From supply chain shocks to inflation to unstable gas prices to the COVID-19 pandemic, American commerce has been pummeled by outside forces. And no one bears the brunt as much as small businesses.
To understand how entrepreneurs can best weather market headwinds, we spoke with serial entrepreneur Evan Rubinson, CEO and founder of ERA Music Brands.
He said the first step in successfully guiding a small business through rough economic waters is to understand how important economic policies are going to shape other companies’ behavior.
“During the pandemic, interest rates were very low and a lot of people had stimulus money, so there was a lot of liquidity in the market. In the short term, it really boosted things. But it did, of course, produce long-term adverse effects,” Rubinson explained. “That created an asymmetry in the marketplace where we had to get back to a baseline. So now ironically, as COVID has eased, we have had the Federal Reserve raising rates by 50 basis points almost every meeting, and we’re looking at a target rate of around 4.5% or 5%. What that means is that COVID-19 is now causing a lot of companies to go through a period of wanting to lay people off or spin off certain entities in order to better manage their cash flow.”
Those wrinkles translate into rare opportunities for businesses that are well positioned, Evan Rubinson said.
“Everyone has a different strategy,” he said. “When times get tough, some are looking to mitigate their risk; others are just looking to stay alive, pay their subordinated debt back to the bank, keep their company afloat, and try to pay their suppliers. Other people, who maybe are more forethoughtful and have a little bit of reserves of cash — those are the people who can really make a big impact. The same way that you should buy in the stock market when things are downtrodden, you can do the same thing with a company.”
For small business owners with extra cash on hand, Evan Rubinson suggests making market-timed upgrades that can advance your business well into the future. One of the best — and most overlooked — places to upgrade is in personnel, he said.
“For personnel, right now is a great time to find amazing workers,” he advised. “If you have the money and you have the planning, you can try to attract talent at the same time other people are taking the opposite approach of trying to get rid of that talent to save money. When you can take advantage of that kind of situation, you’re creating a long-term investment in your business that will enable it to keep operating at a more efficient level — not only through the current rough period, but well into the future.”
While many companies run for shelter during turbulent conditions, Evan Rubinson advocates going the other way. Small businesses can find bargains during times of crisis. Making big plays can feel scary, but they often lead to great payoffs later, he said.
“I’m always looking to buy things at a good price. No matter if it’s other companies, or supplies. You buy when there’s blood in the streets, as they say,” he said. “When you buy at a low price, it gives you an incredible amount of flexibility. That way, if you have to put in a little more capital because there’s something that wasn’t disclosed, or something that you overlooked, you can spend extra money and fix it. Whereas when you overpay, the level of due diligence and knowledge that goes into making a big purchase has to be so ironclad that you really have no margin for error.”
For small business owners without extra cash on hand, or who find themselves in a more precarious situation, Rubinson offered a different kind of advice: an optimistic outlook.
“If inflation remains sticky, I think we could find ourselves in a quasi recession. And I don’t know what’s worse — inflation or recession — but they have very, very different effects,” he said. “Inflation has the biggest effect on the lower and middle classes, while recession has more adverse effects for the upper classes, usually in the form of rate hikes and asset bubbles being popped. So I think we’re looking at two different things that affect two different types of people in the American populace. And if we can settle both of them to an extent, or at least quell both of them to a reasonable extent, I think we’re poised for a good 2023. And overall, I do expect good things in 2023. I have high hopes for what’s coming.”