How would you prepare your company if you knew a downturn was coming? What would you change? There are a few things you need to think through clearly now; a few preparations you need to make. You should be doing some of these anyway, regardless of your personal economic forecast, but these “should dos” become “must dos” when the economy slides.
Nobody knows what the future holds, and that includes economists. At some point, though, this historically long economic expansion is going to end. When it does, fortune will favor the prepared.
I don’t blindly follow those who say that a downturn is inevitable simply because the economic expansion has been so long-lasting. Perhaps I’m still impacted by a company leader saying that in the 1980s, then having that expansion last another two years. However, there are a few indicators that should give us all pause. One, the shape of the yield curve, has perfect accuracy for the past several recessions. This may be because this indicator is the aggregated “bet your career and your firm’s money” wager by many of the world’s smartest financial minds, placing much more money than in all of the stock market. Here’s an article that explains it pretty well. I ignored this indicator once and regretted it.
Regardless of your personal forecast, I suggest you go through this pre-storm checklist and give some thought to five issues.
How Will Your People Strategy Change?
Whenever a recession hits, one of the first dilemmas is how/whether to adjust the sales staffing plan. One of the worst burdens of leadership is deciding to downsize. Sadly, your company’s financial condition and financing structure might render this decision easy. Highly leveraged companies and those with short-time-horizon investor populations may not have any option but to lay off and hunker down.
For companies blessed with growth during a downturn — or with patient money backing you — increasing (especially sales) staffing in a downturn takes advantage of competitors’ reduced ability to respond. While I’ve never been lucky enough to work for a company with the resources to make this happen, the experts tell you to hire…with caution. There are diamonds in the rough, perhaps stars laid off by financially vulnerable employers, or stars who had better options. At minimum, I would check the credit ratings of former employers as I prepared to interview a candidate.
Will You Discount? Will it Help?
During a downturn, price pressure will be inevitable. Discounting to win business is a fragile strategy. Because price declares value, the player who drops price first definitely damages their own reputation (perceived value). Matching a competitor’s price might bring your value down to their damaged level — unless handled properly. Maintain a clear view of your value and what it offers to each prospective customer.
Start building value with customers now to minimize how much you’ll need to discount (Helping you do this is what I do). If you have value, you should be able to maintain some price premium, but as competitors discount, even a solid price premium is applied to a lower base (competitor’s declining price). By firmly retaining that value premium, you will minimize damage to your offer’s value.
If you can pre-emptively add to your value premium before a competitive price war, you may be able to mitigate some of the damage discounting causes.
Pursuing New Customers
Taking share during a downturn can be challenging. Most competitors will be fiercely defensive…fighting for survival. How hard do you bang your head against that wall?
Before a downturn, figure out which competitors are already in trouble with their customers. Your salespeople can sometimes gather this kind of intelligence, but there is an even better source. Everyone in your company without a sales title who touches customers has a different vantage point based upon trusting relationships – with customer personas who may welcome the chance to resolve a vendor problem. Train and equip those people to spot competitor vulnerabilities. While you should always be sharpening this discipline, it becomes much more critical in a down economy.
If your product or service has a potential alternate market, consider exploring one or more of those before a downturn. Pre-emptively look for opportunities to solve that market’s typical problems in new ways, or to add new value. A fresh eyes look at your product or service’s possible value propositions and how they could produce novel outcomes for different markets might be in order.
Defending Existing Accounts
As competition escalates, competitors may be coming after your accounts. If you haven’t already, implement an advanced account management program now to pre-empt competitive pressure. The goal is to make your key accounts more defensible.
The other goal is to grow within your current account base — less challenging than taking share. Account strategy should proactively demonstrate — then grow — your value to customers. Do this, and new opportunities crop up more easily in your existing account base.
The kind of account management program needed is one that focuses on building customer value using a cross-functional team approach. Once again, your non-sales sellers are key to the success of a cross-functional account management effort. Peer-to-peer executive selling within the value-building charter is another key component. Contact me if you’d like me to describe such a system in more detail.
Innovation
In a downturn, it’s common to strip R&D to the minimum. With some of the value-focused efforts described above (cross-functional account management and value-focused conversations), you will build a value insights-gathering “engine” enabling you to innovate more inexpensively than you might expect. I help clients do this all the time, but during a recession, a radical value culture becomes an even bigger competitive advantage.
Another way to achieve some cost-effective innovation is to rethink your capabilities — in terms of what product/service capabilities are used to differentiate you. These already-developed capabilities are the foundation for new products for existing customers, and are a key element in possible new market expansion efforts; you may see creative new value propositions that your existing technology expertise can capture with relative ease.
Summarizing
If you think a downturn might be coming, get your company’s financial house in order. The next recession (whenever it does come) doesn’t look like it will be banking-led (the deepest and longest kind of recession), but unconventional economic policies (trade wars, etc.) mean a lot of predictability has been taken out of the economic system. Agility is always important but will become a watchword during any upcoming cycle.
As you read this article, I hope you see that many of these preparations should be part of your regular management practice. They become much more critical in a recession, and you’ll be glad you began working on them now.
If I can describe any of these preparations in more detail with you and your team, please reach out. Otherwise, please like and/or share with your colleagues.
To your success!
