Why Leadership is Critical in an Economic Downturn

“Uncertainty” is the word on the minds of most small and midsize business executives in 2025. A plethora of policy decisions, decelerating job growth, and rising inflation due to tariffs have led countless leaders to worry about an economic downturn and question the direction of their businesses.

Nearly two-thirds of small business owners cite economic uncertainty as their primary concern, according to the National Small Business Association (NSBA).

Each year, the NSBA surveys small business owners about the state of their companies, their views on the current economy, and their confidence in future growth. The NSBA Small Business Economic Report found 59% of leaders worried about economic uncertainty — the highest percentage in 13 years.

Respondents were asked to identify the three most significant challenges to the future growth and survival of their business. Following economic uncertainty were U.S. political instability (36%), a decline in customer spending (33%), inflation (26%) and tariffs on foreign goods (22%).

In times of economic downturn and uncertainty, strong leadership is critical to the ongoing sustainability of a business. Employees look to their leaders for guidance and confidence, particularly during times of angst. Leaders who can use clear communication to build trust and reduce anxiety in their organization can not only be effective at navigating an economic downturn, but they can also turn challenges into opportunities for innovation and growth.

“Communication is key all the time, especially during times of uncertainty,” says Larry O’Toole, CEO and founder of Yosemite Associates, LLC. “Leaders have to communicate their view of the uncertainty and their plan for navigating it.”

The Role of Leadership in Times of Economic Uncertainty

Klyn Elsbury knows all about uncertainty. When she was 24 years old, Elsbury’s life almost ended due to cystic fibrosis. Each breath she took was a challenge. She spent months in intensive care.

Doctors estimated she had a 1% chance of survival. Elsbury could have given up.

But she didn’t.

Elsbury fought. She didn’t let outside factors impact her internal drive and determination. And she survived.

Through that process, Elsbury, who today leads her own leadership sales training company, learned that resilience is about adapting, strategizing and taking control of outcomes. It’s a mentality that she says is critical for leaders who not only want to survive an economic downturn but also want to thrive despite the uncertainty.

“The thing I love about leaders — and leader doesn’t need to be a title — about entrepreneurs and CEOs is that most have been through enough stuff in their life and, rather than run away, they leaned in,” she says. “I think a lot of them attach some kind of an identity around it so that way they can use it to help other people.”

The organizational identity leaders create also becomes critical during an economic downturn.

“I am a big proponent of the companies that lead with their core values,” Elsbury says. “We need to be able to lean on each other and put our emotions aside to get work done.”

When Elsbury thinks of core values, she doesn’t think of words like transparency or integrity. The best core values, she says, are those that depict what makes a company what it is — and what it’s trying to be.

One company that Elsbury admires has a core value statement that is contrarian to what many people may look for in an organization. The statement is that the company does not believe in work-life balance. Leaders at the business do not have an issue with people who aspire to find a comfortable split between their lives in and out of the office; they just don’t feel that that desire would match the company’s culture, particularly during an economic downturn.

“When you build your core values, you’ve got to think of them as what if the company’s not going well?” Elsbury says. “That needs to be your guiding principle.”

Living those values — in good times and bad — is what epitomizes strong leadership.

To be an effective leader, it is essential to depict confidence. There is a line between confidence and arrogance that should not be crossed, but an organization with a confident leader can withstand many obstacles.

It’s hard to overcome uncertain leadership.

“The ripple effect is that the uncertainty permeates the organization even worse than the leader might be feeling about the uncertainty,” O’Toole says. “If a crisis is causing a leader to be concerned, multiply that times 10, and that’s how the employees are feeling about it because they have to worry about having a job.”

Building Trust Through Clear and Transparent Communication

One way to prevent uncertainty from ever developing within an organization is to have a sense of trust between leadership and employees. It’s easy to say that trust matters — it’s harder to create a culture where it truly exists.

To build trust within a company, particularly during an economic downturn, leaders must communicate effectively with employees, stakeholders and customers.

“Communication and actions that support those communications are how trust gets built and maintained,” O’Toole says. “When there is a lack of communication, employees assume the worst and lose trust.”

Once trust is lost, it is hard to regain. To avoid that pitfall, leaders must communicate consistently and effectively. Elsbury prefers all communication to be written and easy to read.

“Don’t send me a 42-page document,” she says. “I think that the easier and more simplified we make our communication, and then we actually follow said communication, the better overall health we have internally.”

Elsbury is a huge proponent of the Hemingway app, which helps make writing clear and concise. The free version of the app highlights sentences that are too complex or hard to read. It also flags words or phrases that could be replaced with simpler alternatives.

The paid version of the app leverages artificial intelligence to fix the edits. It also features an advanced grammar checker and an option to adjust the target readability of the written text.

When O’Toole considers effective communication tips, he weighs the difference between “quality” and “quantity”.

