Are We Heading Into A Recession? | Ep 19

Speaker A

00:00:00.960 - 00:22:07.830

This is episode 19 and I'm back from quite a year of implementation work helping a client scale and just have so much to share with you, especially about my new consulting offer, as well as my thoughts on where the economy is headed and how best to prepare for it. This is the Bottleneck Breakthrough podcast.

I'm Josh Long and this is all about helping you find and fix the biggest challenges in your business to unlock growth and profits that last. Hey. Hey. So glad to be back. So glad to be able to talk with you guys and share some really fun stuff.

For those of you that may not have been paying attention, it's been about a year and a half since I did the last podcast episode, and in that year and a half I feel like I've grown by a decade. It was a great year, great year and a half.

I got an opportunity to go all in with a client to really help them scale and achieve some fantastic growth.

And for me personally, it was the opportunity to put my practice and ideas, or put my ideas into practice and see can I actually implement these, run a company, run a division, run staff, and figure out how to adapt on the fly and make these things work. And I'm happy to say it all worked. It was fantastic. Obviously it wasn't all smooth and easy, but the net result was all positive.

And I'll be talking a lot more about this stuff in a later episode or later episodes because there's just some great nuggets that came from it. But I'm back in the saddle. I'm still working with that client just reduced my roll. Some things have changed and it's all good.

And I'm excited to be back doing consulting and really excited to share my new consulting offer.

Being a fractional VP of sales for companies that have all sorts of sales needs, I think that I being able to build out a sales team for this client and recruit and build the systems and collaborate with marketing and really get a scalable sales system in place was so fulfilling. I was pleasantly surprised at how much I enjoyed it. And I enjoy it so much that I realized I just want to do this with more and more clients.

So I've got a new site getting together. I still have bottleneckbreakthrough.com everybody knows me for the book, everybody knows me for that angle.

Bottleneck Breakthrough is obviously a core component of everything I do, but this new sales consultancy will be under the domain scalecycle.com so sales at scale is the angle and how do we take you through different scale cycles and what does it take to get through each scale cycle and what the roadmap looks like. And I'm really stoked because I just don't see anything else out there in the marketplace doing this.

Where the focus is really on building a well rounded, cohesive sales machine.

Starting with obviously getting talented salespeople, but going well beyond that because so many companies just rely on a sales superstar and they think, oh yeah, if we just get this great person they can solve all of our problems. But the reality is that finding that sales superstar is so difficult and so unsustainable finding, it's like finding a unicorn.

And if you can support salespeople with good marketing with a good offer and good lead flow and then go build a third leg in systems and get an actual CRM and automation and nurture sequences and reporting so you can see the pipeline and everything now you've got a well balanced three legged stool that's a whole lot easier to build around, a whole lot easier to recruit into. And so that is what I'm looking forward to do.

So if you know anybody or if you have a business of your own that you're like, gosh, our sales team is just not cranking out what we want or I'm scared but want to get out of sales myself and I need some help then just reach out. I'm excited to start leaning into that, have a lot more content around sales and scaling.

So anyway, website will be up I don't know when, but scalecycle.com so what is the most important thing that I can talk with you about today? Well, I think this freaking economy is super important to pay attention to because I'm pretty sure we all notice that inflation has run amok.

It is the giant 800 pound kid having a temper tantrum in the nursery, throwing everything else around. I don't know if that's the right analogy or whatnot, but that's just what I saw.

I just see this giant bad behaved behemoth that nobody can control and the Fed is over there saying, oh, we're so surprised by this. Now I'm not gonna put on any tinfoil hats today. If you want my tinfoil hats, you can follow me on Facebook. I post plenty there.

But I'm actually just gonna look at it from a practical standpoint and what is gonna happen from all of this inflation and interest rate hikes? Because I know that the Feds are supposed to come out right now. I'm recording this July 20, 2022.

Feds are supposed to come out in the next week and have a meeting and there's rumors that they're going to raise it another point. They raised it three quarters of a point and that was catastrophic for things in April and now they're coming out with a full point.

This is going to rock things. And that'll probably put mortgage rates up in the getting close to 7.5 or 8%, which is actually what I lived through with my mortgage brokerage.

From 04 to 08, that's what interest rates were that whole time was 6 to 8%. But I don't think it's going to stop. So I think interest rates are going to continue to hike through the rest of the year.

I predict we might even see double digit interest rates next year. This feels an awful lot like 1980, 1979. Jimmy Carter, I mean Joe Biden might as well be Jimmy Carter's stunt double.

They might are both inept and unqualified to be running things or pretending to run things. And all of the actions that they took in the 70s are the same actions they've taken now. And inflation is out of control.

And if you go back and look at mortgage rates from 80 to like 84, they were well over 10% that whole time.

So I think we're going to see some ugly interest rates because the Fed said they've got to kill jobs, they've got to slow this economy down, they've got to stop all the inflation from running away.

And when you look at how much money has been printed in the last two years, the global economy, the entire world economy amounts to about $85 trillion of transactions every year. And in the last two years the central banks of the world have printed $30 trillion or currency equivalents out of thin air, they just printed it.

