The American economy may or may not enter a recession in 2008. But no matter if U.S. GDP fulfills the technical criteria of two consecutive quarters of negative growth or not, anyone doing business or working for a business these days is experiencing or expecting a severe downturn.Small-business expert and entrepreneurial guru Michael Masterson, author of the bestselling Ready, Fire, Aim, however, looks at recessions as opportunities for business owners and entrepreneurs.

Michael, we have been through one other recession and bear market Wall-Street-Crash  in the last 20 years. What are the secrets of surviving a recession as a businessman, and how can you actually leverage a recession to prosper in them in an adversary environment?

Michael Masterson: First, it’s good to know what kind of economic situation you’re in. It’s hard to say what’s going on right now. Certainly you’ve got some very significant weaknesses in the economy. The dollar is collapsing. You have an enormous amount of debt, both in the federal level and a personal level — like we’ve never had before.

But what makes this different from at least recent dips in the market is inflation. We’ve got gold right now that’s approaching $1,000. Oil is at $100 a barrel. Gasoline’s $4.00 in some states. That makes it an especially difficult period for a lot of people. It’s going to put them in a situation of having less buying power. Wages aren’t going to be increasing. Some even say that we’re going to go into a period of stagflation From-Stagflation-to-Slowflation .

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These are considerations that are going to be affecting people and both employed people and small-business people. Surviving to me is a matter of focusing on the fundamentals. When you’re in a bad environment, there are some rules that prevail.

Survival Strategy 1: “Cash is king”

First of all, cash is king. This is very important.

I started talking about real estate a few years ago. The real estate debacle, as they call it, was really no surprise. It was obvious that things were getting out of balance. I stopped investing in real estate about two years ago and started holding onto some cash.
That’s what a lot of businesses did, sophisticated financial institutions and some small entrepreneurs like me who just realized that times were going to get worse. If you have cash, it’s a good thing to have, and I wouldn’t start spending the cash just yet.

Survival Strategy 2: Buy Value

Another principle is that you want to buy value.

In the past two or three years, a lot of the investments — either real estate investments or associated real estate investments — were way overvalued. People were chasing prices and it was impossible to make those things work economically. The only chance you had of making one of those investments work out was if somebody else was willing to pay even more than you paid: the greater fool theory.

That eventually comes to an end.  But you want to continue to buy value. If you have cash you want to invest it in businesses and/or investments that are fundamentally sound.

Survival Strategy 3: Buy into the Recovery

The third thing you want to do is buy into the recovery itself.

You want to identify what the sectors are that might be prone to expansion and growth. It’s not every part of our economy that’s deflating right now. There are growth opportunities, and I think if you identify what those are, you have a good chance of not just surviving but of profiting.

JCA: These sectors that may be less effected in a recession than others… let’s talk about this for a moment: We’re looking at potentially expanding unemployment Wall-Street-Layoffs , and unemployment means a lot of people who may have considered going into business for themselves suddenly find themselves, by necessity, going into business.

Where do you see those sectors of opportunity?  Is there a particular part of the economy where you would recommend looking into?

MM: It’s not just people who become unemployed who should be looking towards entrepreneurial activities. Everyone with a job in no-growth industry sectors should. If you’re in an industry that’s not growing and not likely to grow, and you have a job in that industry, it’s highly likely that your wages will not increase substantially.

And in a stagflation environment that means you’re going down.

Survival Strategy 4: Create a Small Business

But the one resource that our economy always has, that America has always been very good at, is small business, the creation of small business. We have a relatively free regulatory environment in terms of starting a business, and this is going to be the eventual solution to our economic problems.

More jobs are created by small businesses than by large businesses. Most people don’t know that. They think these large corporations are employing most of the people, but the new jobs are created by small businesses — small business people that start barber shops and start lawn services and start internet operations.

In view of sectors, there’s obviously going to be some that are affected negatively and positively by the current situation.

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