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How to Pick a Recession-Proof Business

Small businesses suffered the worst during the last recession. More than 170,000 small businesses closed in 2008 and 2009, and 11 percent of the small business workforce lost their jobs.

However, some small businesses actually thrived during the recession. Resale retailers, including Winmark brands Once Upon A Child®, Plato’s Closet®, Style Encore®, Music Go Round® and Play It Again Sports®, fared the best.

The recession years were some of the best for both sales and franchise growth for Winmark because resale is recession-proof. Consumers are forced to stretch their dollars during hard economic times, so they become resale customers when they learn they can purchase gently-used goods at deeply discounted prices. Entrepreneurs seeing this realize owning a resale shop is a sound investment.

“We had many new customers walk in the doors of our franchised stores for the first time during the recession, looking for value and a bigger bang for their buck,” said Steve Murphy, president of franchising at Winmark Corporation. “We also saw growth in our new franchisees. Whether it is because people are getting laid off and looking to get out of the corporate world for good, or they are worried they may be next on the chopping block, many people want to regain control of their lives and their careers and see franchising and business ownership as they best way to achieve that.”

Tips for Picking a Recession-Proof Business

But before an entrepreneur jumps into becoming a franchisee in a recession-proof business, Steve recommends they look for six things – five about the business and one within:

  1. Need, Not Want – A business needs to be a need for consumers, not a want. Businesses that are need-based will suffer less in recessionary times because consumers must still purchase their goods in order to survive. Want-based businesses tend to work based on the level of discretionary spending available.
  2. Big Value – Value-based businesses tend to thrive in down economies because people are looking to stretch their budgets and get more for their dollars.
  3. High Demand – Entrepreneurs should look for businesses that are in high demand regardless of the economy. Items that consumers continually need, that are high in value, and that have a high demand will always do well in a recession.
  4. Abundant Supply – Businesses that do not have the supply to meet demand tend to have increasing prices. Businesses that have a supply that can meet or exceed demand can maintain their prices and continue to offer value to their consumers.
  5. Unique Selling Proposition – Recession-proof businesses should provide something consumers can’t get anywhere else. By doing so, you create an inherent demand for your product. For example, Winmark brands offer customers cash for their used stuff, which works well in a recession. Customers can create their own additional discounts in the stores by bringing in their used goods to get the cash they need to purchase the additional items they want to buy from the store.
  6. Passion for the Concept – An entrepreneur should invest in a business because they are passionate about it, not because it is a logical choice. It certainly helps if they have both a passion for the business and a business that is recession-proof. But, without the passion, there is a much higher likelihood that the venture will not work out in the long run.

The Franchisor’s Role in a Recession

While the franchisee can be confident during a recession, they should also be able to rely on the franchisor for the same level of support regardless of the economy. As soon as franchisors roll back support or cut costs, they will provide inferior service, which makes succeeding even more challenging for franchisees.

“The natural inclination in a recession is to pull back on investments and to cut expenses,” Steve said. “For businesses that thrive during recessions, that could kill their opportunity to grow and take market share from their competitors. The franchisor needs to constantly remind their franchisees of those opportunities and provide examples as to what they can do to take advantage of those things in order to grow.”

Bad Times Can Be Good

Because of these components in the business model for Winmark brands, both franchisor and franchisees typically emerge recessions better than when they went in.

“Winmark has been fortunate to have had a steady stream of new franchisees in both good times and bad,” Steve said. “Certainly it fuels our growth when franchise candidates know they can get into a business that can provide for them and their families on a consistent basis.”

Interested in a business opportunity in the thriving resale industry? Click here to learn more about Winmark Corporation’s franchise brands.