Why You Should Start A Business In Recession

One of the advices that seems to come from everywhere with regards to recession is to lower your customer acquisition cost because the lifetime value of the customer is going to be lower than before. Of course this makes sense. There will be behavioral changes in the purchasing patterns as well as cut in spending. This will make your customers less valuable for you than before.

However, when the customers are spending less, and the businesses are paying less to acquire them, it makes customer acquisition cheaper for all businesses. Sure, they are cheaper to acquire because they are less valuable, but you are being given a one off opportunity when it’s over-all cheaper to start your business.

The cost to start a new business is significantly lower during a recession.

If you’re not VC funded but bootstrapped like me, this means a great deal. We’re already planning some e-commerce stores and hoping to schedule the launch right when the markets are in deep turmoil.

My Friend Showed Me An Obvious Opportunity Hidden In Plain Sight

Zeeshan introduced me to Sajawal about an year ago. I think Sajawal has a bright chance that he’ll make it. Not because he’s the smartest guy I know. But because he’s a curious guy. In the past year, no one’s asked me as many questions as him.

Sajawal sent this chart to me yesterday and it’s unsurprising.

The sales for books have increased by up to 300% as everyone’s stuck at home. People have been selling face masks and sanitizers left and right but I won’t touch that. We started a store selling home fitness equipment as people continue to try to stay fit during the lockdown but I didn’t think of an obvious behavioral change and that is people are reading more books as they are stuck at homes.

Selling books right now is not only interesting because there’s demand for them but also because they can be shipped digitally.

Starting today, I will be exploring this area to find something worthy of selling.

Happy selling.

Here’s How My Quarantine Looks Like

I have been practicing social distancing for the past 10 days. During this, I’ve went out only once because I needed to buy some important essentials. During the first 3 days, all I did was read about the COVID-19 virus. It wasn’t healthy.

On my 4th day, I enrolled in a digital marketing course that I wanted to do for a long time but couldn’t find time. 3 days into it, I was spending thousands of dollars on ads to try what I had just learnt. I haven’t watched more than 5% of the content of the course yet, and have spent considerably more time trying those things.

During the quarantine, I have found myself busier than I usually am. Before, I was spending considerable amount of time outside of the house mainly to socialize. While that is obviously not a possibility now, I am making the best of this time by not just learning new things but actively trying those in my business.

I haven’t watched Netflix or movies so far in the last 10 days, and I haven’t felt like I have anytime left to think about how to “kill” time during the quarantine.

There are things you always wanted to do but didn’t have time for. Now is the time for that. It’s time for you to be with your family. It’s time for you to play all the games that you wanted to play with your kids, but could never find time. It’s time for you to learn all those skills that just couldn’t fit in your otherwise busy routine. It’s a tough time for all of us if you think about COVID-19. But apart from that, it’s a great time for self-reflection and to make progress in life.

There Must Be Something That’s Recession Proof Right Now?

COVID-19 has disrupted businesses of all types across the world. I have already written about the turmoil that markets are in. I’ve also mentioned that our business was largely affected too. In fact, our business was affected before most other businesses when COVID-19 was only limited to China. All this while I’ve been thinking what could be the right thing to do during this tough time.

I thought about software businesses, which may also be struggling, but far less than other kind of businesses. In fact there are some software businesses that are doing better than they have ever done before; Zoom for example. As S&P500 index goes down as much as 30%, the stock price for Zoom is up by 30% as more and more people resort to work from home.

You may have also read that Amazon is hiring as many as 100,000 people to fulfill the customer demand. So Amazon doesn’t seem to be doing too bad either as people resort to online shopping to follow social distancing.

The more you read about the bad news on Twitter, Facebook or wherever you get your news from, the more opportunities are presented to you. In fact, when the world was functioning on full-throttle, it was tough to find opportunities because every industry was so competitive. Now, opportunities present themselves to you.

For example, you may have read that in many parts of the world, everything has been closed except for pharmacies, groceries and food deliveries. This is an obvious proof that if you could deliver medicines, essentials or food, you might be doing better than others. But what’s more obvious is that if there was a delivery version available of everything else that’s on a complete shutdown, that could be an even better opportunity.

If people are locked in their houses, they might need more than food or medicines. They certainly need video conferencing (zoom) to continue to work from home. They need Netflix, obviously. They probably also need to workout, right? Probably other things to keep themselves entertained or busy.

Because people need to still workout, we’ve launched our “workout from home” brand in the last couple of days. We’ve seen initial demand for it, and plan to scale it in the coming weeks. There’s a big e-commerce opportunity right now and I encourage that you seize it.

Moreover, Shopify is giving away 90 days free trial instead of the regular 14-days to help small businesses stay afloat. So what are you waiting for? This could be the time to kick-start your e-commerce journey.

