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Recession Proof Your Design Business

By January 21, 2019About Us, Blog

Are You Prepared For A Downturn?

Back in 2009, during recession, we started this business by accident. Sim needed a patio table and I had some free time, so I made her one. I put it on my blog and started making more pieces, and they began to sell. Within a couple months it became a full time business and then some. But how did we create a blossoming business when others were going out of business, down sizing, and losing their homes & businesses?

Almost every time a client asks me how long we’ve been in business, they are surprised to find out we started during a recession. But I’ve learned over the years, you can make money when things are good and bad, and there are many factors that can sway things in your favor. The winners think and plan the most, they will have stepped outside of themselves and setup contingency plans for various outcomes. I’ve analyzed successful people that I know, and it’s no wonder they always win. After looking at how they do it, you realize it’s not even fair for the competition.

So right now there is a lot of speculation saying we’re heading towards the next recession. Before Vintage, I used to be in investment banking working at my Father’s company. We put together investments for wealthy clients, and we made a lot of money for them. Working there I learned about economic cycles, and what goes up must come down. America has had a great run in the stock market, and investors are making money like never before. But that greed and speculation can only go so far before it hits a down turn.

One of our contractors made it through that recession with us. He’s an electrician and had 20+ trucks, a big shop, and a lot of overhead. He blew up during the housing boom like everybody else, but noticed business was slowing down and was having problems keeping his employees working. He foresaw the downturn and made some big adjustments to stay alive through it. That included downsizing, selling off assets, working lean, etc. He scaled down to just a couple employees, and has since built it back up, but this time smarter.

Whether you are a one person business, or a 1000, there are many things you can do to ensure your business can sustain through the rough times. And if you think our economy will endlessly improve, I am sorry to break it to you, history repeats. And our country has experienced as many as 47 recessions to date, and each time it grows and recedes, people are making money on both sides and losing money on both sides. There are fantastic opportunities during a recession, it’s not all doom and gloom.

So here are my ideas on how to deal with a recession in the design sector. These are just my opinions on what has worked for me, and others I know, and what hasn’t worked. You are ultimately responsible for your life and business with the choices you make:

Thinning The Herd

During an economic growth period, a much higher percentage of businesses prosper than fail. During a recession, more business fail, and so the herd is thinned. There is only so much business / money to go around, and only the chosen few get that. It’s not luck. Before creating Vintage Industrial, Sim and I were semi-retired. We had an easy life with money flowing in, and many of my friends and family told me I was “so lucky”. Sorry, but that is not luck, it is determination. Winners are not lucky, losers are not unlucky. That is the victim mentality, meaning you don’t have control over it. I am completely responsible for where I am in my life at this moment, and so are you. So one of the challenges with a booming economy, is competition is created for you. Right now we have a lot of competition. People are trying to do what we do left and right. I am happy to say, that I do believe we still do it better than anybody on the planet, but we have much to learn and improve on still. That never ends. So with a downturn, many many businesses will close their doors. It’s simple supply and demand. And with that comes opportunity for those that are still operating, opportunities like:

  • Buying their assets for pennies on the dollar.
  • Their clients can become your clients. Find the failing business and see if you can buy it, or take on their clients.
  • Hire the owners of the failed businesses, they need a job. I’ve found some of the best employees are former business owners. They understand the difficulties of running a business, and often have a better perspective. They typically don’t have the employee mentality that being a boss is easy street, and tend to be more loyal and understanding. Also they can wear many hats.

Downsize

Most companies scale back during a recession. They have to do it to stay alive. And so unemployment rates sky rocket. That is the time to really pay attention and analyze who on your team is contributing. Every employee needs to bring something major to the table. Not every role is money producing, like Admin for instance. So they don’t have to all generate money, but if you are having to micro manage them, something is wrong. Over the years I learned that a great employee will manage themself. Those people are hard to find, but they’re out there. The book Radical Candor explores this topic and I HIGHLY recommend it if you have employees or are a manager.

Another way of downsizing is to shift from doing it in-house to finding subcontractors. That has its own challenges, but you can find stellar companies to offload some of your work, without having the headache of all the overhead. If I hire an employee, it costs me at least $10k to get them setup and trained. Also, there is a lot of administrative overhead involved to keep them. A subcontractor eliminates much of that. You pay the sub more per hour, but can use them as needed. No need to buy them a computer, desk, chair, office supplies, more toilet paper in the bathroom, etc.

