn from."

Amy Hoy

"...once you figure out what folks are doing or have done successfully to survive (or even overcome) these problems, break it down into tiny steps you can take."

A handy list of additional resources

We’re not the first ones to cover this topic in detail. Many other outlets and individuals have generously shared and published advice that’s worth your time. Here’s more guidance from the founders we interviewed, plus other brilliant people and organizations.

On recession finances

On being a founder during a recession

On customer research

On taking care of you


Header image by Morning Brew on Unsplash. Founders images courtesy of Rand, Hiten, Alex, Jason, and Chris Sembrot.