Saturday, March 2, 2013

Recession Opportunity

Recessions are periods of opportunity for the prepared company.  The sound strategy is a contrarian onegoing against the herd.  Increase spending during recessions. Build dry powder during booms.

The majority of businesses, including your competitors, react to an economic downturn in the same way.  First, they are usually unprepared.  They immediately look for discretionary expenses that can be curtailed immediately.  Investments in plant and equipment go first.  Employee travel goes next including sales-related traveladvertising follows quickly, as does exhibit events.  In other words, they hunker down.

Excellent companies aren't surprised by a recession.  They understand that business cycles are a fact of life.  They don't suffer from a lack of corporate memory because they have built into their strategic plans several tactics to prepare for, and respond to, economic recessions.  While others curtail marketing activities, they increase them, including advertising expenses.  Rather than shrink their sales force, they snap up quality personnel laid off by others.  Rather than cancel exhibit events, they increase their footprint on exhibit floors.

For the prepared companies, recessions are bargain periods when companies can get the best deals for expanding facilities, adding or upgrading equipment and systems, and provide one of the best climates for hiring top-notch people.  However, it is a company's increased investment in marketing that pays off the most.  Companies that do, come out of recessions with increased market share and financial strength.

It is the recovery and boom periods that are best suited for consolidating your gains and strengthening your financial health and operating performance.  During these periods, you prepare for the next downturn by developing "dry powder"emphasizing improved planning, workflow efficiency, and the overall performance metrics.  This is when you want to invest in dry powder and equipment, systems, and facilities that will improve workflow efficiency and performance.  But you do not want to fall into the trap most companies will construct for themselves.  Most companies, including your competition, respond to boom periods by overreaching and overextending.  They increase financial leverage, deplete cash reserves, exhaust lines of credit, and max out borrowing power.  When the next recession hits, they will have no choice but to conserve cashand that means hunkering down, including drastically reducing marketing expenditures.

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