Sim and I were talking about this yesterday and she had a great idea. We have some pretty amazing design talent in our RnD department including architects from SCI-Arc in Los Angeles, CAD Drafters, rendering & animation specialists, international award winning industrial designers, etc., so why not offer that to other interior designers and architects such as yourself? Sim has been wanting to pursue and grow that part our business for a year now. With an impending recession, this is the perfect time for us and others. Our team has done everything from designing and building an exquisite kitchen, to doing interactive computer animations for a major hotel chain, to CAD drawings, creating one off prototypes virtually and physically, writing computer scripts to automate laborious tasks, winning design awards, creating set props for the #1 TV show, and so much more. We have the ability to take your idea and make it a reality. That’s what we do!

Above is an example. Our team created this computer animation of our Bronx table in an office environment, with a goal of making it very realistic. Now that we’ve built the model, we can create animations from various angles, as well as change the scale, environment, colors, etc. This eliminates creating a physical table and hiring expensive photographers, stagers, etc. Ikea has moved to this direction. Almost all of their catalog is a computer rendering now. It’s gotten so realistic most people can’t tell the difference.

So we are putting it out there, if you need design services from the list below, ask us:

  • CAD Drawings for furniture & products, rooms & office, restaurant & hospitality
  • Realistic renderings & animations of the above examples
  • Create prototypes of products virtually and physically
  • 3D printing services
  • CNC services including wood, steel, stainless, aluminum, composites, plastics, solid surface
  • Research and Development – we love pushing the envelope
  • Product manufacturing – one off to large runs
  • We specialize in the vintage aesthetic, modern / minimal, contemporary & avant-garde

Niches

Niches are key, in my opinion, for longevity. Would you rather provide a popular product or service that only you can do, or one that many others are selling? There is a great book on the subject, Blue Ocean Strategy – How to Create Uncontested Market Space and Make Competition Irrelevant. The basic idea is that if you have a lot of competition, the waters are red with blood. When there is no competition, the waters are calm and blue. What makes you stand out in a sea of competition? Our niche used to be that we were the only one creating Vintage Industrial style new pieces. Now there are a lot of other companies doing it, but we still have our niche, it’s just evolved.

So how do you find a niche? Ask yourself, what do you provide to clients that others don’t? If you don’t know, you better figure it out soon. If you’ve been in business longer than 10 years, you know your niche. Some companies choose Customer Service as their way of standing out. CS is always extremely important, but some take it to the extreme making them stand out. Costco and REI are great examples. I’ve been a loyal member of both for some 25+ years now. I know that both stand behind their product in a way others don’t. I can buy the same hiking boots cheaper online, but REI stands behind them if they aren’t comfortable. If the Costco product fails, I can return it, no questions asked (they have some exclusions now though).

There are so many books on the subject, but much of it comes down to common sense. Do it better than the competition. Sometimes that means doing it for less, not for us though. We are the most expensive in our industry, probably in the world. But our clients know that we’ll do it right and on time, our original designs are second to none, and in the long run our design client’s client will be pleased and come back to them. Recently an interior design firm told me that our furniture is still standing strong 7 years later, and all of the other furniture they specified has been replaced due to failure (story here). I guess you could say our clients understand the importance of thinking ahead, not just in the short term. Time and time again, we exceed our clients expectations, and so they return. Marketing is ever evolving, and right now word of mouth (social media included) is king. If our happy client refers another client to us, that is awesome for business. It’s free marketing. Didn’t have to pay-per-click or advertise. Our services simply attracted more business, and the universe said here you go.

I’ll go over what made us stand out, and our thinking behind it, so you can better understand how to get into a niche. When I started this, I tried to repurpose old industrial pieces into something new. But the artifacts were hard to find, and the size was not scalable. If a client wanted 10 of them, that was impossible as I found only one. Or if they wanted it 20 feet long, that was not an option. So I studied the competition. At the time, one small company was doing some cool stuff repurposing old machinery. Also Restoration Hardware was making some interesting pieces, but they seemed poor in quality. I studied up on antiques, mostly European, and envisioned creating pieces that looked antique, but were new. Lots of people were antiquing wood furniture to look old, but 99.9% of the time it was poorly done. The antiquing, upon close inspection, was very fake looking. That became a pet peeve of mine. So I studied old bridges and architectural pieces that had weathered over the years, and created a process for it. Every piece I hand aged had a story behind it in my head. This piece was painted some 50 years ago and had sat outside in the rain, and so the paint decayed and began to run down in certain exposed areas. Somebody bumped into the edge a few times over the years and scratched it here and there, etc. It was real in my head, and so it became real in others minds. People often are convinced our pieces are real antiques and ask us WHERE THE HELL do we find all of them? It’s funny to think, some people are convinced of this and they go out searching antique yards for our stuff. And that to me is the highest compliment, the belief that these are old restored pieces. Niches are often just a solution to a problem.

