Preparing for the Downturn | Episode 36

In this episode, Gary and David talk "doom and gloom" with investing, the "recession," inflation and what all of this has to do with small businesses, and then, on a lighter note, talk about Star Wars and Stranger Things (again, no spoilers).

Enjoy!

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David Baxter - CEO of Big Pixel

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The Podcast

David Baxter has been designing, building, and advising startups and businesses for over ten years. His passion, knowledge, and brutal honesty have helped dozens of companies get their start.

In Biz/Dev, David and award-winning Creative Director Gary Voigt talk about current events and how they affect the world of startups, entrepreneurship, software development, and culture.

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Transcript

David: 0:08

Hi, everyone, welcome to the biz dev Podcast, the podcast about developing your business. I'm David Baxter, your host, and I'm joined as always by Gary Voight. How's it going, man?

Unknown: 0:18

It's going pretty well, man, how you doing?

David: 0:21

I am good. We're playing with a new little, we got new toys. We're trying to up our game. We got new mics, and I have a new camera and we're now playing. We're using Riverside. It's not a plug. And it's pretty neat. We've been using Zen caster, we're trying it out. So this is a world playing with new toys. It has sound effects and stuff, which I'm going to withhold and not push the buttons. If I say something tremendously funny that at least that I think is tremendously funny. Maybe I push it, maybe. But I'm pretty sure our team would get mad if I actually did it. They don't want that stuff. So the trending topic of the day is a big one. I think this is a really, really good. This is everywhere. If you guys have been listening, reading any tech stuff, you have heard about the doom and gloom, I guess it's the best way to say it. That a lot of the big investors and P with Sequoia Y Combinator, all of them are basically telling startups to buckle down because the economy is about to get tank to go belly up,

Unknown: 1:25

like a Silicon Valley recession, doom and gloom prediction.

David: 1:29

Yeah, I mean, Y Combinator in particular, particular sent out an email talking about you need to buckle down, get some runway, if you've got it, hunker down, use it, well use it wisely. Don't go spending crazy money. If you don't have a runway, go get a runway runway is the colloquial term to say you have this much time to run on the money you have in the bank. So when you raise a million dollars or whatever, that will you do calculations and say, Okay, I can keep my current staff or grow or whatever. And I can run for this long, it'll be months or a couple of years or whatever. That's what a runway is. So what do you think about this prognostication?

Unknown: 2:10

Just from reading some summaries of the articles and stuff like that? It seems like although the big companies are starting to do layoffs, like the thing with meta, I didn't expect meta to really work out. Because it just seemed odd. You know, I didn't I didn't expect metadata you meaning Facebook? Yes. As Facebook. It just seems like there's too much going on in the world socially. That's giving them a bad look that I expected them to have some sort of downturn. Didn't expect the Netflix thing about people leaving and layoffs there. But

David: 2:48

so Okay, so clarifying that so meta. They have been having some rough quarters, but they seem to be doing okay, right now. They're betting the farm on the metaverse and AR. And so that's causing them to lose a lot of money. But even they said they were backing off some because they were their stock price was getting slammed,

Unknown: 3:09

well, their advertising is down, their engagement is down. They have designers and people that they've put onto the metaverse team that are just leaving left and right, unhappy and not thinking it's hard go anywhere. Yeah. So I'm just saying with those kinds of stories showing up in the media that kind of also paints like a little stain on them for now for it doesn't seem like it's going in a positive upward direction for them. But I don't think this is going to turn into like the bubble bursting like it did back in the day with the websites and tech companies.

David: 3:44

So the way I look at it, is you're right, I agree with you 100% That it's not a bubble, but I'm almost afraid that it's worse. Because a bubble by its very definition. It means something went out of whack. got too hot and exploded. It was artificial. It went up too high. It came back down and abrupt manner. Right. That's happened to housing in 2008. It's happened banking several times over the years. Oil has bubbles all the time. Come and go. What scares me about this one is it's not a bubble. It's really the economy is about to get beat. That's its fundamentals are now weak, right? Inflation is high. I mean, really, like my business crypto

Unknown: 4:28

has tanked. Like

David: 4:32

Well, I mean, that to me, it's not a prognostication. That's just reality. Crypto was never real to begin with, in my opinion. I'm sure someone I

Unknown: 4:40

agree with you. But I think there's investors and investment companies that see that and think, oh, what's next?

