Strategies for a Downturn

The big news these days is the economy.

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No one really knows whether or when things will turn around. My own view is that this is indeed an inflection point, a serious break from the past, a wake-up call from old illusions.

For well-managed companies, this downturn offers the chance to re-examine fundamental value propositions and develop new strategies. It’s not a matter of simply going into a holding pattern, or worse, cutting back, to protect earnings until things get better. Short-term thinking compounds the problem and lumps your company in with the herd.

Many business plans are simply based on past performance and approved ratios. They don’t take into account significant changes—or if they do, they’re usually pessimistic, generated by bean counters to protect the bottom line.

So, ditch old plans. This takes direct involvement by the chief executive and senior management; subordinates cannot initiate the drastic changes that will be needed to emerge stronger and better positioned to win.

Strive to thrive

Here are seven key strategies not just to survive, but to thrive, in the current difficult and uncertain business environment:

Upgrade human capital. Tough times can be a good focusing point to rally employees to set aside personal concerns and rally around a greater cause. Look around your organization. Who is rising to the current challenges? Look for leaders and support them.

Conserve cash. Reduce and restructure debt, preserve cash. Eliminate discretionary spending; renegotiate purchasing contracts, reduce exposure to poor payers. People are expecting change, and will even welcome it and participate. For those in the fortunate position to have cash, the downturn offers an opportunity to pick up new assets or capabilities at attractive prices.

Invest in innovation. This is hard, given that new investment may be needed at a time when cutbacks are occurring. Don’t waste good people by trying to rejuvenate flagging sales of old products. Re-direct the best people to innovation projects. Move early to anticipate and service emerging needs that can provide a sound base for future growth.

Acquire innovative start-ups. Do not acquire ailing competitors just to consolidate. The most financially secure companies should use this downturn to acquire innovative new start-ups as attractive sources of future growth.

Focus on customers. It’s always more expensive to attract new customers. Double the amount of communication with existing good customers to forge new and better ties. Recognize the differences between profit and revenue, and rebalance your customer portfolio.

Don’t stop advertising. It’s tempting to reduce advertising budgets. While this gives immediate short-term relief, it initiates a down-cycle that’s difficult to reverse. Indeed, go the other way. Utilize the downturn by signing longer-term contracts with good media that’s anxious to serve winners. Don’t use the old, tired image advertising simply by extrapolation (or cut back) of old budgets. Refine your advertising bang-for-the-buck, specifically with performance-based pricing.

Don’t cut prices. This is dangerous and simply leads to a downward spiral that compounds the economic downturn. Don’t try to match low-cost competitors—they’ll eliminate themselves. This doesn’t mean that you should sit by and lose value-sensitive customers. Work your sales relationships to keep price-conscious customers loyal.

Developing a positive mindset is the most crucial area of focus. It’s really about believing in your company. It’s important to keep asking, “What’s the opportunity?” as opposed to, “How am I going to survive?” These two completely different mindsets create different outcomes. If you keep your eyes focused on opportunity, you can see it and create it. Remain agile; be poised to grow. You can not only ride out shaky economic times, but emerge a stronger, better company.

Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. You can e-mail him at: jim@jimpinto.com. Or review his prognostications and predictions on his Web site: www.jimpinto.com
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