That story helps create a feeling for the end user. Our pieces are crafted to last just about forever, are heavy as hell, and are made without compromise specifically for the client’s needs. Retailers cannot do this, only a small manufacturer can pivot like that. Nostalgia is a big part of our success. People associate the old days with quality, and simpler times. We live in a throw away society now, with ads popping up all day. We’re bombarded with technology and life moves faster than ever. We’re overwhelmed by it all and are taking Prozac to deal with the depression, and Ambien to sleep at night. And so the Vintage Industrial trend was born. Just looking at our furniture relaxes people and puts a smile on their face. Our new modern collection is taking it a step further. Modern design is simple with clean lines and minimal form. Our house is minimal modern, and I’ll tell you it’s very calming to be in our space. There isn’t too much to distract you, and every detail was excruciatingly thought out. Designing modern pieces seems easy, but it’s very very hard to pull off. Our R&D team took our most popular design, the Hure table, and put their modern spin on it. And it’s taken off as a great seller fusing vintage and modern. Here’s a computer animation they’re working on for a promo video:

Find what works in your business and do more of that. Expand on it. Remove what doesn’t work. The above table is expanding on what’s working, bringing it into the modern age with style and technology built in. When you touch our furniture, you feel how solid it is. You see that somebody poured their heart and soul into the design and craftsmanship. It was done for a love of the design, not for a love of the profit. Profit, while it’s a must, follows if you give it your everything. Working 40 hours is part time for us. I miss those days sometimes. It’s not so much work for us as it is a passion. Why else would we working 60, 80, 100, 120 hour work weeks? Work hard, but work smart at the same time. Time is the most valuable thing you have.

Timeless

If you look at the iconic Eames Aluminum Group Chair, you may see a thing of beauty. It debuted in 1958 and is still selling very well. How, you may ask? It’s a timeless piece. People somehow decided it’s perfect the way it is, and it’s not being discontinued after a year, like most furniture. Several years ago I bought 20 of them for the shop and they are still looking functioning great despite being 35 years old. It’s not some trend that comes and goes quickly. Selling trends as an interior designer is a quick way to put yourself out of business, in my opinion. Your design may make the client happy for 2-5 years, but then they need a refresh costing more money again. I know repeat business is good, but not if they become unhappy with the product and have to come back. I know I am getting sick of having to buy a new iPhone every 1-2 years because Apple decided to update my phone make it nearly unusable.  So I buy again and begin to resent them. Right now I am sick of iPhones and am ready to jump ship.

Our restaurant client came back to us last week for the 6th time in 7 years. Normally restaurants do a remodel every 5 years. But MGM Tap is still happy with the Vintage Industrial aesthetic, and is building out more and more spaces using it. Why? the design is still relevant. Antiques are always going to be interesting. Had this been just another short lived trend, they would not have come back to us again and again.

Lean

Something all business should be doing is reducing expenses, aka running lean. What are your main expenses and are they necessary? Are there alternatives? We have a bunch of monthly subscription services for things like software, internet, etc. Sometimes it makes more sense to purchase it than to do the month to month thing. It helps to break expenses down by category so you have a better understanding of the percentages. Again, this is standard practice, reduce expenses and increase income. But sometimes it helps to have somebody from the outside take a look. We’re on our 3rd tax CPA now. An effective CPA or accountant needs to be able to take your data and present it to you in a useful manner. Even better, they should be helping you improve. Sometimes that moves into business or operations manager territory. But you need that if you have employees. I can’t tell you how many times we discovered money that was being thrown out the window amounting to hundreds of thousands of dollars. Our office manager left our organization and I uncovered that we were paying the neighbors electric bill for over two years, among other things. WTF?

We have hundreds of fluorescent lights in our shop. Last year I did a study and concluded that switching to LEDs would pay for itself with 3-5 months. And so we did. The electric bill is a big expense for us so that was a clue that something needed to be done to protect our profits. Your biggest expenses have the most potential for savings. We started with the biggest, then worked our way down to the smaller ones. It all makes a difference in the end. Saving a dollar on manufacturing a product might not be much, but if you make it 100s or 1000s of them a year, it adds up.

