I was at the monthly meeting of the Venture Club of Indiana recently. The organizers had invited respected entrepreneurs, angel invertors and venture capitalists from around the country to comment on the Top Trends Impacting Midwest & Indiana Business in the Upcoming Year. The panelists accepted questions from the audience and seemed very open and passionate in their responses.
One topic that came up repeatedly was that a recession is a great time for buying companies. The reason is that there are lots of good ideas to pick from and valuations of many companies are relatively low when compared to a booming economy. To prove a point one of the members of the panel asked the audience how many individuals in the audience were looking for money? About 75 hands went up from the group of about 400 individuals. When asked how many people were ready to invest today only about 10 volunteers raised their hands.
I think it is human nature that when times are bad many of us hide in our “box” where it is safe until we are convinced it is safe to come out. However if you look at history a lot of winners did just the opposite and invested in times of turmoil. I read an article recently that stated 16 of the 30 companies that make up the Dow Jones Industrial Average were started during a recession or down economy. These include Procter & Gamble, Disney, Alcoa, McDonald's, General Electric and Johnson & Johnson. Some other companies that made their start when many were pulling back are Hyatt Corporation, Burger King, IHOP, FedEx, LexisNexis, CNN, and Microsoft. Why did these companies succeed? The founders knew their customers, understood their needs, understood the changing environment they were operating in, and created new products and services to meet the needs. They identified a solution and were not afraid to move forward.
In a recession the reservoir of business is drained to critical levels exposing the rocks on the bottom. Companies set in their ways with aging policies/mindsets are like ships that were able to succeed in good times but are now too bulky and crash into the rocks. This creates opportunities for nimble, flexible companies (visualize a speedboat) to take advantage of the situation and change.
In the climate today here are a few investments to consider to achieve a sustainable competitive advantage.
- Market your existing products aggressively. As others decrease marketing and promotional spending keeping your level of spending the same or even increasing it will help you build share of voice in the marketplace. This increased share will give you an incredible advantage over your competition now and once the economy begins to grow again.
- Innovate your product line. Has your market changed? Can you come up with a better mousetrap that will allow you to meet your customer’s needs at a lower price point.
- Improve your production process. Can you produce more for less allowing you to lower your price and buy market share?
- Fill a new market vacuum. How are your competitors responding to the recession? Are they pulling back creating a vacuum that you can fill?
- Talk to your existing customers? Are they happy? What are their needs? Identify things your company can do to increase sales to them. A satisfied customer is much easier to sell than a new one.
Entrepreneurs willing to take risks with their time and/or financial resources understand that this is a time to invest rather than pull back. It is what makes them entrepreneurs. This is what separates them from all others.
In summary don’t be afraid to invest now. When the economy improves and your competition climbs out of their box you will be several steps ahead.
Until next time - all the best!
RolandB
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