David: 4:49

What to me? A lot of this is if you listen to the finance guys, a lot of this stuff is expected. Right? When the inflation goes up, the Fed gets mean and that's their job. They raise inter straits. When you raise interest rates, the reason why crypto and SPACs, if you've seen those, we've talked about those before. Those are the the blank check companies that allow companies like truth social to go public with no revenue. That's why all gold is another one. These things, these are the kinds of investments that explode when there is no where else to put money. There's there was money was free, right? You can't put money in your bank, you can't put it in a CD, buying bonds was what you'd get point 2% interest, it's a waste of time. So if you want to make money, you've got to get more risky. And so over the last several years, all of those things I just mentioned, have exploded. Because people have money to burn. And they want to play, they're bored. They're stuck in their house because the pandemic wants something exciting. Let's go and do a pump and dump at AMC, right that that happened game stock, crypto, all of these things. And now that the Fed is getting involved in the interest rates are going up the bond markets getting better, because there's now money that you know, banks can make money again, this is what you expect to happen crypto to crash these things to happen. Because these are these were not real investments by standards, normal standards. And so regular people who like I'm gonna get some bitcoin. They don't know what they're doing. Right? They're not doing it because they believe in removing government from currency, which is what Bitcoin was originally about, right? They're doing it because they want to quick buck,

Unknown: 6:28

the eventuality and the goal is to bounce the scales. But right now the scale is kind of on that downward slope before it comes back up to the middle.

David: 6:37

Yeah, and that's going to mean that we are so spoiled our digital generation 20 years, and I mean, it's a full generation, it doesn't matter whether you're a baby boomer, or you're millennial, you're Gen X are like me, you are so spoiled, because you have forgotten what real interest rates look like. It's been 20 years since we've had interest rates of like buying a house with an interest rate of 6%. That's been 20 years, which has been normal for almost our entire history, if not low. Like I remember, I bought a house in 2006, which was not the time to buy a house. Don't buy that house. But my interest rate was six and a quarter percent. And that was considered good at the time. Yeah. Now, if you are over 4%, people think, Oh, you're just losing your burn and money. That's not. It's this 3% stuff we've been used to is so bonkers. But that's what we're used to. We're spoiled. We're used to this raging economy, and full employment, all this stuff. And that's all coming to the end. And all of that's real. That's my business group. I was saying earlier, my business group, officially, inflation, I think is about 11%. And they believe that that is behind. These are guys running businesses of all sizes. They're guessing that inflation is actually closer to 18, or 19%, which is horribly high. We're all feeling it. I mean, you go to the gas station, you're feeling it.

Unknown: 8:08

Just the grocery store. Feeling it's like it's in that's probably about to get restaurants. Yeah.

David: 8:15

The restaurant, you go and get a you know, I'm gonna here's a silly example. Domino's, my family and I have been buying their coupon 599 for two medium pizzas, right? That's been their national coupon

Unknown: 8:28

for years. It's in the mail every week. We

David: 8:32

know it's just on their app, you just use their app, but it's always there. And now that coupon is 699. Boom, it's an extra dollar. Now, that's not a ton. It's still a cheap pizza. But it's just very clear. They had to raise the prices, everybody has to raise the prices. And so I think that these guys blueprint back around. I think that these prognostications are alright, it's going to get hard. I think we're going to have a bad economy for a little bit because there's just we've we've been overheated for a while, right. We all got tanked because of the pandemic. And then they're all raged back, and everybody had this great time and everybody had money to spend, because the Fed was handed out cash. Well, that's all gone now. Inflation is stupid, the economy's going to take a beating. Now, what does that mean? That's the real question. Yeah. Okay.

Unknown: 9:24

We all like what does it mean for tech companies and small businesses, especially if you're what does

David: 9:28

it mean for your small business? I think, for your small business, I would jump on what these guys are saying. And if you want to read more of what they said, we'll put links in the show notes, but it was Sequoia came out with a gizmo, an article and then Y Combinator came out one. And I think if you are a business owner, you need to shore up your contracts that you have. You need to see if you can get any new ones. But then it's time to start watching your expenses. I think it's that and then That's, we were looking at this and we're going, gosh, okay, what are we what do we need to be careful of? I mean, we're doing fine now. But it's not, you know, six, eight months ago, we were getting calls left and right about people who wanted to do stuff, those calls aren't coming in nearly as fast anymore. I think that's a sign that startups are really sensitive to this, right? If I don't have confidence that my regular job is going to be stable and happy, I'm not going to invest in my new idea.

