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Create Winning Businesses In The Down Economy

Economic downturns create distuptive changes in market shares. A higher proportion of businesses either gain or lose market share during recessions than during boom times. Startups face far better opportunities while their established competitors are shifting thier attention from their customers to company-wide, self-destructive cost reduction frenzies.

Businesses with larger market shares in more mature markets take the bigger hits during recessions. Their revenues must go down as their customers' spending goes down. But businesses in the early growth and linear growth phases of their business life cycles may create lasting new customers who are being ignored by the mature businesses when times are tough. Being regarded by customers as a supplier who helped them in a meaningful way during the tough times will be remembered fondly by those customers long after the recovery.

No Single Recession Strategy Fits Everyone

Emerging businesses may have a few current customers to protect, but the winning strategy must be to win new customers. Your prospective customers may also be creating something new, e.g. new uses for your new products. Agility and tight integration with prospective customers are essential for emerging businesses in general. But during recessions agililty and customer integration programs must be accelerated even more to get the benefits of the recession before the recovery puts the more mature businesses back into the competition.

Growth businesses must protect the customers they have while they create new ones in a long term fight to gain market share. The strategy must be to do everything possible to win market share during the recession with the essential goal of achieving a leading share of your markets before the growth phase transitions into maturity. Then your business is in position to generate lots of cash to fund new emerging and growth businesses.

Mature businesses are the most directly affected by economic slowdowns. The natural tendency is to oversimplify, to cut costs and expenses across the board. That ignores the likely reality that while most of the customers in mature markets cut back on discretionary spending with vigor (e.g. cars and houses), others may be increasing their spending in more recession-proof projects of their own. Those opportunities get killed as collateral damage in an oversimplified expense cutting strategy.

Even Established Businesses Have Options

Houses and cars have been hit hard in the current recession, but a state-controlled liquor store here in Eugene, OR reported in early February, 2009 that their sales in 2008 were up 65% over 2007.

Ashley Heher, Associated Press, reported at about the same time; "The ever-popular Wii gaming console continues to sell out at the list price of $249 (US), Avon cosmetics just boosted prices, Nike is releasing its newest Air Jordan with an astonishing $190 price tag, and designer water can still command as much as $3.99".

All of the businesses above are established, not startup or growth businesses. If you are in an established business, the chances are good that some parts of your business are impacted like houses and cars are, other parts are more like the liquor store, and many others lie along the continuum between those extremes.

Important Distinctions Between Companies,Businesses, and Products

The early definitive work on the importance of running a range of product and business strategies simultaneously was done by the Boston Consulting Group. The "BCG Model" defined four product categories and the distinctly different strategies needed by each: Question Marks, Stars, Dogs, and Cash Cows.

Far too often we see these profoundly effective product classifications applied to a business, or even worse, to a company as a whole. Winning companies actually segregate their business from each other and the products within those businesses into the four classes. Then apply the four different strategies appropriately—to the products. The business strategies are an amalgam of the product strategies, and the company stategies are an amalgam of the business strategies. The winners have used a bottom-up system of strategies, rather than a top-down system.

More recently than the inception of the BCG Model, Peter Drucker asserted his definition of the term business in his landmark book, Management, 1974. A company could, should, and almost always does participate in several business. And each business almost always has an array of products in each of the four BCG categories.

A key recommendation of the BCG Model is to generate cash with the Cash Cow products and to invest some of that cash into the Question Mark and Star products in order to create new Cash Cows. A different strategy is needed for each of the different product categories and for each of the different business businesses.

Who Defines Companies and Businesses?

This simple observation may help to drive the point home. Companies are legal entities defined by laws, management, executive officers, the board of directors, investors, and lenders. Businesses are defined by the customers.

Simplicity Does Not Survive in Nature...Or in Business

Companies operated with a single strategy become more vulnerable as they grow larger. Remember Digital Equipment Corporation? They exercised a strategy to dominate among mini-computer companies, and they did dominate. But they had nothing to offer as PCs, workstations, and embedded computing capabilities flourished. DIGITAL went from king of the hill to pushing up daisies in no time.

Pan Am ran a single strategy as the only international air carrier in the US. They had been running that strategy since the 1930s. Even after deregulation, allowing other US carriers to serve international routes, Pan Am stuck with their strategy. They knew no other business, and they believed no other US airline knew the international airline business. Pan Am lasted about a year.

You can probably think of many industry leading companies that failed while they were on top because they simplified their companies into single businesses. As their core businesses matured and declined, the companies failed.

The sidebar highlights the multiple strategies running simultaneously at Applied Materials. This very effective combination of strategies was espoused in 2009 by the CEO, Michael Splinter, in a Bloomberg TV interview. If Applied Materials can successfully run multiple, simultaneous strategies, so can your company. Maybe your CEO can also get an interview on Bloomberg?

We Help Clients Create Multiple Winning Strategies

The first and most important strategic step before reacting to a recession with a sweeping cost reduction program should be the realization that there are other options. Then get us involved to help to select and develop your options.

Our passion is to help people create winning businesses. We seek out clients who want their business to be the winner, not just a good competitor, and we help clients to do that. The most cost-effective time to do that is now, before the economy fully recovers from this recession.

We help clients to understand their customers well, to characterize their recession-driven attitudes and behaviors, and to adopt winning strategies for each of the major classes of behaviors the customers present.

This is an outwardly focused approach, which is where the recession actually exists. But the higher value is in helping the different classes of customers in different phases of their business life cycles to define your different classes of business strategies.

Obviously this also works during boom times, but the effects are far stronger and the implementation far less costly during the down times.

Win By Implementing Your Strategic Options More Effectively Than Your Best Competitor

If you adopt a selection of the most effective strategies by customer class, your competitors who adopt a simple cost reduction strategy applied broadly will fall behind.

Customers toward the houses and cars end of the continuum won't object. They have their own problems, and they would prefer to not be bothered by suppliers until things improve. For those customers, your strategy to aggressively manage costs and expenses is the perfect fit.

But customers toward the liquor store and Wii end of the continuum will exercise their rights to define suppliers focusing only on cost and expense reductions as irrelevant, and they will be delighted to help you define your business, your products, and your services the way they want them.

After all, if the customers help to create your products and services, they are compelled to like them. These kinds of customers will prefer to buy your products from your company during the recession, and as long as you keep them satisfied. You win! You win big, for a long, long time!

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