Weathering Tough Times: 6 Lessons from Entrepreneurs and Investors

Recent business and economic headlines have not been encouraging, to put it mildly. Major banks and brokerages have cut their forecasts for U.S. economic growth since the beginning of the year as stock market volatility increases.

Vanguard sees U.S. inflation approaching 3% in 2025, outpacing its forecast for 1.7% gross domestic product growth. And JPMorgan now puts the odds of a U.S. recession in 2025 at 60%, up from 40% in March.

Downturns are to be expected from time to time, of course. They’ve happened before and will happen again. As uncertainty rises across the economy, it’s helpful for members of the business community and everyday consumers alike to keep things in perspective. 

With that in mind, here are six real-world lessons from successful entrepreneurs and investors who’ve weathered difficult economic times in the past.

1. Keep Close Watch for Signs of Trouble

Prevention is the best medicine. That’s as true for human health as it is in the economy.

While no investor or entrepreneur has a perfect track record, the successful ones tend to be those who consistently spot signs of trouble in their industries or the broader economy. Then, they act decisively to respond.

That’s what Sky Dayton and Jake Winebaum did with their startup incubator and venture capital fund, eCompanies, as signs of a “dotcom” bubble emerged around the turn of the century. eCompanies’ portfolio included successful ventures like digital publisher Business.com and LowerMyBills.com. But as Winebaum recalled years later, he and Dayton saw before most that the industry was in trouble following the last-minute cancellation of a financing deal with SoftBank.

“After Sky and I emerged from our initial shock, we concluded that if SoftBank, the most prolific and successful internet investor of that time, was pulling back, other investors would as well,” Winebaum said.  “We would have to survive with what remained of our existing capital…we decided to shut down the incubator and distribute the remaining $5 million in capital and the key employees to the five portfolio companies we felt had the best chance of surviving.”

2. Position for the Next Business Cycle

Dayton and Winebaum kept building those core portfolio companies, eventually creating hundreds of millions in value. For example, JAMDAT Mobile (later rebranded as EA Mobile) and LowerMyBills.com were both acquired in 2005 by larger firms for $680 million and $380 million, respectively.

Dayton continued to show remarkable foresight. In the years after the dotcom bust, he looked for opportunities to capitalize on new growth opportunities in emerging sectors like mobile telecoms. One of his key successes during this period was Helio, an early-mover joint venture acquired by Virgin Mobile USA in 2008.

3. Game Out the Impacts of a Downturn

Successful investors and entrepreneurs are also adept at thinking strategically in the short term. When signs of trouble emerge, they game out the possible impacts for their businesses and investments. 

In fact, they develop a range of downside scenarios before any real signs of trouble emerge. They ask questions like, “What would a 20% drop in revenue mean for the enterprise?” and “How would a 50% lower valuation affect our next fundraising round?”

It’s impossible to know in advance how things will play out, but thinking ahead is crucial for effective preparation.

4. Be Willing to Go Against the Grain

“Be fearful when others are greedy and greedy when others are fearful,” says legendary investor Warren Buffett. 

In other words: Be willing to stake out unpopular positions when it matters most. Buffett and many others made fortunes doing just that, defying those who called them fools or worse. For example, Buffett’s company, Berkshire Hathaway, went on a buying spree in 2009 and 2010, as most others pulled back on investment. Sky Dayton and Jake Winebaum doubled down on their core investments during the dotcom bust, with impressive results.

5. Seek Partners With Complementary Skills

Few entrepreneurs are truly “go-it-alone” types. Most sync up with trusted partners to ride through good times and bad.

Sky Dayton has done this several times during his career. His venture with Jake Winebaum leveraged Dayton’s impressive entrepreneurial skills with Winebaum’s deep experience in the booming internet business, thanks to his past role as a key digital executive at Disney. Years later, Dayton secured a nine-figure investment from former Uber CEO Travis Kalanick for City Storage Systems and CloudKitchens, two startups he co-founded.

6. Develop a Long-Range Vision (And Track Your Progress)

In the real world, economic conditions take time to change. Downturns can seem sudden, but as we’ve seen, they tend to build over periods of months or even years. Likewise, economic recoveries feel uneven and plodding as they’re unfolding.

Given this, it’s important to have a long-range economic plan and a comprehensive, reliable way to keep track of it. If you’re a seasoned investor or entrepreneur, you may have an entire team to help you with this. If your career is just taking off, you may need to do more of the work yourself. In either case, objective metrics — such as IRR, cost of capital and more — are extremely important. Garbage in, garbage out, as the saying goes.

Better Days Will Come, Eventually

When times are tough, it’s more important than ever to keep things in perspective — and to resist the urge to panic. Indeed, panic is rarely justified, even when the situation appears to be at its bleakest. Acting rashly often compounds the problem.

If that’s not convincing, think back to recent economic downturns, such as the pandemic crash of 2020 and the dot-com bust of 2000. In both cases, it seemed for a few months as if the world had dramatically and permanently changed; in 2020, the Dow Jones stock market average lost 26% in four days. While profound changes did come out of those recessions, the economy eventually recovered and life went on more or less as before. Those who acted emotionally found themselves at a disadvantage to those who kept their cool.

That may be the most important lesson of all. Better days will come again, sooner or later. When they do, be prepared to embrace them.