Surviving a Recession – DSP 351

Graham and Ashkahn take on the unenviable task of talking about the harsh realities that the float industry will likely face in an upcoming recession, as well as how to be prepared for it.

The guys discuss what it was like for Float On opening during 2010, and the pragmatic view of the things most likely to get cut and who will and likely won’t survive an economic downturn.

An Important Announcement from the Daily Solutions Podcast

If you’d like to sign up to ask a question on our two hour call in show, November 29th at 3pm PST, go to floattanksolutions.com/dsplive.

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Transcription of this episode… (in case you prefer reading)

Graham: All right, hey there.

Ashkahn: Hey.

Graham: I am Graham.

Ashkahn: I am Ashkahn.

Graham: And special announcement.

Ashkahn: Special announcement if you haven’t heard already.

Graham: From previous episodes if you’ve living under a freaking rock for the last week.

Ashkahn: ‘Cause we’ve been saying this on every episode.

Graham: Yeah, but final episode, two hours into this month. Be there.

Ashkahn: Yeah.

Graham: It’s on a certain date.

Ashkahn: At a certain time.

Graham: Which Ashkahn’s about to divulge to you.

Ashkahn: November.

Graham: Good luck.

Ashkahn: You’ll figure it out. You’ll figure it out.

Graham: November 29th is the date.

Ashkahn: Yep.

Graham: Let’s see if you can guess the time.

Ashkahn: If you’re thinking 3:00 pm to 5:00 pm Pacific time then you’re probably listened to one of our other episodes.

Graham: Yeah, you’re totally correct. Yeah, it’s a good guess.

Ashkahn: Yeah, you guys are really, I’m impressed.

Graham: So no seriously, be there. It’ll be amazing. We’ll be answering live calls for two hours.

Ashkahn: You can call. You can be live.

Graham: Yeah, you can be on the show with us.

Ashkahn: Yeah.

Graham: You can be rambling on like we are right now.

Ashkahn: You can be a, we’re gonna choose two lucky people at the end of the broadcast.

Graham: To host the show that we get to ask questions to the future.

Ashkahn: You’ll have to take our names.

Graham: From us?

Ashkahn: Yeah.

Graham: Who’s names?

Ashkahn: And we’ll become them.

Graham: Oh fine. Yeah, that’s clean.

Ashkahn: Yeah.

Graham: Tidy. Join us and we have a question today as well which is, “Hey guys, hey!” Starts really excited there. “Just wondering what your thoughts are about the upcoming recession that will be hitting us someday/hopefully never?”

Ashkahn: Okay, so this guy knows something.

Graham: “Any float centers go through the last recession and live to talk about it? I think all business owners should be aware it’s something that 100% could happen, but how worried should we be? How much should a float center have in reserves? Three months worth of bills? Six months? Nothing? Just live it up and party hard? Curious if you’re doing or have done anything to prepare for a down turn in the economy.”

We started during a recession.

Ashkahn: Yeah.

Graham: Kind of in the midst of it. Not like 2008, but 2010 is when we started and by all accounts that was kind of in the middle of the recession that was going on.

Ashkahn: Yeah, so well I feel like there’s something different about starting in a recession than having a business and having a recession happen. I mean we just had to start-

Graham: Sure, the timeline of events. It’s totally different.

Ashkahn: I mean in terms of how we functioned and prepared as a company, right? We didn’t have a certain level of income that we were anticipating.

Graham: No it didn’t even exist. I’m with you.

Ashkahn: So that’s what I mean. It’s a little different. I don’t really feel like starting in a recession, I don’t really feel like the experience I got from starting in a recession has made me understand what it would be like to have a huge recession hit us now on our business. Those feel like different things to me. ‘Cause when we were starting everything was new. We had no idea what the right level of income was to expect or anything. We were just basing on what we could afford was how we budgeted our expenses and stuff like that.

Graham: It does show that a float tank center can survive in the midst of a recession. It shows that people will still want to come in and float, at least in certain circumstances.

Ashkahn: Yeah, and a recession is just one variable across that. We also opened a float center in a city that hadn’t had any really big float centers in there before.

Graham: And floating itself was really new and exciting.

Ashkahn: The whole float concept was on the rise at the time, so there’s kinds of other things like that are part of that equation that I don’t know how to disentangle.

Graham: We really, really wish we that we could just open up a float tank center in a laboratory setting and control for all the external environment, so I guess it’s one of those good times to say we’re not economists. We’re not professionals in this regard.

Ashkahn: So we kind of have experience with this, but I wouldn’t say we really have experience with this.

Graham: But I wouldn’t really trust us.

Ashkahn: Yeah, you’re just kind of getting whatever is about to come out of our mouths like that’s-

Graham: It’s not like we prepared for these questions. We just sort of read them and you get what the unfiltered contents of our brains. So yeah, I would call myself a financial expert. So I do have some advice to give.

