In this episode we talk about our experience in reading the market and preparing. We talk about our interpretations of current conditions and what that means for our business, but this is not financial advice. Please consult your professional advisor before taking any actions based on what you hear.
In this week’s episode, we talk doom and gloom, and ode back to 2008 and 2020. Why? Because there’s extreme opportunity in downturns IF you are prepared for them. And when do you prepare for them? In the good times. Learn from the past to optimize the future. How has that past experience impacted the way we make decisions looking forward? In retrospect, were there signs of what was to come? What could you put into place NOW to preserve the value of your wealth? How can we prepare in a REAL way to gain ground when the next downturn comes?
Top 3 Curtain Pulls in this episode:
- Get financially secure. Your goal should be to have 12 months of accessible operating capital on hand at any given moment. This security gives you confidence while others are scrambling.
- Tax Yourself. You read that right- Tony Robbins calls it a wealth tax. The government raises your taxes and you figure it out. Give your business a “wealth tax” or “profit tax” and you’ll figure it out just the same.
- Be a student of the markets. You may not be interested in the financial markets. That doesn’t matter. As a business leader your job is to be able to read indicators and predict the future. Learn to read indicators and translate them to what that means for your business.
For more tips, discussion, and behind the scenes:
About The Guys:
Bob Hutchins: Founder of BuzzPlant, a digital agency that he ran from from 2000-2017. He is also the author of 3 books. More on Bob:
Brad Ayres: Founder of Anthem Republic, an award-winning ad agency. Brad’s knowledge has led some of the biggest brands in the world. Originally from Detroit, Brad is an OG in the ad agency world and has the wisdom and scars to prove it. Currently that knowledge is being applied to his boutique agency. More on Brad:
Ken Ott: Co-Founder and Chief Growth Rebel of Metacake, an Ecommerce Growth Team for some of the world’s most influential brands with a mission to Grow Brands That Matter. Ken is also an author, speaker, and was nominated for an Emmy for his acting on the Metacake Youtube Channel (not really). More on Ken:
[3:07] Bob introduces today’s topic by talking about the stock market and how things are generally on the financial “up”. It’s a bull market right now, which is also a great time to prepare for the inevitable downturn in the future. Bob asks: If there was something drastic that could change the way we run our agencies tomorrow- what would that thing be?
[5:09] Brad talks about how we are teetering on the edge of a bull market- and he’s still carrying scars from the financial crisis of 2008 that cut marketing budgets significantly. The situation we’re in now isn’t that drastic, more of a “frog-in-the-skillet” situation.
- This refers to the adage about a frog who doesn’t realize it’s being cooked because the temperature increased slowly over time. This implies that there is a feeling of waiting for something to happen- and Brad feels it too.
[5:43] Brad continues, saying that the bull market is a reflection of a stock market that only shows the short-term- it is based on key metrics that aren’t yet known. In 2020, we’ve printed more money than since 1980- the result is that we either increase taxes to pay for this inflation or we experience it directly.
[7:34] Bob talks about how stimulus checks have encouraged some families to buy- which really is the purpose, to stimulate the economy. Brad agrees, saying it isn’t meant to be a savings plan for people but really just a band-aid on a larger problem.
[9:13] Brad says of course there are people who really do need that extra $3,000, and there’s other people that are out shopping and “stimulating” the economy. “However they’re stimulating the economy and at the same time we’re devaluing the dollar.”
- Ultimately, Brad says, we’ve never printed so much money in such a short period of time while we’ve been using Fiat currency. So we don’t exactly know the long-term result and consequences of what is happening. A lot of things could happen, and certainly something will happen. How do you prepare your business for the downturn when it happens- whenever that time comes?
[11:13] Ken The change may not be sudden like in 2008. “It’s possible that everything that’s been happening in the last 12 months will create a gradual decline, and we might just start feeling it across the board in different ways.”
[12:36] Brad shares his experience of the 2008 financial crisis and proceeding recession. Living in LA and being dependent on contract work meant he was primed to feel the impacts pretty immediately. The first sign was clients getting behind on their payments, and eventually he found himself a few months behind on income.
[15:04] Brad continues, adding some advice to his past self “I didn’t prepare properly… I would say have a year’s worth of income.” He gives further explanation of the indicators to look for when preparing for the unknown.
- 16:08 Keep an eye on interest rates. When they creep up, the housing market slows down- and we only have to look at 2008 for how that scenario could end.
- Also, new car sales. Big purchases slowing down overall is a nice set of high-level indicators that trouble may be brewing.
[18:01] Ken had a different experience in 2008. He and his wife had just moved to Franklin and at the time he was a full-time contractor working in the digital advertising space. Although there was a general downturn at the time, being at the forefront of technology served him well and provided a nice cushion from the fallout.
[20:38] Bob talks about positioning for the downturns- he says that just as Ken was in a good position for that situation, there are businesses that were prepared for the downturns that happened due to Covid. The lesson is that you can prosper and benefit in these times if you’re prepared.
[21:27] Ken clarifies that he wasn’t in that situation on purpose- not back then. But now, it’s so important that as a business leader you become a sort of student of these financial indicators of what is happening. You always have to be positioned to think about what your business is becoming.
[24:51] Brad says that if you can, try to have at least 12 months of capital to run your business.
[25:58] Ken agrees, saying that moving towards 3 months in your bank account and the other 9 months somewhere else that you can access fairly quickly. You want low risk, as liquid as possible for your assets and savings in business.
[27:54] Bob wants to unpack this concept, where to get 12 months of capital and how to get to that place.
[28:18] Ken talks about the idea of profit first- Tony Robbins calls it a wealth tax. The concept is that because your business will use whatever you give it, giving yourself a wealth or profit tax every year that you then put into savings for yourself in the future. If the government raised tax rates you’d figure out a place to get that in your budget, so jump ahead and take it out first.
[36:19] Brad talks about knowing how at-risk your industry is in terms of a downturn and how diversification plays into this risk. For example, Anthem’s clients during Covid were in healthcare technology, so they didn’t feel the effects as much as some of their other clientele. For Anthem, that diversification in clients made up for the potential for loss.
[37:38] Ken “I think we have to put aside our assumption that things are going to be around…” Run scenarios where your industry specialization is suddenly gone, and you’re reliant on your other means of making money.
[38:10] Brad and Ken talk about how these conversations can be depressing, but Bob highlights the difference. Talking about this and planning during the middle of a good time is different than during a bad time, because in a good time these conversations can be empowering. “It’s strategic, healthy, and helps your company to evolve and get stronger… in the middle of a bad time it’s too late and you’re scurrying.”
[39:39] Ken mentions another simple recommendation to prepare for the worst right now- get your receivables in order! Digital payments from clients instead of billing and physical checks. Now is a perfect time to have that conversation with clients, because it is physically more difficult to accept checks- and one of the first signs of the 2008 financial crisis from Brad was unpaid invoices.
[42:03] Bob talks about making even larger investments as a business when things are good- at a previous agency they invested in the residential units above their office space to help cover the mortgage. “It’s opportunities like that, when things are good to say, what’s my biggest cost center right now that I’m throwing money down a hole? How can I turn that into some sort of investment vehicle?”
[45:13] Bob and Brad discuss the other signs that there is a bubble soon to pop- the real estate market is an obvious example. In place like Nashville, homes have nearly tripled in value in less than 20 years- but income hasn’t kept up.
[47:32] Brad says that it takes a lot of self-discipline to buy when things are down, to position yourself to be able to take advantage of those opportunities when they arise.