Domestic E-Commerce Expected to Post Growth in 2020 Despite COVID-19

E-commerce was one the first affected industries when the COVID-19 hit China. There was a supply-side crisis and many e-commerce stores were unable to source the goods to sell.

Our dropshipping stores came to a stand-still. All other businesses, e-commerce or offline, that relied on China for sourcing or production of goods are in the same boat as us.

But the e-commerce stores that rely on sourcing and shipping products locally or domestically are set to post growth and higher profits. As more and more countries are advising social-distancing, many people around the world are staying at home. This trend will continue to increase in the coming weeks. During the social distancing period, many people are relying on e-commerce services for grocery and other essentials.

Proof of this can be seen by having a look at e-commerce platforms in China tailored to serve the local customers. Carrefour in China has reported 600% growth in sales in Q1 while JD, one of the largest e-commerce services in the world, has reported 200% increase in sales during the first quarter.

2020 is not only going to be a good year for those associated with domestic e-commerce, especially grocery, but such businesses could continue to see more demand beyond the 2020 as well. The current pandemic situation has shown a unique use-case for e-commerce platforms and has proven the need of such businesses in times like these.

The World Is Working From Home & Distributed Companies Are The Future

If you have read my thoughts before, you may have known that I’m a big supporter of distributed companies and remote work mentality. My favorite part of the remote work is the ability to have a higher quality of life for a much lower cost.

Many tech entrepreneurs and investors feel that remote is not the way to go. That the physical presence within the Silicon Valley is a very important pre-requisite to success. They back this with statistics that over 70% unicorns are born in the bay area, and that less than 10% are born in NYC or LA. With only 3% or so coming out of India or China and 5% from rest of the world.

Their case is strong as far as the statistics are concerned. I’m the numbers guy so there’s no basis for me to refute what they are saying. Despite that, I believe remote work is the way to go. Silicon Valley could be the present, but remote is the future. The statistics that are thrown around only reflect what is happening today, and not what could be happening in the future.

As with the COVID-19 emergency, many tech companies have decided to go remote. The list is a bit too long but here are the ones I’m aware of; Amazon, Facebook, Google, Linkedin, FourSquare, Twitter, Uber, Lyft, Zillow, Bitly, Digital Currency Group, IBM, MongoDB, Airbnb, Grammarly, PostMates, SalesForce, ShutterStock, KickStarter, Silicon Valley Bank, WeWork, Yelp etc. I think when all of this is over, some of these companies, and many other companies will have a part of their work force hired to work remotely.

Remote work is to HR what CloudFlare is to the internet. Remote employees ensure higher uptime, load balancing, no single point of failure. Remote employment means you can hire better talent for cheaper costs. Forget cheaper costs, remote employment ensures you can hire better talent from the talent pool that was previously unavailable to you, even if you want to pay identical salaries as you pay in the SV. For the employees, it’s the ability to get a serious bang for the buck by being in a high quality low cost area.

After the COVID19 is over, the world will retrospect. The world will question the ability of the US to handle health crisis. The world will question if China should be the sole manufacturer of the global goods. The world will question the open borders of the EU and the lack of systems in place to protect against a pandemic. And a small part of the world will also question how can we leverage remote work to build more durable companies.

The COVID-19 Challenge For the Governments

The main strategy that all countries seem to have inherited from China is “flatten the curve”. Delay the virus as much as possible so the healthcare system is not overburdened and the vaccination is developed.

China has enough health-care facilities to accommodate 1% of their population concurrently. But even that would only work had the disease spread evenly through-out the country. Any bigger number suggests that fatality rate will be higher as lesser people are able to receive healthcare.

This number varies for different countries and so the fatality rate is going to differ largely between different countries and regions based on the age of affectees, number of cases, and concurrent healthcare facilities available.

Flattening the curve requires that the governments need to control transmission which means that people should spend more time by their own and avoid meeting other people and especially large gatherings. This affects economic activity.

The real challenge for the governments is that they don’t want to bring the economic activity to standstill. In theory, governments could get done with this as quickly as possible. Let it happen to everyone, let the people die, so they restore order and work as quickly as possible. But this involves loss of human lives. The other option is to lockdown everything, quarter after quarter, and let the economies enter a recession that’s going to take a really long time to recover from.

The governments are trying to find the optimal number in order to flatten the curve just enough to sustain the concurrent healthcare and affect economic activity as little as possible. It is why we’re seeing certain world leaders treating this particular disease as “common flu”.

Why Does the Fed Cut Interest Rates When Stocks Fall?

As you may have seen that worldwide stocks are falling as the COVID-19 fears have completely taken over the markets. The S&P500 index has fallen nearly 20% from it’s ATH. Asian and European stocks are also following suit.

When markets crash like that, Governments step in and offer certain incentives to businesses like tax-cuts and cheap credit / lower interest rates etc. The governments say that cheap credit will enable businesses to fuel growth with lower borrowing costs. However, there’s an interesting theory on why the Fed really offers cheap credit and what the businesses really do with that credit, read below.

