If you’ve run a company for a long time, you’ve experienced headwinds and tailwinds—and not just if you’re in the airline industry. In business, these words don’t describe the way the wind blows: Headwinds refer to challenges that have negative effects on your business; tailwinds, which blow in the opposite direction, are favorable conditions that make it easier to succeed.
Navigating headwinds and riding tailwinds are both essential parts of sustained business success. Whether financial markets rise or fall or consumer trends tilt toward or away from you, you have to be ready to adjust your business strategy—just like a pilot responding to wind pushing their plane.
Here’s a guide to understanding headwinds and tailwinds and how you can contend with them to come out on top.
What are headwinds in business?
Headwinds are factors that slow down your company’s growth, performance, or profitability. They don’t necessarily stop progress, but they create resistance and make it harder for your business to achieve its goals. Headwinds can be external factors, such as economic slumps, industry regulations, or shifting consumer preferences; or internal factors, such as operational inefficiencies, low morale, or lack of innovation.
According to entrepreneur and venture capitalist Jon Sakoda, facing economic headwinds does not mean your business is doomed to fail. “Every year is really a great year to be an entrepreneur,” he recalls on the Shopify Masters podcast. “That might sound counterintuitive, but if you look back, nobody knew that in 2007, 2008, 2009—in the middle of a financial crisis—we were inventing the iPhone and GitHub.”
Macroeconomic and microeconomic headwinds
As a business owner, you can face two types of external headwinds: macroeconomic and microeconomic. Macroeconomic headwinds come from broad, economy-wide changes that affect many or all businesses, such as a recession, stock market crash, or a global pandemic. Microeconomic headwinds are more specific to your industry or business. For example, a natural disaster that disrupts a specific supply chain, or a flood at a plant that makes a proprietary part for an automobile manufacturer.
Macroeconomic headwinds don’t always affect small startups the same way they affect large, established companies. Jon explains: “In general, the smaller you are, the more you’re creating a company. You are focusing on technology or product, and you’re trying to capitalize on some form of innovation. At the very earliest stage of a company, you’re creating something new. Something that, in theory, hasn’t existed before. And so, because of that, in some ways, you’re not as tethered to the economy, right?”
He adds that while factors like interest rates, geopolitical tensions, and the consumer price index may weigh on people’s minds, “on the ground, the founders are building, creating. And so the headwinds are up there, but the companies are not quite big enough to feel them yet.”
Headwind examples
Here are examples of both microeconomic and macroeconomic headwinds:
1. Rising interest rates. When borrowing costs rise, both consumers and businesses cut back on spending and investment. As this macroeconomic headwind blows, companies may experience slower sales and reduced access to affordable capital, curtailing potential growth.
2. New regulatory requirements. Regulatory changes can be both macroeconomic (e.g., stricter emissions standards affecting all industries) or microeconomic (e.g., a new local law that only applies to economic activity in a narrow area). Restrictive regulations can raise the cost of doing business. On the other hand, favorable regulatory changes, like the approval of new technologies, can increase profitability for certain businesses.
3. Supply chain disruptions. On a macroeconomic level, this category can include port closures, geopolitical tensions, or a sudden raw material shortage that raises the cost of goods sold (COGS) across many industries. On a microeconomic level, this might involve disruptions from suppliers that serve your business, such as a sudden shortage of a specific adhesive you use in your product.
4. Emergence of substitute products. Businesses may find themselves facing headwinds when technological advancements disrupt the industry or a new product enters the market and serves a similar customer need. For example, think of what happened to traditional cable TV bundles following the rapid adoption of streaming services. Such headwinds are at a macroeconomic level, since an entire industry has to weather similar economic conditions.
No matter the reason for the unfavorable conditions you’re facing, Jon says that “necessity becomes the mother of invention.” Tough conditions can push you to innovate and be resourceful. He’s heard many founder stories over the years where people say, “Things were pretty tough, but I had nothing else to lose.” Diamonds, and some great companies, are made under pressure.
How to contend with headwinds
- Maintain financial and operational discipline
- Stress-test your business model
- Differentiate from competitors
- Seek opportunities in times of volatility
- Be innovative
Economic downturns, increased competition, and shifting consumer behavior are factors that can create headwinds for even the strongest, most established companies. To navigate headwinds and maintain long-term profitability, focus on these broad strategies:
Maintain financial and operational discipline
Risk-aware (but not overly risk-averse) companies prepare for headwinds by conserving cash during strong cycles, streamlining their business model to simplify operations, and prioritizing core offerings when market conditions tighten. Such discipline helps you navigate significant challenges with fewer resources.
