SANTA MONICA, CALIF. — During the Great Recession, Sprinkles Cupcakes founder Candace Nelson feared her specialty bakery business would crumble.

“I mean, upscale luxury cupcakes in a market downturn? I don’t think there’s anything more disposable than that,” she said. “Nobody needs a $3 cupcake, particularly when they’re pinching pennies.

“But the most remarkable thing happened. The customers kept coming all the way through the Great Recession. In fact, Sprinkles ended up scaling the majority of its locations throughout those two years.”

She pointed to the lipstick effect, a theory suggesting cash-conscious consumers will splurge on small luxuries during times of financial turmoil.

“People still wanted to treat themselves,” she said. “People wanted that escape. And Sprinkles Cupcakes ended up being the lipstick of the Great Recession.”

Ms. Nelson discussed how emerging and founder-led brands can survive and even thrive in a difficult economy at NOSH Live, a two-day conference produced by media company, Inc., in Santa Monica Dec. 1-2.

Building consumer trust by consistently delivering a distinctive and quality experience is essential, said Ms. Nelson, also an angel investor and founder of CN2 Ventures.

“Sprinkles had shown up as more than just a cupcake,” she said. “Our mission, our brand promise, was to inject joy into everyday moments… Brand is more than just a product. It’s how your product lives in the hearts and minds of your customers.”

Having operated several businesses during multiple downturns, she urged participants to conserve cash, avoid raising capital and “embrace your inner Scrooge.”

“Gone are the days of easy money and growth at all costs,” she said. “As we know now profitability is the buzzword of the day.”

Entrepreneurs should embrace low- or no-cost organic marketing tactics, “things that don’t scale,” to build brand awareness, she said.

“Word of mouth is truly the holy grail of marketing because it’s free,” Ms. Nelson said. “And move over, TikTok, because it’s the original ‘going viral.’”

Brands delivering fun and nostalgic experiences are poised to win in the current environment as consumers seek “an escape from the day-to-day inflationary worries,” she said. She cited as an example Muddy Bites, a brand of bite-size waffle cone snacks, that is set to triple its distribution in the coming year.

“They’re having a lot of fun, they’re playing on nostalgia, they just got $5 million in funding, and they’re rolling into Walmart,” she said.

Ms. Nelson also advised against offering deep discounts, which “can really eat into the value of your brand.”

“It can be really tempting to sell through inventory, get customers reengaged and excited,” she said, adding that “it tends to train customers to wait for those flash sales.”

Weathering a financial crisis will require creativity and scrappiness, she said, noting “it’s definitely a time for entrepreneurs to flex all of their most entrepreneurial muscles” and, importantly, “really leaning into that brand.”