Unknown: 10:25

And if you're out there trying to get investments from, you know, other investors or accelerators, that's probably going to be cut short and tight, too. So,

David: 10:35

yeah, when you think of an angel investor, right, an angel investor is just a very nice way of saying rich person, right? I am a rich person who has money to invest in small things and take risks. That's what an angel investor is. So if I'm now concerned that my portfolio is hurting, I'm still a rich person. I'm not going to stop being rich in this economy, most likely, but I might not be as generous to give a $25,000 or$50,000 Check on a bet that your company is going to do well, right. That's, that is 100%. Real. And we've seen this before. This isn't the first time I mean, we've had smaller dips. I just think that we just need to be careful. So if you're a small business right now, you got to you got to think how do I be smart with my money? Because that big new contract might not be might fall fall away. So be just be smart about I don't think I'm always leery about these prognostication, because it there is the absolute real truth of self fulfilling prophecy.

Unknown: 11:37

And there's also the reactionary effect where, you know, small businesses or investors see these articles. And they're like, Oh, that's it, cutting everything off, hold them back. Or, yeah, this might just be a course correction that's actually needed unnecessary. But at the same time, if they're going to react emotionally, and just kind of if from fear or whatever, then that might make it actually worse than it needs to be.

David: 12:02

Yeah, I mean, I think the smart thing is to you don't stop hiring, but maybe you slow it down. You don't stop investing, but maybe you do a little extra due diligence to make sure, man, is this really going to happen? Is this investment really needed? And if the answer is yes, then you still should do it. Your company is still going to, there's always people, I don't care what the economy is. There's always winners and losers, right? There's the classic thing. I read this, gosh, where did I read this? I don't remember. I remember what I read. I never remember where it comes from. That's, that's not good. But it was a quote, or it was a story about these these people what to do during a recession. And they were saying most businesses immediately thing, let's say clothing stores just picking that at random. They lower their prices, because they know that people are having tough times. And a lot of those companies go out of business. Because they lowered the prices in their margin Scotch crushed and they went out of business, they find that statistically speaking, the ones that do the best are the ones who actually raise the prices. So instead of having a 15% discount, these guys are adding 1% Because they know that they're loyal people are largely going to keep coming. And if you have 90% of people paying 1% More, you just made more money. And they do well. You're not gouging them, you're not tanking them. But 1% is enough to keep your business thriving, because you have 10% Less people. But they're still making you more money. So that's something keep in mind. I'm not saying everybody should raise the prices right now. But don't just immediately read sale at 50% off and all that because you're gonna shoot yourself right in the face.

Unknown: 13:43

Yeah, you know, that's something I never really thought about. That's interesting to hear that. Typically the reaction that I was talking about earlier, yeah, it would be lower your price as much as you can get what you can't right now, right now, where it seems like the more methodical approach, just raising 1% does seem to work out in the long run. But yeah, the gouging thing, that's probably another issue that needs to be course corrected during this because it does seem like a lot of the inflation is being driven by more greed than necessary.

David: 14:15

Well, that's always a thing you have to be careful of when you see, okay, like, one of my friends runs a company. And he's like, my labor cost has gone up 20%. My material costs have gone up 50%. I'm like, okay, okay, backup backup. Your material costs for your job for a typical job that you do is what he's like. It's 50 bucks. And I said, Okay, so now it's 55 bucks. Yeah. Okay. That's not really all that big a deal. It's five bucks. You're, you know, when you think about when you say, oh, it's gone up. 10% It sounds scary. In some cases, he's like, he does stuff in landscaping. And he's like, it went my dirt prices. He's buying topsoil went up. 50% Well, that sounds scary. What does that really it's $1 Okay, okay, wait a minute. So the percentages can sometimes, but then he's a great guy. And he's not. He's very sensitive about raising prices for his clients. But some people be like, well, you know, inflation. Yeah, they used me to raise my prices a little bit. Yeah. And maybe my prices went up 10, and I'm gonna go up 15 eggs, get a little extra. And just be like, Well, you gotta be careful there.

Unknown: 15:26

I mean, there's always going to be the side of business that's going to push the highest expense account off to the consumer until they stop buying, then they lower it back to, you know, what they can get away with, but they're always gonna push it. I mean, this, when you mentioned the grocery store earlier, I know we've talked about it before. But as simple as opening a bag of chips and noticing there's only half the amount there, the package is the same size. And you look down at the weight and it's like, oh, five ounces different when it's missing, like, you know, 10 or 12 crackers or whatever. But still, like, over the Yeah, it's the same price. 1000 candy bars that memorias for the same a lot of money in

David: 16:04

candy bars are the absolute worst at that. Like if if you really every year is like a reminder, when you start looking at Halloween candy, right? You have kids and you go Halloween, Johnny

Unknown: 16:17

12 bucks for you know, used to be three musketeers.