Stress-test your business model
A resilient business model anticipates significant challenges and potential pitfalls well before headwinds arise. Try scenario planning for your business in case of economic downturns. This can help you mitigate both your unique risks and overall industry risks. You can also diversify your revenue streams so that the failure of one market doesn’t sink the whole business.
Differentiate from competitors
When competitive forces create headwinds, invest in ways to make your brand stand out. Product quality, stellar service, positive customer relationships, and a unique value proposition can all help you stay ahead of the competition and claim market share in spite of economic headwinds.
Seek opportunities in times of volatility
When big businesses are considering shareholder value and contracting operations, small businesses can find opportunities. “Bigger companies may be playing more defense, needing to pay more attention to their stock prices and investments and pulling back on new things—that creates opportunities for startups to fill that space,” says Jon.
Be innovative
Disrupting the status quo is at the core of innovation. If your idea is truly new, it may find an audience even in a headwind or disrupt the industry completely. Jon says that people are starting businesses using new technologies like AI and capturing more innovative marketplaces and investors: “They’re really able to capitalize on a set of markets where the incumbents may not be as flexible and not as willing to take their precious capital and invest it in something new and different.”
What are tailwinds in business?
Tailwinds in business are favorable changes that help your company grow, operate more efficiently, or achieve better financial performance. Tailwinds can make it easier to hit targets and unlock revenue streams—often without needing to change your company’s operations. Like headwinds, tailwinds can be external forces or internal benefits that you can maximize. Likewise, external tailwinds can be macroeconomic, affecting the entire economy or industry, or microeconomic, specific to your niche or business.
Tailwind examples
Examples of tailwinds include:
1. Favorable regulatory changes. These macroeconomic tailwinds include tax incentives, deregulation, and government subsidies that either reduce costs or encourage consumer spending on certain products.
2. Economic booms. Economic good times can boost overall market sentiment, the job market, and the stock market. This can result in rising stock prices, increased consumer spending, and growth opportunities on a macroeconomic level.
3. Lower interest rates. The most common way that borrowing costs go down is when a country’s federal reserve lowers its benchmark interest rate. This macroeconomic change can stimulate economic growth throughout the entire country. It can lower borrowing costs, making it easier to invest in equipment or scale operations.
4. Lower operational costs.Operating expenses can dip on a microeconomic level if you discover ways to run your business more cost-effectively. On a macroeconomic level, operational costs might go down due to fluctuations in the price of material goods (e.g., lower oil prices, which reduce fuel costs) or technological advances (e.g., AI and machine learning leading to greater automation and efficiency), which can impact certain sectors of the economy.
5. Development of new markets. Trade agreements can open emerging markets to domestic businesses, potentially boosting their overall financial performance. New markets can also develop when trends and customer sentiment create new demand for existing products.
How to take advantage of tailwinds
Tailwinds emerge when external forces move in the same direction as your business strategy. If you can identify a significant tailwind—and act on it—you can gain a competitive edge over others in your industry. Here are some ways to identify and take advantage of tailwinds:
Monitor macro trends and market conditions
Macroeconomic changes, like a large-scale economic recovery, demographic shifts, technology adoption, or regulatory changes, can improve conditions across various sectors. Strive to stay informed and allocate resources to act on positive macro trends.
Analyze consumer behavior changes
Shifts in preferences, purchasing habits, and expectations often precede formal industry reports. By tracking consumer behavior, sentiment data, and emerging needs, you can identify when the market is quietly creating a significant tailwind for certain products or services.
Track behavior within your broader sector
Look at where competitors are investing, retrenching, or growing rapidly. Tailwinds might appear in markets where competitors are exiting, creating a window for you to move in. They can also appear when related businesses seem to be doing well (e.g., increased pickleball racquet sales might portend a boom in athletic shoe sales).
Jon believes, despite short-term changes in trends, that ecommerce has numerous opportunities worth taking advantage of. “I can’t think of a lot of industries adding a trillion dollars of net new market every couple of years, like ecommerce does. If you’re a founder trying to break into a new market, this is one of the more obvious places to spend time because you’re betting on gravity, right?”
Headwinds vs. tailwinds FAQ
What is an example of a tailwind in business?
An example of a tailwind in business is a decrease in the cost of raw materials, which lowers your cost of production and boosts profit margins.
What is an example of a headwind and a tailwind?
An example of a headwind is a disruption in the supply chain due to geopolitical tensions. This can impact how efficiently you receive your products or raw materials. An example of a tailwind is new technology, like the use of artificial intelligence tools for customer relationship management, which can simplify your sales operations and reduce costs.
Are headwinds good or bad in business?
Headwinds create challenges for businesses by increasing operating costs, shrinking the pool of customers, or making it difficult to source the materials and human resources needed to run the company. They’re generally seen as challenges to overcome.
