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Updated 30 Sep 2020

How to grow revenue in a downturned economy

Our current economy, downturned as it is, has the potential to create both winners and losers. This is because the riskiest response to the uncertainties of an economic crisis is inaction. 

Greg Morris, 20 December 2017  Share  0 comments  Print

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A ‘business as usual’ mindset can sink any ship. The second riskiest? Uncoordinated or reckless action. What’s required, in my opinion, is identifying and leveraging the hidden but significant opportunities nestled within bad economic news.

There are two steps to this:

The first is to stabilise your business, protecting it from downside risk and ensuring that it has the liquidity (cash in the bank) it needs to survive the crisis. Then and only then, in the second step, look for ways to capitalise on the downturn in the longer term.

What the experts say 

Harvard Business Review notes: “A subset that deploys a specific combination of defensive and offensive moves has the highest probability of breaking away from the pack. These companies reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest comprehensively in the future by spending on marketing, R&D, and new assets. Their multipronged strategy is the best antidote to a recession.” 

Related: Want to grow revenue in new markets? Think like a BOS

Step 1: Stabilise your business

The first step for a company to take in a challenging economic environment, especially one that could become more challenging to navigate, is to systematically assess its own vulnerabilities.

1. Simulating by business unit and at the broader company level, consider several downturn scenarios. Determine the ways in which each might affect your business, and carefully quantify the impact on each level.

Ask: how can we reduce our exposure in this instance? Once you know this, ensure that you have adequate cash flow and access to capital, to maintain a firm financial footing.

2. You can begin with aggressive moves to reduce costs and increase efficiency. But, while speed is important, so is a well-reasoned, logical and cautious plan. You don’t want to make cuts now that will hurt more than they help in the long term - by, for example, putting important future business opportunities at risk.

3. Keep in mind that reducing costs increases profitability, but only if sales price and number of sales maintain. If cost reductions yield reduced quality when it comes to company products, you may be forced to reduce price to maintain the same level of sales. This can wipe out any potential gains and result in a net loss.

4. You can rethink your product mix and pricing strategies in response to evolving customer needs. This may mean commanding higher prices through successful branding. Examples of such success are firms like Coca-Cola and Sony. These companies have established identities that enable them to command significantly higher prices than competitors, while simultaneously increasing market share and maintaining premium status even in economic downturns.

5. You can divest non-core businesses, selling off peripheral (or poorly performing) operations. 

Here’s a tip: Don’t wait for ‘better times’, in the hope of securing a price that matches those of recent years, when the economy was buoyant. If the business isn’t critical to your activities and it increases your exposure, divest it immediately.

Related: 5 Strategic steps to help you double your revenue next year

Step 2: Invest for the future 

1. You can pursue opportunistic and transformative mergers and acquisitions (M&A). For companies that are relatively strong strategically and financially, recessions present rare opportunities to improve their competitive position. According toHarvard Business Review, “Companies that acquire in bad times as well as in good outperform boom-time buyers over the long run.” 

The most important objective of M&A in any economic environment is to help execute a company's strategy. In a downturn, that strategy will almost certainly focus on strengthening the core business. No company can hope to survive a downturn without a strong core, and M&A can be a valuable tool for reinforcing it. 

2. You can rethink your business models. One issue that many businesses face is the fact that they have rigid or outdated business models. The continual stream of innovation in technology and media has provided a constantly changing business landscape, and the traditional publishing industry provides a relevant case in point.

3. Be different. Stand out. Market your products or services in a new way. Google Jordan’s Furniture, a furniture retailer that sells more furniture per square foot than any other furniture store in the USA. They transformed a family-owned business into a multi-million-dollar corporation – now owned by Warren Buffett – using "shoppertainment". Their flagship store has an IMAX 3D theatre for bored kids, a re-creation of Bourbon Street in New Orleans for adults, and other fun experiences for people of all ages. 

In short, companies that can master the delicate balance between cutting costs to survive today and investing to grow tomorrow will, in my opinion, do well during and after a recession.

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About the author

Greg Morris

Greg Morris is the Chief Executive Officer of MICROmega Holdings Limited. Greg joined the group in 2000 and was appointed CEO in January 2011. Responsible for the day-to-day operations, management and corporate finance transactions of the Group, Greg holds a Bachelor of Accounting Honours Degree and is a qualified Chartered Accountant.

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