David: 16:20

You get your Snicker bar, right. And it was originally what two and a half inches long, little little fun size. I think they called it the full bars that were like, you know, four or five, six inches long. I

Unknown: 16:31

don't know how all those are now called King,

David: 16:33

the font size. King size. Yeah. Which is always like who am I going to share this with Come on. But now they have then then they came out with, they all have many or whatever, they all name them funny things. But that little two and a half inch bar used to get at Halloween went down to a square like a one inch square. It's now like it's like, smaller than that. And it's like come and they're all the same price. Candy is always expensive. So

Unknown: 17:06

business idea will make diet candy. And it'll just be the wrapper with candy that used to be in there. And you just lick the wrapper. But there's no I think they call that trash? Well,

David: 17:16

I think that's called Trash. But I think the balance is for you as a business owner is what is fair, right? You want to do right by your customers. But you need to pay your people. And they're they're getting more expensive. They should be let me rephrase that they should be listening has gone up as well. Because their cost of living has gone up the so you got to be sensitive to that. And, you know, that's something we're worth thinking through and working through. Because we want to do right by our guys. But it's it's tricky, right? So the greed is always right there saying what, you know, what's an extra percent? So I think you just got to be careful. It's a balancing act, right? What is ethical, and everyone's ethics are different, and I'm not really weighing what is what is ethical for you? What is right by your company, again, it's very tempting to go in a bad economy, I'm gonna slash prices and sell more stuff. Statistically, that's not true, that won't happen. There's gonna be those 10% You're gonna lose 10% of your customers, because people are going to look at you and you say, Oh, I can't afford this clothes anymore. I'm gonna go to Walmart instead. Okay, there's nothing you can do about that. But those 90% of people or 85% or whatever, who are going to stick with you. They're gonna stick with you whether or not you change your prices or not. So don't shoot yourself in the foot for that. But I think they're right. I think we need to be smart here. There's a lot of real signs that the economy is slowing down. And when it slows down, it'll take a couple years to correct. But it will come back. So you're hunkering down. You're not giving up. Let's all right. I've had enough doom and gloom. I want to talk about something fun. I want to talk about celebration. Okay, so it was total nerd fest, right. Disney had there was Star Wars officially had their celebration, which is their big annual convention. I don't know events

Unknown: 19:18

for Yeah, they talk about what's called Star Wars.

David: 19:22

And my brother is a huge, huge Star Wars fan. Oh my goodness. He's got all the stuff. He has lightsabers mounted on his wall. He goes to convention

Unknown: 19:34

now and see the type that besides the movies he's also watched on the animated series everything

David: 19:40

on the books he's read all the books he's seen all his he's got all he's got copies bootlegs of you know, versions that didn't make it here. I mean, he's just the biggest fan. He'd been to celebration a couple of times, not this year. But so his his passion for Star Wars has always rubbed off on me a little bit. I like Star Wars. I'm not nearly to the level he He is I do not own a lightsaber. He owns all of those, like all those metal ones that are really, really fancy. He's got like a dozen of

Unknown: 20:07

my kids got a couple of the little plastic ones. That's all they make the sound effect when you open them up. Yep. So that's cool.

David: 20:13

So So Star Wars has their big event. And now it's more of a Disney kind of event. It's like Star Wars of Disney are so coupled. So they started talking about what's coming up in the next year or so. Mandalorians coming back very excited about that. And or have you seen that, you know, andorre

Unknown: 20:32

thumbnail for a trailer, but I have not seen it. And I immediately thought Endor that was my first reaction. So yeah,

David: 20:39

it's not that at all. Yeah, it was a bit confusing. And I when I saw the trailer, it's basically it's one of the characters from row one. It's like the rise of the rebellion against the Empire. It's you know, no Jedi, kind

Unknown: 20:53

of like Rogue One. Rogan was a great spin off.

David: 20:57

It was like, it was like watching the Titanic and Star Wars, you know, the bad stuffs happening. Which I think is good. I think it puts you in a different frame of mind. When you know that there's no heroics gonna save these fools. They're toast. But this is this is kind of a it's they're trying to do a thing where this is what Star Wars looks like, without Jedi. You're starting to sit but what what's funny is because Mandalorian started that way, so

Unknown: 21:25

they're paving the path forward without the Skywalker Jedi. Yeah,

David: 21:29

that's that's trying to do that. And we'll see if it works. Their least successful ones are the ones that get furthest away so far from Jedi, because everything else now was just sci fi right? Jedi and see a force and stuff is what makes Star Wars unique and, and fun. And now people would argue with me to the death on that but I mean, even Mandalorian busts out that little black lightsaber blade, and it's still cool. And they still bring in Grow goo right the little little force ninja. Absolutely. So it's they always find a way to sneak it in. The one that I think surprised me the most well, one they have another one called skeleton crew, which is going to be a kid show. But live action Jude Law's in it. That should be interesting.