TL;DR: Companies use cheap credit (e.g 0.5% interest rate) to buy back their own stocks which post 5-10% profits per year.

Are Software Companies Safe from Present Economic Conditions & COVID-19?

What’s happening right now due to coronavirus is a supply-chain crisis. Businesses have buyers but are running out of goods to sell. Once the business profitability is affected due to decline in sales, they will let go some of their employees. This could affect purchasing power of some of the people creating a demand-side crisis.

The pandemic could also affect demand as more and more people stay at home to avoid the disease, they would be spending lesser money on certain products. In addition, their purchasing power could also be affected by additional health related bills. If COVID-19 lasts long enough, which at the moment it is showing signs of, there will be both supply-side and demand-side disruptions.

To improve the situation, Fed has cut down the interest rates. The goal is to sustain the economy by offering cheaper credit to businesses. But I’m wondering how can a supply-side disruption be fixed with cheaper credit. Moreover, cheaper credit could help larger businesses but small and medium sized businesses are likely to suffer the most.

While it is obvious that trade and e-commerce are largely affected, are software companies safe? Some of them might be but I do not believe that they will not have a cascading affect on them. After all, many software businesses are intended to solve real-world problems.

In my industry for example, many software businesses are Shopify apps or WordPress plugins. Shopify store owners use those apps to improve their selling experience. But if there are no sales, or no revenue, the store owners will obviously stop using those apps until situation changes.

Softwares that have nothing to do with commerce, may be relying on advertising as a source of revenue, or may be assisting industries that depend on advertising revenue. They aren’t safe either. Once the commerce is disrupted, the advertising is meant to be disturbed too. In my own case, my e-commerce stores are affected due to supply-chain crisis, but I’m also not spending on Facebook and Instagram ads to drive sales which means the advertising industry is taking the hit too.

As a publisher, I also have data to support this argument as CPMs are going down across the board. So any software business which is dependent on advertising or support customers who drive revenue from advertising will see disruption too.

All other kind of softwares may be safe from this cascading affect, but will still be dealing with users with lower purchasing power.

While pure software businesses are much better off than other businesses, I wouldn’t say that they will not be affected. However, it is still a better time to be running a software business than any kind of traditional business.

What To Expect From COVID-19 Coronavirus

Bill Gates wrote, and I quote

In the past week, Covid-19 has started behaving a lot like the once-in-a-century pathogen we’ve been worried about. I hope it’s not that bad, but we should assume it will be until we know otherwise.

I recommend that you read the full article written by Bill Gates to get in depth insight on the epidemic. In the meanwhile, just like Bill Gates, I hope it’s not that bad, but for now there’s no reason for me to believe that it isn’t. So I’ve done some reading on the subject myself, and want to present some facts below.

Please note that I’ve no intention of driving panic, and all intentions of initiating correct preparation for the Covid-19 epidemic by sharing my thoughts below.

1) Stock Market

The American stock market is down 15% in last 1 week. Companies will publish their Q1 2020 earning reports between 15th April and 15th May. I expect the stocks to be in downtrend until April/May timeframe, and if earning reports are quite bad, they may trigger a potential recession. Apple has issued an early warning for investors. Actions to take: Sit tight and wait until April/May for more clarity on investment strategy.

2) Vaccination

According to Bill Gates, June could be the earliest time-frame for large-scale vaccination “trials” meaning we are unlikely to have vaccination available at scale and approved by FDA before Q4.

3) China

There’s a unified opinion that China is under-reporting cases. There’s complete lock-down in China and I wouldn’t expect China to cause such damage to their economy for something that’s not very serious.

Most researchers believe the actual number of cases to be 10x more, and hence 800,000 people could be infected in China.

4) Death rates

Death rates are 2-3% in Wuhan and 10% in Iran. The death rate is 1% in rest of China. This makes me believe death rates are obviously dependent on the conditions of health-care available as well as the capacity of number of patients that can be treated simultaneously. Assuming China has the ability to provide better healthcare than global average quality, the death rate could be more on global level.

5) Death numbers

Researchers believe that up-to 20% of the global population could get affected. Assuming 20% of global population and 1% death rate, there will be 14 million deaths. Assuming 0.5% death rate there will be 7 million deaths. And assuming 3% death rate, there could be 42 million deaths.

6) Virality

The virality rate is 3 which means every individual will at average infect 3 other people. This is much higher than common flu where the virality rate is 1.5.

7) What to do

In addition to all the advice that you’ve heard/read so far about washing hands, not shaking hands, avoiding gathering, etc, I recommend that everyone should stock minimum 1 month of grocery and 2 months of medication if someone uses regular medication at home such as for heart or diabetes etc. 60% of all medicine is manufactured in China which is on complete shutdown right now. There will be delays and shortage in medication.

May God protect us all