Do you have a savings? How long can you operate if things slow down, or business ceases? If you work from home, your business expenses are probably pretty tiny. But you do have to pay your bills. Keeping an eye on your savings and knowing exactly how long you sustain when things slow down is very important. If you have a year of capital, then you are an anomaly. Most Americans have a week or two before things begin to unravel. Building up that savings can help a lot to minimize stress. Your savings can grow quicker if you cut unnecessary spending too.

Owning Vs. Leasing

We’ve dreamed of owning our own space since the beginning. And now I am happy to say that leasing is right for us at the moment. While we may have a landlord that doesn’t fix the roof leaks like we’d want, we are not on the hook for the big expenses. Our shop has had many disasters from floods, to fires, water main breaks, collapsing foundation, to swarms of killer bees. But our landlord is on the hook for A/C repairs, building maintenance, etc. Right now they are looking to replace the roof which will cost somewhere around a million dollars for just our space. If we had to do that, we’d go out of business. Yep owning is not for us right now. Also, the right insurance and insurance agent is extremely important for any business and will educate you on your options for protecting your business.

Something also to consider is real estate and the impending recession. Real estate values are going to go down soon in my opinion. Owning a commercial space right now puts you at risk. Remember the last recession and all of the foreclosures? I don’t think it’ll be as bad as lending practices are more regulated. But if you recently purchased your space and the market goes down 30%, you’ll be upside down in equity. You can’t take a loan against the property, and can’t sell it. Sim and I decided we’re actually going to sell our house and move to a rental. We’ll take our gains as our property is worth about double what we paid for it, then rent a house or condo. Once the recession is finished bottoming out, we’ll buy again cheap and ride it back up. That may not be possible for you, but I’m just throwing the idea out there. So many people invest at the peak of the market, then get burned. But who knows, it could continue upwards for another couple years, or 20, you never know.

Risk Vs. Reward, Short Vs. Long Term

All businesses need to weigh their options. If you have a 90% chance to make $10k, vs a 10% chance to make $100k, which do you choose? There’s a balance to all things, and really we need to keep up with the day to day things, while planning for the long term. The short term things make us money soon, while the long term takes a while to pan out, if ever it does. So you diversify, and need to be careful with being overly optimistic. You might spend 90% of your time in the short term things, and 10% planning for the long. If you are always running around putting out fires, you never get to focus on the future which will bring in the bigger bucks and potentially help you grow as a company. A long term strategy could be placing an ad in a local news outlet (paper or internet). People will see it and become more familiar with you the more they see it. It could pan out soon, but more likely bring in business after several months or years.

I consider that a very traditional way of marketing. My style would be to start blogging, like I am doing right now. Do this every week or so. Create content that is unique and helpful for people in similar fields. Hopefully over time they’ll read it and consider doing business with us, or recommend us. The more people that know about you, the better chance you have of getting new business. If 1 million interior designers read this, we’ll get some sales out of it. If 3 do, we probably won’t. It takes time to build up a following. But I believe in pouring my heart out in my business. People connect to that. Honesty is refreshing these days. When a client calls and asks me how I’m doing, and I am having a bad day as I sometimes do, I’ll say shitty. It never fails to surprise them yet get them to open up themselves. They feel ok to express themselves. Please do! We’re taught to lie to ourselves and others from a young age. And when I say I am “fine”, and I am not, I just minimized myself and feel worse. No more for me. Truth, ugly as it may sound at times, here it comes! I think I went off on a tangent here, I hear Sim in my head saying “STAY ON TOPIC!”

So when business is good, that is the IDEAL time to put some energy into long term planning. You have the time and money, do it now, otherwise when things slow, you’ll be scrambling to make ends meet and spiral down. If you forget, make a calendar reminder every so often. I’m so damn busy I have reminders to appreciate my wife, take out the trash on Monday night so we don’t get into a fight about it, to remember to breath so I release my anxiety, to be honest, etc..

All Your Eggs

Years ago all of my business was in one very specific thing. If that disappeared, no more money. Are all of your eggs in one basket? Better hope that you don’t drop it.

  • Do you have one mega client that is most or all of your business?
  • Do you attract all of your business is some special way that could disappear?
  • Are you specializing in one area of design, and refusing to take work in another?
  • Are you catering to the housing boom?
  • Is your business diversified?

