Dispatch - Q4 2022

Dispatch - Q4 2022

Riding the Dip

We’re probably already in a recession. How should independent knowledge workers respond?

Supply chain disruptions. War. Inflation. High interest rates. While the media continues to dither, we might as well face the unsettling truth: we’re probably already in a recession.

No two recessions behave the same way, but we can make some reasonable predictions about what to expect, and how independent knowledge workers should think about managing their businesses during uncertain times. A recession is no reason to panic, especially if you’re an independent knowledge worker. Recessions can actually be a big opportunity, an ideal time to “bet on yourself,” in the words of Gather Founder and President Justin Tobin.

Firms: Don’t Panic

In boom times, businesses tend to lose the distinction between nice-to-have and need-to-have functions. For example, you see big, gold-plated marketing initiatives when the economy is roaring. But during a bust, some companies will completely pause all marketing efforts. The logic might be that dollars are better spent innovating products rather than advertising them to consumers who might have trouble affording them at the moment. 

Department heads challenge their managers to cut costs where possible. Such disruptions of usual business activity inevitably lead to layoffs — if the output of a department has been drastically cut, some employees will be seen as an unjustifiable cost. 

Every large company is a collection of full time employees and independents: consultants, agency partners, contractors, and temps. Some organizations respond to recessions by battening down the hatches and pulling all operations in house. Others respond by laying off full timers and expanding relationships with external partners. 

“When companies respond to downturns with any kind of sweeping organizational change, this is a huge red flag, and a sign that a business is flailing,” says Tobin. “Business leaders shouldn’t panic, and should instead maintain a healthy hybrid mix of full time workers and contractors, no matter what the economy is doing.” Firms are tempted during recessions to be ultra-conservative, and containing costs is generally a wise move. But failing to support a brand with marketing, or suspending market research to understand changing consumer preferences, or deferring spending on innovation, can hurt firms over the long term. 

Recessions are litmus tests for firms and their leaders, forcing them to focus on core competencies of the business, encouraging corrections of misallocated capital, and proving out the long term viability of their strategies. Recessions punish bad judgment that might’ve gone unnoticed or been tolerated in boom times. 

Above all, recessions are an expected part of the business cycle, and won’t last forever. However, whether firms respond with panic or restraint, it’s inevitable for hiring to slow, and capital expenditures to shrink. Firms can face this challenge by relying more on independent workers, because they represent a more flexible alternative to full time employees. They can work on a specific time scale. They can be used to patch gaps left by hiring freezes. They don’t have to work full time hours in rough patches, and can deliver only what’s needed for the firm to “keep the lights on.” Independent workers don’t require the heavy benefits packages offered to full timers. From the firm’s perspective, contractors make a lot of sense in periods of uncertainty. 

Workers: Refocus on fundamentals

From the worker’s perspective, going independent makes sense too. As discussed in the Summer Dispatch, the diversification of income sources that independent knowledge work allows can actually lead to a more secure position and long term career planning. In a Time Magazine column, S. Mitra Kalita refers to this as a “portfolio” career approach. This security is especially valuable during a recession. You might lose a gig, but if you’re running several concurrent client projects, you’re unlikely to lose all of them at once. Sometimes all you need is one gig to get you through the rough patch. 

Here are five more fundamentals to think about during a recession:  

A recession is a good time to stop and reflect on your skill set, beyond what’s required for your current projects. Consider how you might monetize unused skills or upskill to respond to market demand in emerging domains.

Seasoned freelancers know how to budget on a variable income. Newly minted independent workers can start by estimating how much they’ll need to cover essentials, taxes, and monthly savings for larger purchases like a car or home. A critical part of running any small contracting business is to set aside money for uncertain times. 

Health Insurance
If you’re new to freelancing, you also need to think about health insurance on the open market, unless you can get coverage through a spouse or parent. There are local, national, and industry-specific health insurance providers that target freelancers. The Affordable Care Act marketplace has also made finding the right plan simpler, as long as you apply during the federal open enrollment period from November 1 to December 15, or during your state’s enrollment period

In a recession, you still have to set aside money for what you’ll owe in tax — 30% per paycheck is a good rule of thumb. Freelancers have to pay self-employment tax without a company covering payroll tax, as well as make quarterly estimated payments to the IRS. And if you claim unemployment insurance benefits, you’ll need to set a portion aside for taxes on that too. 

During recessions, businesses save money by extracting better terms from suppliers, clients, and partners. You should be thinking in the same terms. When inflation reduces your real earnings by as much as 10% from one year to the next, it’s time to advocate for yourself and ask for a rate increase to keep pace with inflation. Otherwise, you’re essentially taking a pay cut. If you have a good, long standing relationship with a client, it’s going to be a hassle for them to replace you, so now’s the time to ask. Back up your request with data, like shifts in the Consumer Price Index, a broad-based measure of prices for goods and services. You can also peg a rate increase to how much wages have grown in your local market or industry recently.

