How to use the next economic downturn to pull ahead of competition
1. The main idea
Economic downturns (recessions) create clear winners and losers and the recession probability doubled from 2018 to 2019. Research shows that the winners are those that prepare in time and as the company’s revenue engine, sales and marketing preparation play a key role
2. Supporting facts
Companies that prepared for the crisis of 2007-09 improved EBIT 171% from 2007 – 2016 while unprepared companies experienced an 8% decline during the same period.
However, few companies prepare for economic downturns in time. In 2007 it was only an estimated 11%
3. Key take-away
To come out of the next downturn as winners, sales and marketing leadership need to start preparing it today.
If the commercial leadership come unprepared and without a plan once the downturn hits, they will likely become part of someone elses cost-cutting agenda
Sales & marketing recession-preparation plays a key role in turning an economic downturn into an opportunity to pull ahead of competition.
Economic downturns happen with 100% certainty and research shows they tend to create clear winners and losers
The companies that come out as winners are those that prepare well and in time for the recession. A recent study of 3,900 companies worldwide found that while recession prepared companies improved EBIT 171% between 2007 and 2016, unprepared companies experienced a 8% decline during the same period.
The conclusion is clear; recession prepared companies pull ahead during -and after the downturns, while the unprepared continue to struggle coming back from the shock.
For the few that prepare, the coming downturn is an opportunity to pull ahead of competition
Downturns are in reality an long-term opportunity to pull ahead of competition, but a recent analysis by Bain & Company shows that only 11% of companies prepare for recessions. A Wall Street Journal study of 158 CFOs from February put the number higher, with just under half of companies saying they have a detailed plan prepared for the downturn.
As the company’s growth engine it is critical that sales and marketing prepare for the inevitable and put recession preparation on the management agenda. When the market turns, they are some of the first the CEO will turn to for cost-cutting and when the market bounces back they are at the front line of pulling the company out of the recession and ahead of competition.
Commercial leadership preparation boils down to 4 questions, which requires an answer before the downturn hits:
- Which non-core sales and marketing activities can we scale down to reduce cost, while minimising risk of jeopardising long-term growth?
- How do we use the downturn to get rid of poor performers on the commercial team to hire talent when the market picks up again?
- What is the “downturn value proposition” of our offerings, when customers go into cost -and risk reduction mode?
- How do we early identify that the downturn has hit and how does the commercial leadership team go into a new “Downturn Management Model” when this happens?
How well these questions have been answered will determine how quickly the company can make the right decisions when the downturn starts and how they are positioned to take advantage of the opportunities when it bounces back.
As probability of recession doubles, commercial leaders need to act now
Perhaps downturn preparation should get priority on the commercial executive agenda sooner rather than later. According to this Forbes article, the probability of recession doubled from 15 to 30% between 2018 and 2019.
The challenge is to keep one foot on the current commercial growth pedal, while at the same time aligning the leadership team around a plan for a future that looks very different.
The process starts with top-management in sales and marketing exploring how different downturn scenarios would impact their business and their customers’ business. Base-case scenario, best-case scenario and worst-case scenario.
- What happens in the 3 different scenarios?
- How does it impact our business and the business of our customers?
- What are the critical adjustments to make under the 3 scenarios?
Exploring how the downturn could play out to is the first step to preparing for it.
Be proactive in preparation or risk being put on someone else’s cost cutting agenda
History all too clearly shows, that if commercial leaders do not proactively and quickly show a way forward once the recession hits, they will be part of someone else’s agenda and very likely in the form cost cutting.
Research clearly shows that downturns are actually short-term challenges but long-term opportunities. For the well-prepared commercial leaders, the biggest opportunity of the decade.
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