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Recession? Bring It On!

13 March 2009 No Comment

[Editor's note: This article was first published by GAMA International, an association that works to develop the leadership talent in the financial services industry.]

Are we in a recession? Will we be soon? How long will it last? How deep will it be? The economists will debate these questions and conclude when it was – long after the damage is done. The more useful question is what should I do differently in my business during a time of economic uncertainty?

A recession or any type of economic slowdown is a turning point in a business cycle. More changes happen at turning points than during the stable times in between and it is easier to make change happen during these periods. Some rigorous analysis has been done on how companies perform during and after a recession and it turns out there are some things that winning companies do to come out ahead.

Studies

A recent study by Bain & Company found that twice as many companies made the leap from laggards to leaders during the last recession as during surrounding periods of economic calm. In fact, nearly a quarter of all companies with the highest or lowest industry rankings moved completely to the other extreme during a recession. Only half as many companies made such dramatic changes before or after the recession. The changes made at turning points tend to endure. Of the firms that made major gains in revenue or profitability during the last recession, more than 70% sustained those gains through the next boom cycle. The corollary was also true: fewer than 30% of those that lost ground were able to regain their positions.

In 1985 McGraw-Hill Research studied 600 business-to-business firms that maintained or increased their advertising expenditures during the 1981-1982 recession. Those firms averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. On average they grew their revenue over 3.5 times faster than those that reduced their advertising.

In six studies conducted by the research firm Meldrum & Fewsmith over the last 60 years researchers concluded that sales and profits can be maintained and increased in recession years and in the years immediately following by those who are willing to maintain an aggressive posture, while others adopt the philosophy of cutting back.

A 1990 study by the Center for Research and Development showed similar results, with more aggressive firms gaining 4.5 times the market share of their less aggressive competitors. These companies use the flux in the market to solidify their customer base, take business away from less aggressive competitors, and position people for the future during recovery. These businesses enjoyed measurably higher net income gains during the recession and even two years after the recession.

These findings show that recessions are not so much slowdowns as the best time to accelerate. A recession creates a number of strategic opportunities to make deals or to take advantage of weaker players and make advances in a company’s competitive market position. You should cash in on the opportunity that rival companies are creating. If you are courageous enough to stay in the fight when everyone else is playing it safe you’ll come out ahead – and progress made during a recession accelerates when conditions improve.

Marketing and Competition

As other businesses cut advertising and retreat from the market, each and every dollar you spend becomes more valuable and has more impact. With less competition for buyer attention, your firm stands out. Consumers don’t stop spending money; they simply spend it with more care. The mere fact that you’re visible during a tough economic time sends a signal of stability and strength and customers and competitors alike will notice. You may need to make some changes in your marketing approach. Don’t make the mistake of trying to attract a wider range of clients, focus even better on the niches you already serve well. Ironically, the more you focus your marketing, the bigger the opportunities become, and the easier it is to get a referral. ‘Everyone’ is not a good target market; it’s hard to communicate and even more difficult to generate referrals.

Pick off smaller clients from competitors
Don’t go for your competitors’ best clients; they’ll be working very hard to protect them. Instead, look for the secondary clients who aren’t as valuable and target those. There are a variety of online tools to find and connect with decision makers.

Weed out your pipeline
Take a good hard look at your prospect pipeline. Some of those ‘maybe sometime in the future’ names you can probably put firmly into the ‘not going to happen’ category. Don’t waste your attention on opportunities you can’t readily close. Make sure your lead management system is getting the most from every prospect opportunity and not letting anything fall through the cracks.

Figure out where you get the most leads
While you’re examining your marketing efforts count where you actually get most of your best prospects. Unless you are already tracking those numbers there is probably some variance between what you think and the actual results. Now is not the time to be guessing.

Find good referral sources
When you know your best referral sources concentrate on serving them well to solidify and grow those relationships. Next, find more just like them. Make sure you have a proactive value proposition since your competitors are trying to get referrals from them as well. The best way to generate referral activity is to provide some real value first. You should have a separate marketing campaign dedicated to reaching other centers of influence such as attorneys, bankers, accountants, and other professionals.

Create marketing profiles
Clearly define and describe the types of clients you serve best and then design specific marketing and services to offer them that are tailored to their needs. Examples of typical customer profiles are: middle age empty nest couple; young families, people over the age of 80, family business owners, or people five years from retirement. Each of these is a robust market and they have very different needs. You wouldn’t talk to them in the same way, find them in the same places, or offer them the same products or services. Being more of a specialist also raises your expertise and demand. For a firm with multiple producers this is a great way to have both a wide range of offerings and focused specialties.


People and Culture

Your people are your competitive advantage; your customers can get all the same products at a number of other firms. They know what’s going on, they hear the news, and they have a lot of the same questions. It’s up to you as a leader to communicate the opportunity, the vision, and the plan that will make you all successful. Employees know they’ll have to work a bit harder which they’ll gladly do if they know they’re on a winning team. It’s easier to keep people moving than to get people moving so use this jolt to their routine to raise the bar a bit.

Keep training
When activity slows down it can be a good time to continue training all your people, not just producers. Doing so will get people thinking about productivity, help integrate any other changes you’re making, and send a message to your employees that you value them enough to invest in their future with you.