So that $30 trillion, let's say it's a third, for easy math, a third of the monetary supply has to be absorbed, has to be factored in and inflation has to absorb that and adjust for it. And we're going to get all sorts of recessionary factors and stagflation factors. So what happens? What do you do with that as a business owner?

And I've got some ideas I'll talk about in a minute. But I think facing this reality that whether this is the big crash now.

Akhil Patel, brilliant guy, I've followed some of his stuff over the last few years. Good friend of mine, past client, Damian in the uk, Deegan, Damien Deegan, sorry, I forgot his last name.

Damien Deegan in the UK, brilliant guy, does recruiting for data scientists at Fortune 500 companies. He introduced me and Perry Marshall to Akhil Patel. And Akhil says that this recession was expected.

It's a little blip and we're going to go through another bull market for another couple, two, three years until 2026 when the 18 year housing cycle crashes. And he's basing that off of a 200 year history. And I think he's brilliant and I think he's bright and I don't dismiss him.

I just, when I look at interest rates or inflation and what interest rates have to do, I don't see how we get through, through this season is a transitory situation. So I'm 50, 50.

I'm not betting any money on Akhil Patel's prediction that we're going to see some kind of rebound effect right now and that we're going to have a new bull run. If we do great, I'll definitely lean into it and I will definitely expand and grow everything I can faster and faster through that.

But I'm definitely holding my breath waiting to see, see how that unfolds. Because we've got housing supply situation that is very, very rapidly changing in markets.

And all the hot markets, the south, the Southwest, like Montana, Idaho, all those places are getting cooling effects going on right now, inventories climbing. That really is the linchpin of all of this. Until we have more houses than we have buyers, we will have a sustained market and economy.

But as we all saw in 2007 and eight, once there were way more houses than there were buyers, the market crashed and fell apart real quick. And this market's just as much a house of cards as that one in 2007, 2008.

Now we don't have the crazy lending and derivatives that we had back then, but we definitely have a lot of propped up markets.

And with interest rates being zero for so long, they were propped up with the Fed saying they don't buy stocks, but they've definitely been buying stocks. It's all just a giant house of cards. So.

And the other thing that is, I don't have an answer of what this means, but even Ray Dalio is coming out and saying that we're heading into a recession. So he's actually a counterpoint.

Usually whatever he's saying is something else going on behind the scenes because he's trying to manipulate a market or whatever. Like he was saying get out of cash during COVID lockdowns. And he was wrong about that. The dollar got stronger then.

So I, I don't know, I don't know what to believe across the board.

Michael Berry, the big short guy that was shorting all the mortgage backed securities in 06 07, he has taken a position about a year, year and a half ago that was hedging against inflation and that inflation and interest rates had to go up. And he's making piles and piles of money right now thinking that we're heading into a recession.

So all that to say paying attention to the housing supply is the key.

That's really the key performance indicator that says whether we are heading into a bigger recession along the lines of a depression or if this is just a temporary setback until the big fall happens in 2026. Based on Akhil Patel. So what do you do about this?

Well, I think the first thing is you got to take stock of what's going on in your financial life, in your business and your personal finances. Where do you need to trim the fat? This is always a good exercise to go through, but especially preemptively.

If we are facing setbacks and we are facing times where your income is going to go down or your business is not going to be as flush with cash or you don't get as many leads or whatever your business model is, you got to look at where is the fat. And I think the first thing to do is just inspect and investigate all your big line items.

So obviously payroll is usually the biggest expense for most people. And what people, what D and F and even C players are you holding onto because you've just been lazy and you don't want to replace them?

Well, the reality is there's a ton of great talent out there.

If you recruit properly and you can top grade people, you can terminate people and not have anything change sometimes and that's a really good sign that you've been holding on to dead weight for way too long. So payroll first thing advertising is another one for a big one for a lot of companies. Where is your ad spend wasted?

I think that the metric of return on ad spend calculated by your cost for acquisition of client divided by or your LTV lifetime value of the client divided by divided by your cost per acquisition, you gotta be somewhere north of 3 or 4 or 5 for that. So if your LTV is 100 bucks, you gotta be spending 33 bucks or less per client or per sale.

If your LTV is 1000 bucks, then it's $333 or less per sale. To get that 3 to 1 return on ad spend at a minimum you should be four or five to one.

And I would cut out every advertising channel that isn't performing.

For those of you that have been spending a lot on Facebook, if you haven't paid attention, Facebook's probably not been profitable for you for a While. Since the iOS battle with Apple happened there and the tracking issues, Facebook has been a dumpster fire for a lot of clients.

And so, yeah, so starting with payroll, then looking at your marketing, then go through any contracts or agreements that you can go renegotiate. Can you get better terms on any vendors than accounts payable that you've got?

If you're currently doing like, net 15, can you go say, you know what, can we adjust this to net 45 and just see what you get? Because having that extra time in cash flow availability is huge. So I think those are things to look at in the short term.

Midterm is to say, what would cutbacks look like if revenue started to decline? Now, I'm not trying to be Chicken Little.

I'm not saying the sky's falling or that your industry is going to get hammered, but we have to pay attention and we have to think through these hard things. So in 2020, I just started working with Josh Robertson.

He's got Green Acres Landscaping in Belvedere, Illinois, western Illinois, out in the sticks, and beautiful rolling hills area of Illinois. It's like Americana back there. When you drive through, you got the silos and the grain towers and the barns, and it's just beautiful.

But we didn't know if people would want to pay for their lawn to be mowed anymore. Heading into Covid, I was like, everybody's going to be home. What are they going to do?

I mean, they go out and they'll have so much time they can cut their lawn with their scissors. So we went through the exercise in March, February, March of 2020 of how much does revenue have to decline before he has to make drastic cuts?

And we looked and it was like he could handle about a 33% revenue decline before it affected him. Now he's got a lot of laborers, and those are definitely more flexible on letting them go versus rehiring him.

And they tend to fire them every winter because they just don't need them as much in their snow business. But it was a really great exercise. And lo and behold, he didn't have to cut anybody.

He actually grew and grew because we changed his strategy going into the recession or the COVID lockdowns was he had a design architectural install service as well that he was thinking of shutting down. And I said, well, he's still got the crew just say yes to that work if people want to do home improvements or landscape improvements.

And lo and behold, more and more projects came in than he could handle. We said, just keep raising the pricing. He did. He had an eight week backlog and he ended up finishing 2020.

His target goal for the year was increased by 20% revenue and his target profitability is right around 23 to 25%, which is really high in that industry. So many of the people in that industry are in the 15% range and have a good business there. But he was targeting 25% and net profit.

And what ended up happening was he surpassed his 20% growth. He ended up having, I think 33% growth, but he ended up at 32% net profit.

So by going through this cutback strategy exercise and looking at what would we continue to do and say yes to in moments of uncertainty, he ended up growing faster than expected and much more profitable. So double benefit compounding returns. And that was a huge, huge outcome for him.

That wouldn't have happened if, if we hadn't gone through this exercise, he probably would have cut his installation crew thinking, gosh, I just got to get lean, I don't know what I can handle, I don't want the headache.

And then he probably would have cut back on some marketing because we both expected the market to retract and it didn't because they just kept printing money and people were home and wanting to spend that money on their home. So think through also strategic growth opportunities. So the last part is, even with a recession, I don't know what the US economy is.

Last I checked, it was like $13 trillion.

So even if we have a 30% recession, which would be like catastrophic, right, that would surpass the Great Depression, we'd still be around a $9 trillion economy. So I don't know about you, but if I just get some scraps off of that $9 trillion, I would be doing just fine. This is definitely.

Recessions are definitely when the strong get stronger.

And so what are your strategic growth opportunities in addition to tightening the ship, in addition to cutting the fat, where are some growth angles that you could lean into? Go, partner, go find a new offering pivot of some kind that as the market adjusts and as you see opportunities, you pursue and move into.

Because there's nothing greater than human innovation. And we can always innovate our way out of any situation, any downturn.

And so I think that's the exciting part for me is thinking through how do we get even stronger and grow Even more when the world's crying and people are saying the sky is falling and it's the end of the world. And there will be bankruptcies, there will be people who, who do face hard times, but you don't have to be one.

And I was just up in Sacramento a couple weeks ago. My cousin's little baby boy had his one year birthday and we were excited to see it and be there.

And my cousin's dad, my first cousin Nate, he's got a company called Crusader Fence and they're a commercial fence company in Northern California and they service a huge territory and they definitely got stronger through the COVID lockdowns.

But when we were talking about what's coming next, he was like, yeah, we definitely need to fortify and we don't need to grow, we don't need to keep growing, we just need to keep getting better.

And I thought that was such a great phrase and great way to put it because as things get tight and as they, if things contract at all for them, it's how do they keep getting better and better and how do they find new opportunities to service their audience and service their market? Because they've got a great, stable, profitable, healthy company and they can just weather the storm. So you could grow through this.

You could weather the storm, you could hunker down and get really safe and protected. But the last thing you need to do is worry and shut down and get overwhelmed. So I think that's the advice I have.

Regardless of where we end up, whether we go the way of this being the biggest economic collapse and Robert Kiyosaki's finally right and Harry Dent and they all get to finally say I told you so and it finally collapses. Or we go the way of Akhil Patel and this is a bit of a blip until a little bit more of a bull run until 2025, 2026, I don't know.

But we can all adapt and pivot and move and the key is just to remain flexible and not freak out and not lock down. The one thing I will say is I'm not advising anybody to scale blindly and just take on all sorts of debt, especially since debt's more expensive now.

Now is the time to be prudent. Now is the time to watch and be patient.

A good friend of mine is commercial developer and the guy has the patience of job when he watches markets and properties and weights and waits and waits and he's never lost money doing it in his 30 year career and his net worth is quite high for it. So love your feedback. Let me know Facebook Group Bottleneck Breakthrough Method. Feel free to go there. I'll post this there and you can comment on it.

If you have any questions about my fractional VP of sales work, feel free to reach out and look forward to continuing this now that I've got some more bandwidth and I'm back in the consulting saddle. Take care. This podcast theme music is an excerpt from triptych of snippets by Septahelix. It's used under Creative Commons.