How to Grow During a Downturn

Treat a Recession as an Opportunity

Goal: Don’t just sit there: take an active
approach to improving your competitiveness.

In trying times, the natural human instinct is to hunker down and
simply survive. But that, experts say, is exactly what businesses shouldn’t
do in a recession, because it means you’ll overlook huge
opportunities. “Economic downturns are actually the best time to
rethink your business strategy and gain a big advantage over your competitors,”
says Bob Legge, who runs Legge & Co. Management Consultants in Lyons, N.Y.

It seems counterintuitive, but recessions offer invaluable
chances to grow your business, solidify relationships with customers,
strengthen the talent pool in your organization, and gain lasting market share.
As Warren Buffett once said, “Be fearful when others are greedy and
greedy only when others are fearful.”

Of course, it’s not always easy to turn lemons into
lemonade. It takes courage and lots of insight about which areas of your
company are positioned to thrive and which departments could benefit from some
fat trimming. It’s also essential to keep a steady focus on the long
term, since additional spending today may create short-term pain, such as a hit
to earnings. But in the long run, if you focus on the right things, it will be
worth it.

Stay on the Offense

Goal: Look closely at your competition to see where
you can gain the advantage.

Many of your competitors are probably retrenching. They’re
postponing investments, cutting research and development, slashing ad budgets,
and demoralizing their staff through layoffs. Don’t be tempted to
follow suit. While some cuts will no doubt be necessary and beneficial, other
aspects of your business should be beefed up, not slimmed down. The key is to
figure out where you should stay aggressive. For some companies, for example,
this may be an ideal time to boost spending on marketing to take advantage of
lower advertising rates and reduced clutter in the marketplace as other players
retreat. “There are things that are cheaper to do in a recession
because other companies are pulling back,” says Kevin Coyne, a senior
teaching professor at the Goizueta Business School of Emory University. During
the 1990-1991 recession, for instance, Intel launched its enormously successful
“Intel Inside” branding campaign, spending $250 million
over 18 months, the first time the company had ever made a direct appeal to
computer buyers. The effort paid huge and lasting dividends, both in terms of
boosting Intel’s brand awareness and its market position relative to
other chipmakers.

Research and development may also deserve extra focus. Having
new products in the pipeline that will be ready to go when more economic growth
resumes is a sure-fire way to boost sales. “In a period of economic
turbulence, the question is not whether to innovate. The question is how to
innovate,” says Andrew Razeghi, a professor of marketing at the
Kellogg School of Management at Northwestern University. “Use this
time to be aware of the market, not afraid of it.”

That is exactly what Exxon Mobil is doing right now. Undeterred
by the severe decline in oil prices, the company has promised to significantly
increase investment in new oil and gas projects over the next five years,
spending as much as $150 billion through 2014. “The question now
becomes who can be successful in more challenging times,” CEO Rex
Tillerson told the New York Times in early March.

Be Shrewd When You Play Defense

Goal: Choose cost reductions and
spending cuts wisely.

In the throes of a downturn, it is tempting to boast to
investors and board members that you’ve slashed costs dramatically.
Yet no matter what your company’s financial circumstances, broad,
across-the-board spending cuts are a big no-no, according to management
experts. According to Kellogg’s Andrew Razeghi, the toughest and most
critical question for managers to answer during a downturn is what their
offense/defense ratio should be. “It’s a mistake to reduce
costs in a democratic fashion, thinking everybody has to suffer, as opposed to
saying, where are the costs that customers don’t care about and which
investments will give us the best return in our competitive position,”
he says.

Answering the offense/defense question requires a sharp
understanding of your company’s strengths, why your customers prefer
doing business with you, and how your products and services really stack up
against the competition. In other words, a little corporate self-knowledge can
go a long way.

Author and management luminary Ram Charan preaches about the
dangers in making any deep cuts in areas that have to do with product
development, innovation, and brand building. “Keep building,”
he urged in a recent piece for Fortune magazine. If you do need to trim,
start by looking at areas such as manufacturing, general and administrative
expenses, and product lines that are ancillary to your core business. Another
approach is to take a distinctive approach to reducing costs. “Look
for ways to cut costs that your competitors would have a hard time imitating,”
suggests Kevin Coyne of the Goizueta Business School. For example, outsourcing
is a common way to cut costs, but it's very easy for rivals to imitate. On the
other hand, if you can reduce costs by making your internal processes more
efficient, or by leveraging relationships with key vendors or customers, you
can create the kind of advantage that competitors can’t touch.

Create Loyalty Among Your Staff

Goal: Maintain morale and make your people feel like
they’re part of the solution.

Nothing sends shockwaves of fear and loathing through an
organization like the threat of layoffs. Whether or not your company is going
to trim staff, it’s important to let existing employees know that
they are valued. This could be as simple as regular e-mail highlighting staff
achievements or divisional meetings where managers talk openly about both the
opportunities and challenges the company faces. “A lot of people
would love it if their leadership challenged them with a set of problems to
solve on behalf of the customer,” says Razeghi. Employees who not
only hold onto their jobs in a recession, but feel like they had a hand in
bringing the company through hard times, are going to feel an enormous sense of
loyalty in the long run.