I’ve found out the hard way, that diversifying your income is pivotal to longevity. For example, don’t put all of your money in one stock, spread it out in other sectors so if that one tanks you’re not ruined. When we have a good thing going, people will notice it and copy. It’s the nature of the design world. Now there are 2 people doing it, now 3, now 300, uh-oh, the phone stopped ringing and we’re out of business. Find alternatives to advertising, to revenue generation, etc., and listen to the universe. What is it saying?

We use casters on our furniture. I have a caster company make them for us, then we antique them. Soon after starting up people started asking me to buy just the casters. I would say sure, as long as our furniture is attached to it. My Uncle said hey, the universe is telling you to start selling casters and you’re turning it down. They are literally trying to give me $200 and I am saying no.  So we started selling them. A year later we had one caster order come in for $75k. It became an easy income stream to supplement the existing furniture one. When the market slowed down onetime, it actually helped save us! If you have clients asking you to do something that is not your norm, you might consider it. It’ll diversify your business, but do think it through to make sure it makes sense. I’ve heard that the architecture industry is pretty brutal. Very few Architects get to do dream projects. So they take whatever to pay the bills. You do just that, to the best of your abilities, with the hope of something grand in the future. The harder you work on those projects, the better chance you’ll have of the universe serving up your dream.

I used to only make coffee and console tables. Somebody in the industry said that dining tables is where it’s at! So I started making those and it was great. Now we have an array of furniture and decor much more diversified, and most orders are for multiple pieces. We’re not just for residential anymore, we do office and hospitality. Listen to the universe, what is it telling you?

Inquiries

Do you track your inquiries? They are an early warning system for your business. Let’s say on average you get 10 inquiries a month, and last month you got 3, pay attention. Why are they down? You probably know what generates your inquiries. Keep a close eye on them. For us inquiries take a week to a year to manifest into a sale.

We look at the sales numbers weekly now and ask:

  • Are they up or down?
  • Why?
  • What can we do?
  • How long will it take?
  • How much will it cost?
  • What does this all mean?
  • How can we ensure this won’t happen again?

If you’re trying to manifest sales when the phone isn’t ringing, it’s most likely too late. Design projects are slow and take time to fund. You have to be ahead of them. Right now Consumer Discretionary Spending is outpacing the stock market.

So what does that mean? That sector includes retail, automobiles, restaurant, hotel, and apparel stocks (like Amazon, Home Depot, Ford). And those stocks are higher than the rest of the economy. That’s great if you’re in the design business like we are! But, with a recession, that goes to shit. People start cutting back on expenses. With the last recession, I remember the malls were empty, along with restaurants, it was creepy. So many businesses closed their doors. And if a recession hits, that’ll happen again. Consumer Discretionary spending will be one of the first things to be cut. And only the strongest and smartest will survive. Over the last 10 years it’s averaged an 18% return. Last quarter it went down 15%. To me, we are close to the peak of the market. I know the stock market has safeguards in place to keep it from crashing like on Black Monday. But I see a down turn as inevitable, and it’ll take place within the next 2 years.

More Ideas

  • Renegotiate with your suppliers and vendors periodically. Are you getting the best product and prices?
  • Hire employees that can wear multiple hats. Having skills in multiple areas is a plus for any small business.
  • When times get tough, are there items you can sell? If you haven’t used it in a while, might as well get some money for it and declutter.
  • Think outside the box when it comes to marketing and sales. Test out new ideas and chart the results. For example, If you specialize in say restaurants, do a local search for liquor license applications. Contact those companies and see if they need help.
  • Identify your competitors, what makes them strong or weak?

In any case, I consider the above to be sound business practices during any market (minus selling the house thing). We’ve learned the hard way, by making lots of mistakes. I hope this helps somebody. Feel free to comment below, or go to the contact page and email or call. We’d love to hear from you…

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Join the discussion 4 Comments

  • Excellent article on the importance of small businesses being ready for change. It’s out there, all the time. Ignoring change because times are good (right now) is not the way to go. We all saw how quickly the recession set in during 2008-09. For many, it was like being caught under a giant, all encompassing blanket. Being startled came first, then major nervousness set in. Then, full scale Panic hit. Those who don’t think about the bad times – all the time – will not be prepared when major changes to their industry or customer base hit. I will definitely pass this great advice on to my audience!

  • Greg says:

    Thanks Terri, so true. Feel free to share!

  • Fabulous article! As a business owner for 27 years, your words resonate with our experience. I’m sharing this one! Looking forward to more from you.

  • Greg says:

    Thanks Lelia, and gratz on staying in business for 27 years! Wow, 9 years for us has been very challenging.

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