Clear deadwood
One thing everyone worries about during a recession is layoffs. Cutting people is often a knee jerk reaction that harms morale, reduces capabilities, and ultimately makes the business weaker. As you’re taking a closer look at your business you may conclude that some people may be redundant, non-productive, or negative. Easy times allow for some slack that lets people coast. When you need everyone rowing just as hard make sure you have the right people in the right seats. Too little turnover is just as bad as too much turnover so take advantage of some good people who are now available who can help your business become what you want it to be. Look to the hiring side first. Once you see what’s available it will be easier to make the transition.

Forge new habits
As businesses move from one level to the next, new sets of procedures and habits must be ingrained in order to support the growth. Allow for some time to transition and don’t slide back into the old way just because it’s more familiar. Regular communication and accountability are the tools to make this happen.

Get out
Be active and be seen in your market, community, and professional groups. Have everyone get out more to attend networking events, business mixers, and other events where your prospects are likely to congregate. Pick up new skills or market insights. Be a ready resource; now is when people are worrying and asking questions. Spend some individual quality time with your best referral sources and never stop asking how you can help them.

Operations and Strategy

Spend some time working on your business, not just in it. If activity has slowed some now you have more time to do those things you never get to otherwise. Don’t undertake a gigantic business transformation. Select small parts, analyze, improve, and keep going. Correct quickly once you start to see how well or not something works.

Stick with your strengths
Now is not the time to stray too far from your core specialty. This is not to say don’t innovate or adjust your offerings, make sure that whatever you do plays from your strengths. Focus is one of the keys to success from companies that have historically done well in recessionary times.

Make only sustainable changes
Consider any changes you make as if they’re permanent. Don’t react in a panic; only do things that are fundamentally good for your business. For example, if you just cut prices it will be hard or impossible to raise them again later. If you introduce a new service or product it should have long term value for your customers and your business. If it doesn’t it will be a distraction now and a drag later.

Be more efficient
Look for ways to make your internal operations more efficient, although not at expense of being more effective. Cost effective tip: ask the people who do the work, they already have some ideas. It’s easier to see and analyze your workflow when everyone is not buried in tasks. Streamline procedures, update and document systems, and cross train people; this doesn’t have to be expensive. Your carrier, broker dealer, wire house, or wholesaler may have facilities, technology, or services that are designed to make you more efficient, both for you and for them. Take advantage of those.

Make better deals
It’s a good time to negotiate pricing and terms on anything you buy, especially long term commitments. Rent, equipment leases, advertising, courier services, and outsourced services are some examples where, if you’re willing to commit in advance, you can lock in some good deals. Now is also a good time to consolidate vendors. Instead of spreading your business around several companies direct it to a few and get some benefits from them, maybe better pricing or preferred service. You will also save yourself the hassle of multiple invoices. Telecommunications, office supplies, and overnight delivery are good places to look.

Grow by acquisition
One of the strategic opportunities that arise in a recession is the chance to acquire other books of business. Owners who have been in business a long time may not relish the prospect of another hard year or two and opt to retire now. You can get the best deals, add a large number of customers, and be noticed in the business community as a dynamic, successful firm.

Social media

Email and instant messaging were new not too long ago. There was a time when websites were a novelty, now no one takes you seriously unless you have a good one. Since 70% of people who make a major purchase decision begin their research online you can’t afford not to have that presence.

The next way of using the internet, called ‘social media’ or ‘web 2.0’ is more interactive. Your first website was an online brochure – you posted it and people read it – there was no way for them to connect with you. Now the focus is on connecting and conversing with people and lots of web applications are sprouting up to enable that. Social media is a whole new way of using internet connectivity that is still evolving. It is inexorably making its way into businesses and it’s only a matter of time before things have changed as significantly as with web pages and email.

This is not another channel to use to push out your message. There is a conversation already going on out there that is relevant to your business. At issue is whether or not you participate in it. Tapping into this conversation affords you several opportunities. You can get to know people and build a relationship, learn what’s on their mind, and understand them and their situation before there is a recognized need. There are plenty of opportunities to demonstrate your expertise and character and you can garner introductions and referrals. While it’s no substitute for face to face interaction, it is a very efficient way to increase your reach and responsiveness.

The most successful practitioners in the financial and insurance industries work primarily on the basis of relationships, not transactions. All of social media is predicated on connection, conversation, collaboration, and relationship. In some ways it’s the ideal way to interact with people online. Getting involved, even a small bit, puts you way ahead of everyone else in your industry. You will make new connections you otherwise wouldn’t have made, just at a time when you most need them. You’ll have a presence in places your competition doesn’t even know exist and have a definite advantage with those already using these tools.

The dollar investment in social media is minimal; the applications are accessible for free. The investment is more in the time and attention of the right people to participate. Fortunately, in a recession you have more time and less money so it’s an especially opportune time to begin.

Conclusion

A recession really is a time of opportunity if you know how to take advantage of it. How your business performs now will set your course for years to come. Work from your strengths and stay focused on your core specialties. Make strategic moves towards new customers and markets either by organic growth or by acquisition. Don’t just react and make some changes you’ll need to undo later, have a plan and methodically execute it. Use this opportunity to improve your people and operations and get ready to take your business to the next level.

Author contact: john AT InterSource.net

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