Getting Ready for a Stronger Economy
A lot of people have been asking me how they can take advantage of the growth opportunities that will arise from the end of the recession. Having been in business through three economic recoveries, I can tell you that each one is different. I can also tell you that recoveries are more difficult than downturns. When the economy is sliding, after all, it’s pretty clear what you should do: Cut expenses everywhere but in sales and marketing. When business picks up again, you have more choices, and if you make the wrong ones, you could find yourself in worse shape than ever.
I think this recovery is particularly tricky, because this recession has been so different from the previous three. It was brought on by ingrained behaviors around debt and spending that now have to change. We’re still figuring out the implications of those changes, not to mention the effects of the actions that the government has taken in response to the financial crisis. So caution is the order of the day.
I admit that such caution goes against my entrepreneurial grain. Like most of you, I’m an optimist. In the past, I’ve always expected the economy to rebound quickly after a recession, and up to now it always has. Previously, I would gear up for the rebound by, among other things, expanding our work force in anticipation of substantial growth. I wouldn’t do that this time around. There is simply too much uncertainty about what the future holds. I have to question, for example, whether we are even in a recovery.
I know that some parts of the economy are growing again. But I see few reliable indications of a general recovery. What I do know is that we started out with a huge amount of excess capacity in housing, manufacturing, and retail, and we haven’t yet worked our way through it. Until we do, I expect the economy to grow slowly and unevenly. So, on the hiring front, I’d advise holding off, even if it means continuing to work short-handed and paying overtime. Whatever money you would have spent on hiring people, I’d put into sales and marketing instead. That’s the opposite of the advice I would have given in 1982, 1991, or 2002.
I’d also keep a close eye on your customers, most of whom, I suspect, are behaving as if we’re still in a recession. I find that customers remain very focused on getting as much for their money as possible. To be sure, delivering value is always important, but in a strong recovery, customers become more focused on reliability and service. Price becomes secondary. I haven’t seen that behavioral change yet. There is still a lot of pressure to reduce prices. You should resist it. Start by offering additional services instead of price cuts. If that doesn’t work, I would hold sales or offer volume discounts for a limited time. But don’t reduce your prices. In the future, it will be much harder to get your prices back to where they should be if customers have grown used to a new, lower price level.
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