Don’t Fear a Downturn, Embrace It In 5 Important Ways

“You want to be greedy when others are fearful. You want to be fearful when others are greedy.” - Warren Buffet

I’m writing about the lessons I’ve learned building successful marketplace businesses — lastminute.com and Trulia — during times of massive economic, societal, and technological change. This is the second part of the series.

In my previous post, I wrote about some of my experiences building businesses through economic downturns. In this post I’ll share the five core advantages to building a business during challenging economic times. Suffice to say, managing and growing a business through a downturn can be intimidating, but there are distinct opportunities that you need to identify and leverage to put your business in the best position.

Identify the massive supply and demand imbalances which create new opportunities to match buyers and suppliers. This is why marketplace businesses are especially suited to succeed during market downturns — they harness the dynamics of the markets they serve. We built the business at lastminute.com using this concept. Suppliers were stuck with unsold inventory as travel demand plummeted following the 9/11 tragedy, and we leveraged this.

Consumers become more cost conscious, which leads to people flocking online looking for bargains and additional income. In travel and real estate we saw massive growth in value-conscious searchers. This phenomenon was especially evident at Trulia, where we observed cautious consumers searching for every piece of information possible on properties and agents.

Competitors, particularly large ones, are knocked sideways and can’t react quickly because they’re easily distracted dealing with their own issues. This is where nimble companies that are building innovative products can get a foothold in the market.

Life is just cheaper in a downturn. Your negotiating leverage on vendors goes up significantly as they fight for your business, not to mention other key expenses such as office space. We have seen these types of changes in the past, first during the dotcom bust and then the Great Recession.

And the fifth and perhaps most important advantage is that top talent is more readily available, because there are fewer jobs and good people are leaving bad companies. Downturns are a great time to find and hire outstanding employees, which creates a critical foundation for success.

We all know that the economy is cyclical, and bound to have ups and downs. When the next downturn happens, remember that despite the challenges, there are new opportunities. Stay focused and look for ways to better position your company for success.