There are only two types of companies during an economic shock. The weak businesses wither and die, while the strong gobble up market share. Which one are you, and what will you do about it?
Obviously, we will experience an economic downturn in the coming months. Although the fundamentals of the American economy have been stellar—and there is every reason to believe that such conditions will return—there is no question that the complete shutdown of so many industries due to COVID-19 will wreak havoc on many businesses in the near-term. Most of us in professional services will have minimal problems because all we need is a laptop and a cup of coffee to do our jobs. But businesses with hourly workers in hospitality, travel, and nearly every disposable-income industry will struggle mightily.
So it’s very important that we take a deep breath, calm our minds, and resist the urge to panic; the cooler heads will truly prevail during this economic shock and their companies will flourish. Here are some important truths that will help position you to thrive when the economic shock subsides.
Reality #1: Economic Darwinsim Prevails
Are you currently a leader in your industry and/or area? If a leader, resist the urge to hunker down and go completely passive. Leaders lead. Don’t let this economic road bump equalize you and your subpar competitors. Stay active to avoid atrophy. Maintain, at a minimum, or increase your typical activity and investment levels.
One of our more successful clients, and a true leader in their industry, called me last night (a Sunday evening) to ask if my team was fully working because we “were going to get hit with a ton of emails tomorrow” from his staff. Why? Because they are stepping up their efforts and positioning themselves for when this is over. That’s exactly the right, reasoned, reaction.
If you’re not currently an industry leader, how can you do things differently during this upheaval? Do you sell a product or service that is less costly and can serve as a substitute for more expensive products or services? If so, now is the time to move it to the forefront of your offerings and aggressively demonstrate its value proposition. Can you deliver your product/service more nimbly than your larger competitor? Can you do it in a way that makes your customer base feel more comfortable and safer in this time of great fear?
Reality #2: Market Share Trumps Margins
Every business must always manage for profit to stay healthy. But sometimes market share (i.e., long-term profit) is more valuable than short-term earnings, especially in light of unique externalities such as emergency declarations due to a worldwide pandemic. If you are fiscally healthy, you can leverage your profit margins for growth.
But there are good and bad ways to do that. Have you thought about reducing your price to be more competitive? Don’t do it! If anything, maintain the price, but add value. Once you start dropping the price, it’s often the beginning of the end and you may not be able to re-establish those prior price points. If you can maintain your prices while adding value, your profit margins may suffer a bit. But if you have a long-term, bullish perspective on your company, you can weather a profit hit. It is simply an investment in the future. I would much rather over-service a client right now and take a bit of a profit hit, than lose market share.
Reality #3: Spring Cleaning is Healthy
An economic downturn is an opportunity to take a closer look at your business. It’s a chance to innovate; it forces you to find better ways to do every aspect of your business. What breakthrough approach will you identify because you must, because your survival depends on it?
Which of your product/service offerings are low- or no-profit? Identify them now and either eliminate or minimize them. Similarly, which employees are not cutting it? You may be able to hold on to poor performers when times are good, but you jeopardize the whole company if you hold them too long when times are tough. Force yourself to be open-minded.
Reality #4: The Marketers Always Win
Finally, whatever you do, don’t stop marketing your business. If you do a lot of advertising, don’t stop. Just evaluate it to determine where you get the best bang for your buck. In some cases, it is even wise to increase your marketing spend.
Study after study demonstrates that companies who keep the pedal to the metal during economic shock fare much better than those who don’t. For example, McGraw-Hill Research analyzed 600 companies from 1980-1985, including the recession years of 1981-1982. The results showed that business-to-business companies who maintained or increased their advertising during the recession averaged significantly higher sales growth than those who eliminated or decreased advertising.
These results applied both during the recession and for the following three years (i.e., their recession-era investment yielded huge results both during and after the recession). By 1985, sales at those companies who were aggressive with their recession advertising had increased 256%. The companies who cut their advertising during the recession were up only 19% by 1985. In other words, the former significantly gained market share, while the latter withered and probably died, because 19% growth over a total of five years is less than 4% per year – that might not even cover inflation in some years. These results are a stark demonstration of the importance of being aggressive during a downturn.
It’s important to note that we did not have the modern miracle of content marketing in the early 80s. Back then, most marketing carried a very heavy price tag. Today, however, one of the most effective forms of marketing is the free flow of expertise in the form of white papers, blogs, social media posts, videos, and podcasts. If you are currently engaged in content marketing, keep it up and step it up! If you haven’t yet started, NOW is the time.
Reality #5: The Past is Prologue
The effects of this virus are still unfolding, and we don’t know exactly what the future will bring. But we do know what has happened in the past. You must understand that the strong will survive this economic shock, and competitors will be coming after you, your clients, and even your employees. You’d better be ready. It’s going to be a rough ride for a little while and you may have to face uncomfortable and previously unconsidered changes, but you have an opportunity to come out stronger than when you went in.
This crisis will define a generation. How much will you let it define your business?
Duane Carey is the owner of IMPACT Marketing & Public Relations, LLC and is also the president of the Maryland Free Enterprise Foundation. He holds an MBA from Johns Hopkins University.