Ashkahn: Yeah, so when the recession comes in 2021 on October 13th, the best way to be prepared for it is… here’s what I think is hard. This is my prediction of what would be hard for a float center is that there’s a desire running a float center to always want to pay your staff really well. ‘Cause we have awesome staff. They’re coming and they’re working for us and they’re probably overqualified for most float centers to be working there, but they love floating and it’s a cool environment. So we’re getting really cool people coming to work for us and our natural desire is to want to pay those people more and when things are good, that’s a lot of times what we’re doing with money. When we have more money coming in, one of the first things we try to do or where a lot of those expenses go is towards raising our payroll and trying to keep our rates competitive and pay people well and stuff like that.

Graham: Or same thing, too. If you’re a solopreneur or if you just have one staff member and it’s you and the co-founder running things are just you, paying yourself also fits into that same bill too.

Ashkahn: Yeah, so I think the hard thing is that if a situation arose, if a recession hit and there was a big swing in how much money you were bringing in all of a sudden, that’s gonna be one of the biggest levers you can pull. Maybe not the first, but that’s gonna be one of the things where over the years when things are good, you’ve been paying people more and more and that money’s been going higher and higher and all of a sudden that’s a huge bill that’s coming every couple of weeks. So that to me is the most grim thing I can think of.

Graham: Well most grim is just going out of business. You can’t survive it.

Ashkahn: Well yeah, yeah. You go out of business, but you can strip down a lot because your expenses are so much tied up in people. You can put in a lot of hours yourself and get back to a place where you were really running things. 60-70 hours a week with just your own sweat. I think just what’s hard about it is that it’s not like if we were to hit a recession we’d be like, “Oh maybe we should just sell our Porsches.” There’s not a lot of other room to cut back on. We can’t stop buying salt or stop buying ear plugs.

Graham: Well, let’s back up slightly because the-

Ashkahn: It’s just all gonna be over.

Graham: Anything can happen, right? The economy can go up, it can go down, it can do all sorts of things of course. It can the same I guess is the third option in there just to complete that triad. So you should think about these things to a certain extent and crafting your business to be able to control for not just a recession, but any of the myriad things that the crazy environment of the universe tosses your way is good. Preparation is good. There are things, I guess the idea here is that a recession will inevitably have some impact on how much money people are bringing in as wages, which means they have less disposable income which means maybe they’re floating less because they have to cut out the part of their disposable income that’s being spent on floats and that’s where the recession kind of goes through and starts hitting your float center.

Ashkahn: Sure and we’re an industry where realistically that’s gonna be something that people cut.

Graham: Yeah, we’re not groceries, right?

Ashkahn: Right. People are gonna look and be like, “Well I guess I can’t float as often as I want to.”

Graham: So there are things to help through that though, right? The more loyal your customers are, the more members you have who are paying every month, even though a recession might hit and you might lose some members, stats show you’re way less likely to lose people as customers who are paying you on a regular basis, like monthly than you are to just lose people who are coming in and paying you whenever they feel like it. It’s more likely that your casual floaters who maybe came in every three to four months and just paid full price, those are the ones who really are likely to have a strong drop off. So one of the things you can do to make your business a little more recession proof is to work on that recurring revenue and build up a strong member base and even more than just people who are paying you money every single month, build up people who truly love your business and take care of them and kind of the more emotional investment that your customers have and what you’re doing.

As strange as that sounds, that actually makes it more financially stable and more recession proof in the long run.

Ashkahn: Yeah. I mean my plan is just when the recession hits, lock whatever floaters we have currently in our shop in the tanks and just keep charging their credit card for every float after that.

Graham: You get a certain look in your eye when you just said, “Yeah” sometimes. I just know there’s something ridiculous coming, but no, also totally viable option.

Ashkahn: Yeah, that way all you really need is one-

Graham: Peter Thiel was the one I first read that from I think.

Ashkahn: Sounds like something you would say. So okay, how much money do you keep on hand? How much do you financially prepare for something like this?

Graham: So kind of in the pre-opening business world, the sort of safe range is generally given as maybe a year and a half kind of runway where you can be losing money every month and not even covering your bills and you still don’t have to go out of business. So you kind of take a loss for a year and a half and to kind of weather whatever storm comes along.

Ashkahn: But that’s like a huge-

Graham: Well it’s not a year and a half of total expenses. It’s a year and a half of taking a little bit of a loss every month. So if sometimes with that-

Ashkahn: To keep surviving.

Graham: Yeah, exactly and sometimes what that’s equated to, again all of this is kind of fictional, business fiction that people have said, but three months of full expenses. If you have enough that you could be open, fully staffed, running a fully expensed business for three months and literally not make a dollar of income, that’s a nice safety net is also what.

Ashkahn: So the thing about float centers is that I feel like it’s nice to have some sort of savings built up, not just for the impending recession that could strike us at any moment, but-

Graham: Dinosaurs.

