The COVID-19 pandemic sparked a surge of Americans starting their own businesses—and it doesn't seem to be slowing. But due to ongoing inflation and global events, many small businesses worry that a recession could happen as early as this year. If you're considering joining the boom, should you take the plunge?
There's no such thing as a recession-proof business, since every financial crisis is different. But certain types of businesses have traits that help them hold up in tough economic times. I asked business owners who survived the 2008 recession and the economic downturn at the start of the pandemic what made their business models resilient.
Based on those conversations, here are seven recession-resistant business models for you to consider as we enter uncertain times.
1. Online marketing agencies
Marketing might seem like one of the first services to go during a recession—with fewer people buying things, why would you try to market to them? But if you provide marketing services through an online agency, you'll have added flexibility and scalability to adapt to economic trends.
Elliott Davidson runs Contrast, an eCommerce marketing agency that's grown 4x since the pandemic downturn. "The one thing about [marketing agencies] as a business module is there is no stock. The scale comes in staff's time, making it slightly less risky," Elliott says.
At ScaleMath, Alex Panagis discovered the value of having a flexible, well-rounded agency team during the start of the COVID-19 pandemic. Alex explains: "Working with our team, companies essentially had an entire team at their disposal equipped to support as needed. As a byproduct, we were also able to continue supporting the companies we worked with that faced difficulties during this time until they were up to full capacity again."
With a fully equipped marketing team at the ready, ScaleMath could fill in any gaps the recession left in its clients' teams.
When running a new online marketing agency, you can also embrace your agile status to attract clients. While the start of the pandemic posed a challenge for Ryan Burch and his brand-new agency Tobie Group, his team used that strategy to thrive. "Luckily, part of our value proposition was to be an alternative to the larger, less efficient ad agencies that were gobbling up clients," Ryan says. With businesses needing more affordable and efficient marketing, the Tobie Group could step in.
2. eCommerce stores with low-investment stock items
eCommerce is such a broad industry, so you can't attribute recession resistance to it as a whole. But certain eCommerce models have a better chance than others. Two of the folks I talked to told me how models with stock items requiring a lower investment helped them stay flexible.
Elliott Davidson also owns a cycling eCommerce business called Unsponsored that survived the pandemic downturn because of its small scale and low average order value (AOV). Since customers didn't have to spend too much on Unsponsored's products, they had fewer objections to purchasing. Plus, while other retail businesses dealt with supply chain issues, Unsponsored's agility let it work around those problems and deliver faster orders.
Brian Lim, who runs eCommerce clothing businesses such as INTO THE AM, found out how having low-investment stock items enabled easier pivoting. Since Brian's businesses focus on clothes worn at music festivals, he had to build a new strategy when social distancing measures canceled events. One of the product lines the INTO THE AM team pivoted to was basic tees. These products tapped into the remote work boom, but they would also appeal to customers in any economic period.
"If your business is suffering, think critically about how you can pivot in these uncertain times. The economy won't stay shut down forever, and pivoting can help you weather the storm and keep your business afloat until things return to some sense of normalcy," Brian advises.
Another one of Elliott Davidson's businesses, an eCommerce fulfillment company called Parcel Master, handles a job many were reluctant to take on. "This is a boring and unsexy industry unlike many others, but ripe for scale as the LTV is amazing. With people trying to be agile and not wanting to deal with the headache of eCommerce fulfillment and the growth of the sector, we have benefited, now currently processing ~10k orders per month," Elliott says.
3. Professional online communities and resource platforms
During a recession, people out of work need support to get back on their feet. You can start an online community or resource platform that helps people looking for a job while making you money from ads and sponsorships. Plus, they have low upfront costs.
Harry Campbell started The Rideshare Guy, a community and resource platform for the gig economy, in 2014, but he noticed a surge in business during the pandemic downturn. "During the pandemic, I noticed a traffic spike as many people were interested in exploring such side hustles to stay afloat during tough financial times," he says. The boost in community members caused Harry to work harder than ever, but it paid off in unprecedented growth.
Jimmy Daly started Superpath, a professional community for content marketers, a few months after the start of the pandemic. He chalks up its success to its focus on careers because it helped members get advice, find work, and develop skills during a difficult economic time. Once the economy stabilized, he could then appeal to the other side of the market—businesses looking for talent—through a job board and freelance marketplace.
