You’d better work for a recession-proof company
Some call it a recession, some others a correction or a downturn, while for some others it’s just a bubble waiting to burst. One thing is for sure, it’s not a question of whether but a question of when. The crisis is coming fast towards us.
What does this mean?
Well, we don’t really know for sure, because the spectrum of possibilities is wide, ranging from a smooth correction to a worse-than-2008 apocalyptic economic catastrophe. But, regardless of the actual intensity of this forthcoming phenomenon, one thing is certain: A downturn is coming and during downturns investors and lenders have to become more conservative.
Which in turn means that companies will find many more difficulties in raising investment capital. The Ubers and the WeWorks of this world are generally not born in times of economic conservatism. So, from an employee’s perspective, the type of company you work for will soon matter increasingly more and more.
What do I mean by that? There are numerous sexy startups out there and many of them are very well funded. They often hurry up to call themselves scale-ups, they do fancy events, excellent PR and often have breathtaking offices with unbelievable benefits for their beloved employees — from table-tennis and foosball to yoga classes and regular deep tissue massages. It’s just perfect, isn’t it?
Well, it is not.
Those companies often talk about their impressive funding rounds; they raise tens or even hundreds of millions (or even billions, in few notable cases). They will also often talk about their growth rates, their very low churn rates and several other financial and non-financial KPIs. There’s just one thing they will never mention. What’s that?
EBITDA.
Yes, exactly. They will never talk about the most fundamental ability of every single company: The ability to generate profits in order to serve their customers, their employees, their suppliers and, at the end of the day, the society at large.
Many of these companies are pretty impressive in terms of vision, of work experience, some of them could even be consider as pieces of art; but they are still miserable failures when it comes to the most fundamental KPI: The ability to create economic value. Yes, this is what EBITDA is about.
So, dear friends who either work for or think of working for any of there fancy companies around the world; there’s a catch. As far as investors will be pouring money into that business, anticipating a moment in the future where growth will lead to profitability, all is well and there’s no reason to worry. But, for the vast majority of those companies, profitability will simply never come. And investors will simply start becoming frustrated. And when the sh*t hits the fan, an investment committee or a supervisory board will simply call your beloved investment manager to get sane again; which will be meaning, stop throwing cash into that economic black hall.
What will that mean? In the positive scenario, massive cost cuttings — where lay offs will be action No 1 — in a desperate effort to become profitable. More often than not, this will simply be impossible, so companies working in red will be shutting down in an increasing pace.
When then you are considering either staying with an existing employer or moving to a new one, just ask them: What’s your EBITDA margin and how can you convince me that it will sustain the forthcoming correction? If you don’t get a simple, clear and confident answer, you’d better start to worry.
An economic winter is coming and you need to find a safe harbor to pass through it. Safe harbors can be nothing else than healthy, solid, profitable companies.