Wisdom from the Gather Network

We asked some folks around the Gather Network what they’ve learned about preparing for and surviving economic downturns. Dan Weise, David Gaspar, and Kathleen McGivney share their stories and lessons learned.

Go Pro
Dan Weise serves as the Design Director and Technology Lead at Gather. He’s also been running a design shop called Thundercut for 18 years, which brings together photographers and creatives of all stripes to do design work for brands. Dan started his career just as the dot com bubble burst, and web companies were trying to pick up the pieces. He spent a few years at a digital media company, where executives scrambled to figure out how to monetize what was then becoming known as “content.” 

In 2006, Dan and his wife ditched the digital world to open a strawberry shortcake stand in Coney Island. But after a hot summer shilling the sweet treats, the duo faced the impending arrival of a child. So they dove back into digital media, which in 2007 was finding its footing. Over the next year he started an art gallery, began art directing a national basketball magazine, and became more heavily involved in other freelance print projects, which, in those days, were still capable of generating comfortable revenue. Business was cooking, he was creatively engaged, his studio had recently hired an independent to help out with the magazine, and his family was comfortably situated. For a moment, Dan had it all. 

“In 2008, everything just sort of screeched to a halt,” Dan says. “We were still selling artwork and doing well design-wise. But as the economy started to crumble around us… we didn’t totally understand what was going on, but it was obvious that something was wrong. My biggest client was late on a payment, and they told me that I would get paid when their advertisers paid them.” Not a good sign. 

Dan realized that if he didn’t professionalize his brand as an independent knowledge worker, some clients would push him around. 

“I had handshake agreements with my clients, but no official written contracts, because I was just so green to this type of work. A friend of mine who was a CFO helped me draft up my first ever contract,” he says.  

Contracts are difficult to enforce, if a client really wants to put the screws to you. Are you really going to go to court over a few hundred or even thousand bucks? But a professional contract communicates that you are a serious business. Putting things down in writing, with specific terms like “I will not hand over design files if I don’t get paid by X date,” or “I will not begin work on Phase 2 until I get paid for completing Phase 1,” provide something that you can point to if a dispute arises.  

Back in the late 00s, Dan could easily withhold design files in order to bring the work to a halt, incentivizing clients to pay him on time. But would this work in a world of cloud-based collaborative tools? Dan advises that today’s freelancers try to put themselves in a position where they are integral to the workflow, so that if they are unhappy, future work can’t get done.

“When I first started as a freelancer, I was just like, ‘I don’t know, I guess I’ll get paid when I’m done,’” says Dan. “Now, I always get half up front. If a client isn’t willing to do that, maybe they’re not worth working for. If they can’t have enough trust in me or my business to provide a down payment, then I tend to move on and find people that are a little more respectful of my time.” 

Discover your meta-skills
Before Gather’s Head of Innovation David Gaspar was laid off, he saw himself as a company man, through and through. After a couple of years working as an analyst at an investment bank, he spent four years working at a multinational conglomerate, where people who stuck around for a while tended to stay till they retire. That was more or less David’s plan. It was 2007.

I loved it,” says Dave. “I loved big corporate, and I was really good at it. I was good at being an employee at a really big place. I understood the ‘matrix’ very quickly and understood how to navigate the organizational culture. I loved that, and I would have stayed forever.”

Dave was doing business development, helping the company buy and sell financial services companies and banks throughout the Americas. He saw himself quickly rising through the ranks, but the global economy had other plans.

“One of our portfolio companies was underwriting a billion dollars of subprime mortgage origination in Southern California every month. That’s 12 billion dollars a year. And it was all about to go to hell.” When the market eventually collapsed, GE responded as many large firms do: they stopped buying up companies. That left Dave with little to do, and he was let go. 

For the first time in a while, he had to think about what he really wanted to be doing. He knew that he was adept at buying and selling businesses. But the recession gave Dave the chance to pause and reflect on what his higher-order abilities were: his ‘meta-skills.’ He had strong knowledge of markets, an ability to zero in on a business’s real value, and the communications skills to tell a business’s story. These higher-order skills could be used across industries and applications. 

“After that job, I realized I wanted to try the startup thing. And my investment banking skills could translate into a role consulting with founders who hadn’t yet raised money. I could help them build their business plan, think through the economics of their business and industry, and help them figure out how to get funding. I trusted myself, so I took a bet on myself.” Dave ended up consulting for, among other clients, the first influencer marketing company. These experiences would lead him to co-founding Gather. He now uses the same meta-skills that made him a great analyst to advise clients across a broad range of industries, including tech, publishing, media, and yes, financial services. 