"One thing I learned is that the macro environment usually makes it easier to nurture one side of a market. As the environment shifts, so does your attention to supply or demand," Jimmy says of this addition to his business.
4. Home improvement companies
When there's an economic downturn, many folks try to save money by avoiding going out, but that means their home needs more attention. Home improvement companies still have plenty of work to do during tough economic times—which makes them great candidates for recession-proof small businesses.
Andrew Porwol, the owner of Garden Centre Shopping, has worked in the UK gardening niche for 30 years, so he's seen multiple economic downturns. "During a recession or pandemic, our customer base is spending more time at home and will continue to spend on their outdoor space. By focusing on customer service and simplifying the sales process, you have the opportunity to not only meet your pre-set targets but expand your client base," he explains.
James Chapman, owner of bathroom company Bella Bathrooms since 2005, has similar experiences to report.
"The bathroom industry, particularly in the UK, is surprisingly resilient. During difficult times homeowners look to improve their homes, especially if they may need to downsize or sell due to financial struggles. The bathroom is a space that can increase a property's price with minimal spend. During the pandemic, we saw a surge in bathroom sales, simply because the public was spending an increased amount of time at home," James says.
5. Skilled trades contractors
Just like professionals in the home improvement industry, skilled trade contractors don't face much decrease in demand during recessions.
Ralph Severson of Flooring Masters, a remodeling and flooring company, explains why his business didn't falter in the 2008 recession: "It's the simple fact that no matter what happens, people are going to need carpenters. The same can be said for plumbers, electricians, and every other trade."
According to Ralph, the state of employment in the industry also leads to extra job security. "There's been a shortage of tradespeople for years. Every colleague I know has as much work as they can handle because of this," he says.
6. Real estate businesses
The housing market has plenty to offer investors during economic downturns, even when prices fluctuate.
"Real estate is one sector that tends to remain positive amid economic downturns," says Marina Vaamonde, real estate investor and founder of HouseCashin, a platform that connects sellers with investors. When I asked her why, she said: "During an economic downturn, real estate prices go down along with mortgage rates as supplies go up. When prices and interest rates are low, more people find it an excellent time to invest and purchase a property, which boosts the demand and eventually pushes the prices up. While real estate prices can fluctuate in the short term, the prices go up over the long term. So, in the long run, real estate tends to be more stable."
Nicky Taveras, an investor for DNT Home Buyers, elaborates on how real estate professionals are able to weather market changes. Before the 2008 recession, he helped both buyers and sellers. Once the market crash happened, nobody wanted to sell, but plenty of buyers were ready to foreclose.
"People looking to buy homes after the crash found a lot more options within the price range, so even though I preferred listings, I was able to make up for that income with all the extra buyers I assisted," Nicky told me.
7. Online software companies
Thinking of getting into tech? An online software company could have a better chance at withstanding a recession.
Like online agencies, online software companies have less fluctuating overhead than many businesses. As Rafał Młodzki of Passport Photo Online puts it, "Developing online software makes you less dependable on fluctuating product prices because you don't need components or shipping arrangements, which gives you an advantage over other, more dependent businesses."
The type of online software you sell can influence your company's resilience as well. Wences García heads marketgoo, a search engine optimization (SEO) software as a service (SaaS). He considers SEO SaaS businesses resilient because of their diverse client base and the perpetual need for SEO. They also help clients cut costs on marketing services. Wences elaborates:
"When not in an economic downturn, customers often turn to a one-stop marketing shop for convenience (such as digital marketing agencies) even if it's an inefficient spend. But when there's a rough patch, they may start looking at line items and try to unbundle marketing services in order to lower costs, turning to DIY SEO software or to a more cost-effective SEO freelancer."
Look for a software niche that people will invest in during any economic period, especially niches that serve as an alternative to more expensive services. This principle also applies to customer service software. People always need customer support, especially when times get rough.
When Matej Kukucka, founder of Marketing Player, worked for a customer service software company during the pandemic, he noticed a lot of growth. "Our existing customers had to add more seats to their accounts due to the enormous number of support requests coming in because of the uncertain times. And many new customers signed up because their existing solution or email inboxes didn't do the trick."
Go in prepared
If you decide to start a business during economic uncertainty or downturn, you'll need to learn how to manage it under extra pressure. Here are a few resources to help: