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Markets are cyclical – they fluctuate and quickly drift into recession only to repeat the same cycle over and over again. As they say, history repeats itself. So how we prepare our startups and companies for another potential bear market could mean the difference between success or failure – preparation is key.
According to this article in The Motley Fool, “bear markets tend to last longer than corrections. The longest bear market for the S&P 500 was during the Great Depression and lasted 2.8 years. The longest bear market since the 1950s The market was still in its infancy. The 2000s when the dot-com bubble burst. It lasted 2.1 years.” According to this article by Kiplinger, “The average duration of a bear market is about 9.5 months and the average is about 3.5 years apart.”
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Placing similar trading strategies from bull market to bear market can prove disastrous when a price rises; Not all markets are worth following in various macro conditions. In order to grow effectively in troubled bear markets, one must carefully weigh the cost of gaining market share and the cost of each market, not only in terms of potential upside moves, but also in terms of the cost of achieving those upside moves. Opportunity should compare and contrast. When the risk premium (beta) of bear markets is at play, the investment of time, energy, capital and resources needs to be considered more seriously.
In today’s turbulent, inflated, and globally fragile economic and geopolitical environment, founders must build resilience, manage cash flow, and be ruthlessly cautious about which expansion plan is best to pursue. Has more financial and operational importance.
You can quickly go out of business if you expand too quickly. You could run out of money, expand your production and operational lines, and find yourself suffering from factors beyond your control (inflation, unexpected lockdowns, delays in shipments, unexpectedly rising costs, cold market sentiment, etc.). Be careful. ,
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Here are 10 growth strategies to consider in a bear market:
Have a cash reserve contingency plan. I like to keep at least 5%-10% cash in a business savings account, so to speak, as an interest-free line of credit for an unexpected liquidity crunch.
Have a backup supply chain facility/supplier in case your primary facility goes offline or unexpected delays occur.
Limit expansion plans unless the return on investment warrants it.
Subtract additional selling, general and administrative expenses.
Optimize AOV (average order value) by bundling products to increase transactions (gross sales).
Make do with fewer resources (fewer “be nice” perks like off-site retreats, meals, travel, etc.)
Raise prices to fight inflation and the rising cost of goods sold that reduces gross margin.
Consider investing capital in long-term opportunities that can be significantly discounted now.
Increase marketing to just the three best performing channels and scrap the rest.
Don’t increase leverage on a “downturn” and lower your company’s valuation. Instead, use cash flow and high operating margin to generate the working capital you need. Today, with rising interest rates, the cost of borrowing from banks is high, and the cost of raising venture capital due to the public market requires a higher proportion of equity at a lower valuation. Think about how raising capital now affects your employees’ future stock positions and stock option prices.
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Bear markets have historically lasted 9-18 months, so storm surges are often necessary for this period. However, given the uncertainty surrounding current global events, be prepared to change this historical time horizon and plan your strategies accordingly to reduce the risk of disruption.
The silver lining, I think, is that in bear markets, the most resilient and successful entrepreneurs tend to be those who find their footing despite the challenging market environment. Those who can manage their business very well today will grow rapidly tomorrow when market conditions return to normal.
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