Storms happen. They’re an inevitable part of nature and the cycles of life. Sudden downpours catch us off guard without an umbrella. Snowy blizzards blow in and paralyze entire cities. Storms happen.
The same is true in business. There are cycles of ups and downs: bull markets, bear markets, and what-the-heck-is-happening markets. Periods of sunshine and profitability are often followed by storms of layoffs, downsizing, and bankruptcies. Some companies survive. Some don’t. And others actually thrive. What separates them is the strategy they choose before, and during the storm. Sometimes, that strategy involves redefining where value is created.
Many have described the past few quarters in Western Canada as a perfect storm. Heightened demand for rapid growth, fueled by record-high commodity prices, pushed many organizations away from long-term thinking and toward a short-sighted focus on filling orders and closing deals. It felt like endless sunshine. Then, almost overnight, the storm hit. Too many companies were unprepared, not just to thrive, but to survive.
So what’s the secret? How does a company prepare to endure, and even prosper, through economic turbulence?
Be Efficient. And Keep Investing.
According to a large study of 4,700 companies across three recessions, the most effective strategy for weathering a downturn is a progressive focus that combines two things:
(i) improved efficiency to reduce costs (eliminating ineffective roles and activities), and
(ii) continued investment in marketing, sales, and R&D.
The research found that companies prepared with this progressive focus performed twice as well in EBITDA as the general market three years after the downturn. They also had the highest probability (37%) of thriving compared to other approaches, such as deep cuts alone or aggressive investment without discipline.
While it’s human nature to seek shelter during a storm, leaders of resilient companies look beyond purely defensive moves. They invest toward a profitable future. That means continuing to build their brand and marketing efforts, before, during, and after the storm, to ensure their story is heard when attention is hardest to earn.
Without that investment, a company may not need to worry about what happens after the storm passes.
If your organization is preparing for uncertainty, contact us to build a strategy that holds, rain or shine.
Source: Harvard Business Review, March 2010 — Roaring Out of Recession (Gulati, Nohria, Wohlgezogen)