“Effective communications strategies include quality of communication, consistency of communication and follow-through on communications, meaning do what you say,” he says. “Too often leaders turn to communicating, but it’s poor quality communication, so they then offset this by having more quantity, and that only makes things worse.”

Fostering Resilience and Maintaining Morale

Just as leaders can build trust through effective communication, they can also foster a communal culture of resilience and positivity by demonstrating these traits through their own actions.

“Walk the talk,” O’Toole says.

Elsbury leads workshops in instilling resilience within organizations. To her, a crucial aspect of culture-building occurs during the hiring process. For example, she looks for people who are self-starters and bring energy to the world.

“If you are not an excitable person, that’s on you,” she says. “If I’ve got to teach you to be motivated, we’re not going to work. That, then, becomes the culture.”

During interviews, Elsbury also likes to ask people to briefly recall one of the most traumatic experiences of their life. She doesn’t want them to tell her about it, but instead, she asks them to journal for a minute or so about the lessons learned from the experience.

Elsbury seeks individuals who share valuable lessons, such as the importance of compassion and teamwork, derived from those traumatic moments. Those people have the potential to be natural leaders, she says. Conversely, she knows that a person who casts blame on others or cannot identify learning opportunities is not someone she wants to work with.

“That is not the default personality I want,” she says. “In times of organizational crisis, I’m not looking for a victim mentality.”

Strategic Decision-Making During an Economic Downturn

For many small businesses, a reality during an economic downturn is that cuts will need to be made. The key is striking a balance between short-term cost-cutting and the organization’s long-term vision.

Elsbury says the biggest business mistake she’s ever made cost her $60,000. The mistake began when Elsbury hired a consultant who provided no added value to the business and was ultimately let go.

What Elsbury did not realize until later was that the consultant had a clause in her contract entitling her to a portion of the company’s revenue from the time she was fired through the end of the contract.

It was a painful short-term loss, but according to Elsbury, it was worth it for the long-term health of the business.

“Did that suck? Yeah, of course it did,” she says. “But ultimately to pay a $60,000 price tag not to have her affiliated with my brand was the best decision I made.”

When a company faces financial pressures, O’Toole believes the key to balancing immediate cuts with future needs comes down to what the company is about.

“First, I ensure that we know what the core competency of the business is and protect it, even during cost-cutting,” he says. “Second is I don’t lose sight of the long-term vision but will adjust the near-term actions as needed.”

Turning Challenges into Opportunities for Innovation

In her personal life, Elsbury found ways to turn challenges into opportunities. She was literally facing her final breaths when she changed her mindset and found a way to redefine her reality.

The same is true for businesses, she says, particularly now with the rapid rise and adoption of artificial intelligence.

“I tend to believe that the future is always better than the present,” she says. “Right now, the present’s freaking amazing. I believe there has never been a better time for technology and the advancements we are seeing, not only in AI, but in allowing people to be creative and work independently.”

She knows that there are people who harbor negative feelings toward artificial intelligence, and while she acknowledges some concerns about the technology, she believes that optimism is what drives innovation.

“We’re entering a new cycle with technology that could impact all facets of business,” she says. “The people who can adapt to it and communicate through it, their future looks bright, but the people who are stuck clinging to the good old days, I think they’re going to start to really struggle.”

The COVID-19 pandemic and ensuing economic downturn have illustrated numerous examples of businesses that turned challenges into opportunities for innovation. Restaurants developed build-it-yourself box kits. Hair salons offered in-home practices.

Elsbury worked with one client who, before the pandemic, wanted to end his lease on a 9,000-square-foot office in San Diego in favor of a remote workforce. The client could never fully justify the change, and so he waited.

Then came the pandemic. The client was forced to create a workflow for a fully remote team, and the transition was successful. It likely would not have happened, though, without the leader being forced to innovate.

“What is the decision you’ve been putting off that, if an emergency happened, would be a no-brainer?” Elsbury says. “If you are debating making a switch, just do it now. Why wait?”

The Benefit of Peer Support and Expert Guidance

One of the most important realizations leaders can make is that they don’t need to navigate economic downturns on their own.
They have a team for a reason, and in times of angst, it’s crucial to rely on team members to do what they do best. It is also crucial to have a network of other leaders who can serve as resources, particularly during challenging times.

As a Vistage member, Elsbury’s seen that value firsthand.

Vistage provides CEOs with the tools and support needed to thrive. Most importantly, Vistage offers a network to bounce ideas off, providing leaders with the space and resources to learn and grow.

“You need some kind of a catalyst to spark new ideas,” Elsbury says. “The more education we get, the more creative we are.”

Related Resources

Tariffs Resource Center

Why Perspective Means Power in Times of Uncertainty

Designing the Future: Creating Certainty When Certainty is Hard to Find

0 views