“I wasn’t like, ‘Oh I’m a banker. I could help people do banking,’” says Dave. “At my previous job I was good at forecasting and finding ways to do things that nobody had thought to do before. And often those ideas got knocked down because it’s really hard to change how things are done inside giant financial services companies. But I was able to spot trends coming together to become the next big thing. That was useful in banking, but it’s also useful in influencer marketing and other spaces.” 

The recession nudged Dave toward a leap of semi-faith. By translating his meta-skills, the higher-order skills that he’d applied to investment banking, into a new context, he landed on the other side of that leap well-positioned for success. 

Find your people
When Kathleen McGivney’s large tech employer indiscriminately let her and many others go during the 2008 recession, she had already been thinking about going solo. She’d been traveling relentlessly for the last four years, consulting and speaking at conferences, and was ready to parlay all of that networking time into a less nomadic consulting business. Fortunately, she’d developed connections with many other freelance consultants in her travels who could help her figure it all out. 

“All of these other consultants and freelancers I knew were in the same boat during the recession,” Kathleen says. “It was a group of folks that I was connected to professionally. They were all entrepreneurs who understood the consulting life and its unique benefits and challenges.” 

The group maintained an ongoing Skype text chat where Kathleen and her community of consultant friends could share knowledge, problem solve, and commiserate with and encourage one another. They’d bring each other onto paying projects and “lift each other up and support one another in an informal, organic way.” 

In a previous Dispatch, we talked about the importance of having someone in your corner. One element of that is having not just a professional network, but a community: 

A professional network serves as a great defense against the vagaries of capitalism and the gig economy, but even better is a community of people who genuinely care about your professional development and personal wellbeing. Such a community can help ensure a lasting, rewarding career as an independent.

Kathleen’s experience during the last recession is a testament to the power of community, especially during difficult economic times. 

“The word ‘network’ has always sounded kind of cold and impersonal to me. It’s not your network. It’s your people,” she says. The group who helped her survive the last recession is still going strong because they saw one another as people, not just “contacts.’ There was a human connection between these independent workers. “I have life-long friends that I’ve met through this group,” says Kathleen.   

For her, it wasn’t only the economy that was difficult during the last recession. Just after being laid off, she learned that her father was diagnosed with multiple terminal illnesses. His doctors gave him just a few months to live. Fortunately, he ended up living for more than six years, but at the time, Kathleen’s life as an independent consultant enabled her to set aside quality time with the people who mattered most in her life. 

“I had the opportunity to go up to where my dad lived and set up a workstation in his house,” she says. “I could be there when he started home health care services and help with logistics while he was battling these multiple diagnoses.” 

Kathleen’s community came to her aid to face this challenge as well. If she was unable to physically go see a client, she had access to trusted colleagues that she could pull into a project to contribute more client face time. They could give her practical advice or simply be there for her emotionally. Kathleen describes this group as a “community of friends, almost extended family.”

“Building slides in a deck was a slog after dealing with my dad’s hospitalization, for example, and people from my community were there to help me out. Some people helped professionally, and others shared advice informed by caring for their elderly parents. I had a safety net around me of these other people I could relate to, who could just be there to listen.”

When facing difficulty, whether that’s a family emergency or a recession (or both), it helps to have people around you who can help in all sorts of ways. 

“On paper, it was a very shitty year,” Kathleen says. “But having that community there actually made it a really enriching period. And it forced me to go deeper into freelancing because I had to take care of my dad. It helped me become a better small business owner.”

The Podcast

A roundtable of Gatherers (joined by friend of the show, Robert Schwartz — Global Chief Marketing Officer, Starcom) assess the state of the economy and how it is effecting client work, then examine lessons from the Great Recession and how to position for success in turbulent times.

What's Next?

Thanks for joining us for the Fall Dispatch. In the next issue, we’ll discuss a phenomenon you may be hearing about on social media: quiet quitting. It means different things to different people. But what does it mean for independent knowledge workers and their clients? 

And don’t forget, the Gather Dispatch podcast is now live, with three outstanding episodes hosted by Jason Oberholtzer and Mimi Sun Longo. It’s a discussion where people from across the extended Gather Network can discuss the future of independent work from a variety of perspectives.

Stay In Touch with The Gather Team


To stay in touch, please subscribe to the Gather Dispatch mailing list, and feel free to reach out to us at dispatch@gather.co with your thoughts. We’d love to speak with you and we’re looking forward to being in touch again next quarter. Be well.