Unknown: 22:08

I hope it's I have not heard about that one.

David: 22:11

I didn't say anything about it, except Jude Law is in it and it's going to be for it's going to be kid

Unknown: 22:16

focused. And then but we know Obi Wan is coming out.

David: 22:19

That's today that they will be recording. So I'm very excited about that. We talked about that last week, right? Yes, I am. I'm ready. This weekend will consumed there's two episodes coming up. The one that surprises me about that though, was Willow. Do you remember Willow?

Unknown: 22:32

I remember. It was like an 80s fantasy movie. Wasn't Tom Cruise in it? No, no. So

David: 22:39

Val Kilmer. What was out Gilmer was in it and then Warwick Davis who plays wicked? He's a small guy. Yeah, yeah, he's been he's been in business. He's been in almost all the Star Wars movies in some capacity. You don't necessarily know it, but he's always in them. He's he's been he's a he gets him and Lucas

Unknown: 23:00

is one of the green Go Green gourd spankers.

David: 23:04

With I thought it was a teacher too. I think he's a teacher as well. But he shows up everywhere you would recognize his face. What I'm amazed by so this they're making a new one. It's called Willow. That's not Willow to it's just Willow. But it that was a I loved that movie as a kid. But I am amazed when I see this thing. how little he seems to have aged. Like he looks. It looks amazing. He's he was a full on adult in the 80s with Star Wars early 80s. And I'm like, you cannot be young man. He looks amazing. That's all I can say.

Unknown: 23:39

You know, I'm excited to come here because he does not look the same. No, no. Val Kilmer

David: 23:43

is not in this unfortunately did not make the trek. Speaking about Kilmer. I believe he gets us very small cameo in the new Top Gun movie as a tribute to him because he can barely talk anymore, which is so sad. But they gave him a little bit. Uh, he gets a little bit of love. I don't know it's a cameo. Because he can't speak now which is so sad but but yeah, he's in there a little bit. But no, Vulcan was not in this one. But he wasn't the original. If you if you are I don't know. There's got to be a place to see the original probably Disney plus now. That's a great little movie. It was a little scary for kids. But I that was good movie. So that was the big even though it's not Star Wars related. That's what I'm saying. It's like Disney's kind of invading the Star Wars space because Willow is making Yeah, it's Lucasfilm which is owned by Disney, Disney. And it's gonna be on Disney plus, of course.

Unknown: 24:33

These acquired Lucas Films and Marvel and

David: 24:37

they own everything. Just the power on everything, everything. The only other major thing that they don't own is Harry Potter. Power Rangers, which sounds silly but that is a massive franchise. They don't own Pokeyman they don't own DC. think those are probably the biggest ones they don't know. And when Netflix and them are trying their own, but

Unknown: 25:02

in DC is no big deal. Their TV shows are better than their movies.

David: 25:07

I am I will forever and always be a Superman fan. That is. I like comics. That's my favorite superhero of all time. And so DC will always win because of that. But you're right when it comes to movies and entertainment stuff, yeah, Marvel's kicking their, their tails.

Unknown: 25:24

And there's also season for Stranger Things Netflix if you're a stranger things fan.

David: 25:30

I've never I watched the first season. And I it was enjoyable. I guess I just, I mean, I love all the nerds playing d&d and stuff, but I just have not seen the need to invest more seasons to it. But I know I'm wrong. I know. I'm an outlier in that. All right. It's a good time to be a nerd. That's what I'm saying. It is a good time to be a nerd. It is so funny how comic books and Star Wars and d&d and all those things that we got made fun of, for playing and enjoying as teenagers is now completely mainstream. Maybe d&d, less

Unknown: 26:11

so just accepted but celebrated.

David: 26:14

This is yet I mean, is a huge deal. And it is so, so interesting how the nerd cliche has turned on its head. You know, all the movies when we were kids, the jocks ruled the school and the nerds hid in the corner. And now it's largely reversed. I think, maybe I'm wrong in that, but my kids in high school that that doesn't seem to be as big of a deal. It's, you are who you are, and you're gonna find your people. And that's cool. All righty. I think that about wraps us up for the day. Thank you so much for joining us. If you have any questions, concerns or just want to say something mean to Gary, feel free to email us at Hello at the big pixel.net and we will see you next time. Thanks