Small Business

Taking Advantage of a Down Market


Assuming you've saved some cash, there are a few steps you can take to weather the economic downturn, and even flourish

The U.S. has officially entered a recession. What's the best thing to do when times get tough? Hunker down, right? Wrong. I spent the last five years studying the financial performance of more than 7,000 growth companies over a 22-year period for my recent book, The Breakthrough Company (BusinessWeek.com, 1/14/08). I learned that companies that achieve breakthrough performance don't batten down the hatches during tough times—they look for the opportunities that tough times inevitably bring. If you didn't go crazy and load up on debt during the good times, you may be in a position to really take advantage of the current downturn. Here are three ways to capitalize.

Get rid of the deadwood. During good times, it's easy for companies to accumulate people whose performance is less than stellar. Business is growing, the job market is tight—and you justify in your mind keeping mediocre performers because the thought of interviewing 10 or 20 people to fill a position just turns you off. Also, during good times there is usually some staffing creep as managers pad their labor budgets to make sure they are able to handle any unexpected jump in business. When the market turns downward, leaders have the opportunity to prune away the deadwood in their organizations in a way that makes them more efficient, and that positions them to hire the best and the brightest in the industry when business picks back up.

Consider what the president of a regional real estate company told me recently: "We are making decisions in our business today that we simply could not have made when the business was on fire. We are laying off the least effective people in our business and getting a 'double hit' to productivity—the poor performers are out and the good performers are even more productive as they see us finally dealing with the poor performers. This downturn has positioned us to blow away our performance numbers of the past—even though our numbers were already some of the best in the nation."

Focus your resources. Just as companies tend to accumulate mediocre performers during the good times, they also often add projects and initiatives that, when examined in the harsh light of an economic downturn, don't represent the best use of the company's energies and resources. When things are going great, everything seems like a good idea—and seemingly good ideas accumulate like barnacles on the hull of the ship. A downturn gives leaders the opportunity to look closely at what all these activities are really bringing to the company, and to discard those that offer the least in terms of short-term company health and long-term competitiveness.

A food distribution company I work with is facing rising commodity prices and slowing business in its key restaurant division. The top 40 people in the company just met to review all its major projects and decided to simplify significantly—and to focus relentlessly on the 20% of the activities likely to deliver 80% of the results. The meeting was amazing. At one point several salespeople stood up and explained why they believed it did not make sense for the company to create a new online sales tool, a project the sales group had been requesting for two years. It was clear they understood the need to prioritize for the good of the entire company, not just push through pet projects.

Go shopping. When the going gets tough, the tough go shopping. If you were smart enough to keep some powder dry, you might be in a position to turn the downturn into a win. That's because during an economic downturn, a lot of things go on sale. You can often get exceptional deals on real estate, facilities and equipment, and business services as companies cut prices to get through the downturn. Perhaps the best bargains can be found in people. If your competitors haven't prepared for the downturn as well as you have, their employees may be more likely to jump ship, and you could be in a position of picking up some great people, if you are ready to move while things are still uncertain.

Bottom line? You have two choices during tough economic times: either hunker down like everybody else or clear out the deadwood on your team, refocus your business tightly around the fundamental drivers of success, and, if you've got the cash, go shopping. The breakthrough companies featured in my book—companies like Polaris (PII), Staubach (), Fastenal (FAST), and Chicos (CHS)—have consistently done the latter, in many cases for up to three decades.

Keith McFarland, a two-time technology CEO, is the founder of McFarland Strategy Partners in Sandy, Utah.

Steve Ballmer, Power Forward
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