By Andrea Hill
According to one of the studies conducted by the global Boston Consulting Group, companies with a weak initial response to a financial downturn have a tendency to overreact later—with damaging results for their businesses. Apparently, the only safe way to navigate a recession is to continue investing in business growth.
That’s not easy when every nerve ending screams at you to hunker down and wait it out. But you didn’t go into business because you thought it would be easy. You went into business because you had dreams of building wealth, independence, and security. Don’t lose sight of those goals now.
Management skill is paramount during a recession: If you’re not intelligently reducing costs, dramatically improving your supply chain, consolidating functions, improving efficiency, and using stringent capital allocation management, you won’t have the resources you need to invest in growth. But assuming you have embraced prudent management with passion and precision, here are some ideas for taking advantage of the opportunities that are still out there.
The most potent source of revenue and growth (at any time) is existing customers. Retention efforts should include marketing to existing customers and making sure you do the things that are important to them better than ever. Are fill rates your customers’ primary concern? You can’t be out of stock. Do your customers expect you to be less expensive than your competitors? Don’t lose that edge. Do your customers depend on you for a regular offering of new products? Keep them dependent. Protecting your top line will protect cash flow better than any cost-cutting measure you can devise.
In addition to meeting your current customers’ needs, consider the reasons they go to your competitors. Understanding your competitors’ strengths and weaknesses relative to your own is crucial at any time, but particularly so now. What actions are your competitors taking (or not taking) that diminish their ability to meet customer needs? If you can take advantage of a competitor’s weakness, you can increase current customer share of pocket and acquire new customers.
It’s also a good time to review incentives for your sales force, which may seem counterintuitive at a time when layoffs and pay cuts are de rigueur. But think again. Well-designed sales incentives contribute measurably to top line revenue. Monetary incentives are most powerful, but non-monetary incentives, such as recognition lunches, a congratulatory note in the company newsletter, or a bottle of champagne—particularly during times when employees are de-motivated and frightened—can be quite effective. During a recession, sales incentives that are designed to drive immediate revenue, such as small bonuses called “spiffs” for increasing average order size over a specified amount, are essential. Create a sales plan that emphasizes immediate revenue. Review your incentive structure, and make sure it is in alignment with the new plan. If there are any characteristics of your current incentive strategy that would undermine your new plan, change them. And though careful monitoring of your customers’ creditworthiness is more essential than ever, if you can couple your sales efforts with more generous financial terms, you may get orders that were on the fence, or you may be able to charge slightly higher prices.
Do any of your products continue to command higher prices? Market these products aggressively, highlighting the benefits your customers believe make them worth the higher price. Can you offer lower-priced versions of existing products, giving your customers a better deal while protecting your margin? Customers purchase differently during an economic downturn. Improve your product mix to take advantage of changing purchase patterns. You will increase existing customer activity while acquiring new customers who have not found your competitors to be as responsive.
Though it may be tempting to focus only on immediate top-line growth, that approach risks dooming your business when the economy recovers. It’s essential to invest in the future. Product development must continue, not only to tweak your product mix for current conditions, but to actively anticipate what the product mix should be when economic growth returns. Investment in information and production technology should also continue. Recessionary environments are hotbeds of innovation, and consumers typically emerge with new expectations of their vendors. How would your business be affected by increased customer demand for domestic production, a significant shift to internet buying coupled with consumer desire for extensive interaction, a sudden demand for new alloys, or a significant trend toward manufacturers managing retail inventories? If you stifle R&D now, you will not be ready when the economy rebounds, including whatever host of new behaviors and expectations it arrives with.
There are significant opportunities available within bad news economies for those who are brave, savvy, and clear thinking. Somebody always makes money during a recession. It might as well be you. u
First published in April 2009 MJSA Journal.