Eggs vs Boats
Things to consider with a recession (or depression) looming in the distance
With the economic volatility the USA and the entire world are experiencing, young entrepreneurs must consider the overall impact the larger economy has on the specific industry or industries they operate within.
Certain industries lend themselves more to a boom or bust level of demand, whereas other economic sectors are steadier and don’t experience large demand fluctuations regardless of what the larger economy is doing.
To make things simple, let’s focus on two products: Eggs vs. Boats
Will the business you own or the business you want to start have continued demand if the economic world takes a dive? How resilient is your company, your products, and your ideas when times get tough?
[ctt template=”3″ link=”VbaFb” via=”no” ]Will the business you own or the business you want to start have continued demand if the economic world takes a dive? How resilient is your company, your products, and your ideas when times get tough?[/ctt]
Industry or product-specific downturns do occur independently of the overall market, mostly due to creative destruction (think of pagers, digital cameras, etc.), but that isn’t what the focus of this article will be.
Instead, let’s focus on recession-resistant industries vs. more luxury-type items that consumers can live without.
Whether you’re about to start a business or already have one rolling, it seems like it is only a matter of time until some sort of recession strikes. Now seems like a good time to think through whether or not your company will hold up during a recession.
[ctt template=”3″ link=”q_Re9″ via=”no” ]Whether you’re about to start a business or already have one rolling, it seems like it is only a matter of time until some sort of recession strikes. Now seems like a good time to think this through.[/ctt]
Feast or Famine
Picture in your head the average person who buys fishing boats, ski boats, jet skis, pontoons, etc. I don’t mean the Jeff Bezos of the world with his super yacht, but the average American with a boat in their garage.
I’m picturing more of the weekend warrior type with a 26’ boat they take out on the weekends to go wakeboarding, tubing, and fishing. These people have enough disposable income to have a large luxury item, but they don’t NEED that boat.
Boats are basically a toy to most owners, and it is the first thing they sell when times get tight financially. High-priced toys are the first thing to be liquidated.
After all, B.O.A.T is also an acronym for “Bust Out Another Thousand.”
Boats are costly to purchase, maintain, store, and operate. What I’m saying isn’t rocket science, but given current market conditions, young or budding entrepreneurs need to weigh how recession-proof their businesses are. Both their products and services directly, but also the customer base or industry they play into.
Are you selling a consumer staple (eggs), or can your product/service be quickly eliminated in the presence of a shrinking checking account (boats)?
Don’t just think of recessions as being demand killers for “things” but also services such as maids, lawn care, pool care, subscription boxes, etc.
There are many services people purchase when their 401K is booming that they will quickly get rid of when need be. Do you really need subscriptions to Netflix and Hulu and Peacock and Amazon Prime?
How elastic or inelastic is your demand going to be if the Dow Jones comes down 30% or interest rates hit 8-9%?
2008 Great Financial Crisis
Think back to late 2007 to early 2008 and picture that happening again in the next 12-16 months. As George Gammon always says, there are no certainties but only probabilities. From where I’m sitting the probability of an economic downturn seems likely.
Here is what happened in the boat market in late 2008:
“The fourth quarter of 2008 finished with…the total fiberglass market for all boats down 40.2%” – tradeonlytoday.com
Boat sales tanked during 2008 because no one needed a boat. Again, not rocket science, but ask yourself: is your company focused on selling luxury goods, servicing luxury goods, luxury services, or providing parts that go into a luxury good (directly or indirectly)?
If so, then you may want to start looking into how to pivot toward a recession-proof business right now.
Pivoting Your Business
Pivoting when necessary is often the most challenging part of owning a business and might be the only way your business survives. Think about what your pivot may look like. What other customers can you target? What other products can you manufacture? What other services can you provide?
[ctt template=”3″ link=”UzdDG” via=”no” ]Pivoting when necessary is often the most challenging part of owning a business and might be the only way your business survives during a recession.[/ctt]
Eggs
Are chickens the perfect animal? You feed them bugs, corn, and scrap food, and in return, they give you precious eggs. If you don’t have a backyard flock, I suggest getting one. Eggs are the only protein that I know of where the animal doesn’t have to die to provide it.
Eggs are protein-packed, versatile, and, most importantly, relatively cheap compared to other sources of protein.
The American public buys eggs during good times and bad making them recession-proof.
Steak gets too expensive? Buy eggs. Is hamburger too expensive? Buy eggs. Pork chops out of your budget? Buy eggs. Want to quit eating meat because you think meat is murder? Buy eggs.
As a young entrepreneur, you have to understand the elasticity of your products. Are you operating in a market sector with market-driven highs and lows, or are you residing in a steadier market niche?
For someone that owns a company more involved in the B2B arena, are the other companies you service operating in a volatile industry? Market downturns are a chain reaction that percolates up the supply chain.
The above graph (top of the page) is courtesy of Statista.com and shows egg sales per year in the USA in Millions.
As you can see from the graph, slightly fewer eggs were produced/sold during the recession of 2007-2009, but that dip in volume wasn’t too drastic compared to the 40% drop in boat sales we highlighted earlier.
What does it take to produce an egg that sits on the shelf at a Walmart? Obviously, you need chickens and chicken food, but you need feeders, waterers, cages, egg cartons, trucking, refrigeration, etc.
If you own a company manufacturing egg cartons, the demand for your product will be relatively consistent, all things considered. If you want to start a company sewing boat seat covers, you may find yourself lacking work if we have another Great Recession…or worse.
Will your Company Hold Up During A Recession?
As an entrepreneur, think about the following:
- What your company does.
- Who you do it for.
How different will your customer base look if we have a recession? With the infrastructure that you currently have in place, what other sources of revenue could exist? What direction can you pivot towards?
[ctt template=”3″ link=”dl6S8″ via=”no” ]How different will your customer base look if we have a recession? With the infrastructure that you currently have in place, what other sources of revenue could exist? What direction can you pivot towards?[/ctt]
Does your business sell eggs or boats?
Scott Kohler