Ashkahn: -because other emergencies of that scale can sometimes pop up for float centers, too, especially construction. If all of a sudden you realize like, “Oh boy. I have to redo the floors in all of my rooms.” That’s a serious chunk of change. Not only do you have to pay for the construction, you have to be closed. You gotta deal with what are you doing with your employees. You don’t really just want them to be unemployed for a month randomly. There’s all that sort of consideration to make and those are pretty big expenses or what happened to us once is the city was doing a full project in the street in front of us where they were tearing the entire street up and replacing the storm drains. That was three and a half weeks of crazy construction and we couldn’t figure out a way to stay open for it. It was just too much noise. So we’re also just a sensitive business to random stuff that not even happens in our shop, but around our shop because of the nature of soundproofing and things like that.

Graham: Not related to a national or global economy, but just related to what the city decides to do to tear up sewer pipes.

Ashkahn: Storm drains, that was all that happened.

Graham: A safety net is definitely, and in the circus a safety net is to stop you from falling from the trapeze or something and in a float business it’s kind of for anything that can go wrong.

Ashkahn: So yeah, that same thing can provide you an emergency fund were you to hit a situation like that, where global economic meltdown… I mean, I don’t know. I don’t know. Again we haven’t lived through it. I do think one of the big differences is when we opened in a recession, all of our customers were people who were in a recession already willing to pay the money to come and float as opposed to having customers and having a recession hit. We don’t know how many people would all of a sudden decide that that’s outside their budget.

Graham: So definitely try to save up a little money, not just again for a recession, but for other things. Lines of credit, it’s a great thing to have access to money, even at an interest rate when you need it kind of immediately, so looking into getting pre-approved loans, lines of credit, even credit card for smaller purchases. You don’t want to obviously rack up too much credit card debt.

Ashkahn: Credit cards is usually what I do is good financial advice. Don’t worry about interest. Well, so the other thing that’s a little bit difficult in terms of real life examples to talk about this is just 2008 was kind of a low point in the float industry in general. Not necessarily ’cause of the economy. That was just in a lull of the industry. So there are a couple of places that were around before that and are still around afterwards and have that experience but they’re kind of few and far between. It did impact people and I remember talking to, there are a couple of manufacturers that had been around through the whole process and they definitely said they saw a lot less float tanks being purchased all of a sudden.

Graham: Yeah, I mean one of them said it was like night and day. Just like a switch then flipped and they went from tons of orders to almost none.

Ashkahn: I mean it’s gonna be bad. We’re not gonna make it.

Graham: No, so here’s what I think would actually happen realistically to a float center in a recession which is-

Ashkahn: The sun would turn bright red. Acid would start raining down from the sky. Dead frogs would hop back out of the earth.

Graham: Zombie frogs?

Ashkahn: Specifically, yeah.

Graham: All right, so here’s what I see happening. I think you’ll do better the more general recurring revenue that you have. So again, the more regulars that you have, the more members that you have, I think that will help a ton. I think that your business will inevitably see a down turn and you’ll kind of have to tighten your belt and that will be the hardest for people who are just at break even or already losing money. That’s a tough proposition to go from losing money to losing even more money every month or go from just breaking even to suddenly not. For some it will mean they’re just a little less profitable and ultimately there’ll be a big sorting out. For a lot of people they might decide that the business just doesn’t make sense and they might have to shut down. For other people they decide either they were strong enough and although they took a hit, it’s still a viable business or you just tough it out.

There’s a certain determin-, like whenever really tough things have happened to Float On, there is we tighten our belts and we work way more hours in the day and we kind of push through. So far, we haven’t hit any obstacle that’s stopped us from continuing although we have had really low points in our existence. As a result of pushing through your business ends up stronger and you can read that for almost any type of business too. The ones who go through a recession and survive, they’ve learned how to trim out the fat in areas where they didn’t need to have these expenses and they’ve learned how to run a tighter operation. All of a sudden when the economy starts turning up, their business is way more successful than it was in the past and that’s not an uncommon story that you hear. So there is an upside which is when things hit the cutting block, sometimes the bad things are what gets removed and the good things are what survive to live another day.

Ashkahn: It’s good, we talk a lot about this marketing strategy of using your float tanks as your marketing. This is a time where that is especially helpful. Getting into a place where all of a sudden you have more empty float tanks than you used to and now money to spend money on advertisement. That’s when it’s great to start filling up those float tanks as your marketing strategies.

Graham: Yeah, 100% agreed. Plus there’s gonna be a ton of stressed out people out there in the economic down turn.

Ashkahn: That’s true. Maybe recession’s gonna be great for us. They’ll be so stressed out.

Graham: People need it way more then.

Ashkahn: I’m looking forward to it now, now that we’ve talked about it.

Graham: The zombie frogs sounded really cute.

Ashkahn: Yeah, it’s gonna be great. It’s gonna be great. Don’t even worry about it. We’re gonna be fine.

Graham: And if you have your own questions, run it over to floattanksolutions.com.

Ashkahn: /podcast. You can put in any questions you want us to do, economic forecasting on.

Graham: Yeah and we’ll do it because we are economists.

Ashkahn: Yep.

Graham: Goodbye everyone.

Ashkahn: Bye.

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