Grow During an Economic Downturn!

Growing in an Economic Downturn

During an economic downturn organizations have to do more with less. Companies tend to tighten budgets, cut staff, reduce services, decrease quality, contain negative output gaps (spare capacity), minimize effects of rising inflation, manage confidence and investments – but there is an alternative. There are ways for companies to grow, smartly invest and to emerge from a downturn stronger than their competition. As basic as it may sound, an organization’s ability to grow from a downturn lies in its business processes and operational decisions, driven by a company’s business mission and objectives.

Economic downturns offer a company the unique prospect to launch highly innovative new products and services with a larger and highly desirable market. When other companies are receding, pulling back, and scaling down, the market produces an unmet or evolving customer need. Customers may be without existing products/services or have an evolving preference. Herein lies a great opportunity for success, as a well-targeted new venture, which may be better during a downturn than in a competitive boom.

The Opportunity:

There are a variety of opportunities available to firms looking to grow during a changing business cycle.

Substitutes: In order to target growth during a downturn, a company needs to target specific areas which have great tendency to grow during a recession. This area of need is substitute or economic goods. The market for B2C companies is to the low-cost substitute products – examples: Southwest Airlines, Home Depot and Trader Joe’s. For a B2B company this can be an opportunity to grow through providing a product with lower power consumption, higher efficiency, better welfare and other options to improve operating capital and efficiency of the companies being served – example: Abbott Laboratories, Novartis, Amazon, and Proctor & Gamble. The large growth opportunities here enhance cost management and control to the market they serve.

Affordable Indulgences: Stemming from substitute goods is the affordable indulgence. During a downturn customers reduce much of their spending, but there always exists a need of indulgences and distractions. In previous downturns a few companies released targeted, new products to capitalize on the necessary pleasures and escapes – examples: People Magazine, Revlon, Lego and Phillip Morris. Also, in attempt to keep the same lifestyle and purchasing habits, consumers look for “deals”, which can be shown through the growth of Google and Amazon searches looking for alternative, used or name brand products which tend to be cheaper online.

New Markets: Customer tastes also change during a downturn. The changing tastes lead to new markets which nimble or broad-based manufacturers can expose during economic cycles by bringing new products to market. This may mean targeting a specific segment, vertical, geographic region, age group, or other demographic which has been largely affected by the economic cycle. Toy manufacturers have done this by creating different toy price points, universities have increased continuing education enrollments, tool companies target the Do-It-Yourself person, and technology companies use R&D resources toward power efficient devices. In the previous downturn, Salesforce.com gained huge ground in acquiring new customers by offering an innovating cost and pricing structure which differentiated itself from all competitors.

External Investment: During economic downturns business/consumer confidence is lower, commodity prices are lower and asset (especially property) prices are lower. Companies can exploit these opportunities through attractive acquisitions to grow in target areas to help business for the current economic situation or to prepare for the next growth cycle. These opportunities are diverse from locking in supply chain goods and materials to mergers and acquisitions or manufacturing relocation and consolidation.

Internal Investment: Not to be over-looked is the importance of internal growth, strategic growth and reflection during an economic downturn to improve financial position. During these slower times, it gives the company the ability to examine its operations and implement strategic actions which have been delayed during growth times. Internal investment also keeps a company agile, lean and competitive setting it up for rapid growth. In operations, this means leadership would guide efforts toward activities which improving product quality, improving delivery, reducing cost and improve efficiencies – which was pioneered by IBM in past downturns. In sales and marketing, this would mean that leaders guide efforts toward gaining market share, improving value stream, improving communication avenues, optimizing process steps, and gain additional consumer insight. Also, invest in current employees by avoiding or minimizing lay-offs, increasing collaboration, and giving steadfast, directional leadership. This will build staff loyalty and improve efficiency in developing for growth opportunities.

The Delivery:

Depending on the opportunity in which the company is investing, there are a variety of ways to execute on the opportunities provided by an economic downturn. In order to capitalize on substitute goods or affordable indulgences a company needs to provide superior value or competitive substitutes relative to existing products and services for necessities that a target market would sacrifice. Enhancing operational efficiencies can create a competitive advantage – using excess resources toward creating additional targeted substitute products can improve utilization and cost structure.

There are also a lot of operational efficiencies which can be gained to deliver on internal and external investments. The profusion of underutilized resources during an economic downturn may be available at a relatively low cost which can lead to a higher return on investment. Materials, resources and technologies which were previously rendered unnecessary due to the downturn can be designed for new applications and uses for targeted markets. This could minimize the company’s exposure of introducing new products and services. Looking at the firm’s business mission and objectives and reviewing key process indicators (such as customer acquisition/retention or pricing innovation) and the company’s business model is another sanity check which could be done. Optimizing the business mission and objectives to the current conditions will help to lower costs and improve efficiency without decreasing any benefits to the customer.

If previous economic downturns have taught us anything, it is that in order to grow during these times companies need to continue to innovate and reflect. This means to identify potential key market opportunities and make the best use of available technology and resources. During this downturn invest in creating new business by differentiating from competitors, optimizing current business processes, creating loyalty and tackling issues where it will make a difference. Establish rapid growth by staying agile, fiscally astute and innovative.

-thePonderingNick