To Innovate or Focus on Survival: How Should Your Company Respond to a Down Market?
Posted July 30, 2021 in Articles
The economic impacts of the pandemic have forced many companies to change the way they do business. With substantial shipping delays, increased costs, fewer workers and fewer customers, business hasn’t been “as usual” for well over a year.
Different companies have responded in different ways. While the worst impacts of the pandemic thankfully appear to be in the rearview mirror, businesses will continue to see impacts throughout 2021, if not for years to come. If your business is still facing a down market (or other challenges) as a result of the pandemic, what should you do? Should you focus on surviving until things get back to normal, or is it time to innovate and take your company in a new direction?
Steering Your Company Through 2021 and Beyond
A recent article in the Harvard Business Review addresses these types of questions. After examining data from before, during and after the recession of 2007 to 2009, the authors reach a clear conclusion:
“[F]irms that increased investments during the recession showed improvement in return on equity, sales growth, and market values in the recovery phase. Companies that decreased investment showed deterioration on all three counts.”
Notably, companies that cut costs in order to focus on survival not only performed worse than those that invested in innovation, but they continued to lose ground throughout the study period. While the impact on sales growth was relatively minimal for those that focused on survival, market value and return on equity both dropped significantly. These are long-term losses from which it can be difficult to recover—particularly when the company’s competitors have been making gains over the same period of time.
Given these data, the authors write, “our prescription is that a CEO must consider recessions as opportunities.” In particular, the authors recommend focusing in the following areas:
• Attracting highly-talented employees who are motivated by the opportunity to lead and participate in new business growth opportunities.
• Considering acquisition opportunities, particularly with regard to competitors that may not have access to the capital required in order to innovate during the recession.
• Invest in new technologies, and use the current market downturn as an opportunity to deploy these new technologies with relatively minimal disruption to the company’s operations and customer service.
• Focus on targeting customers who are dissatisfied with competitors who are focused solely on survival.
• Consider the unique financing opportunities that are presented by the current economic conditions.
Of course, once you decide to focus on innovation rather than survival, then the next question is: “How?” This is not an easy question to answer, and each company will answer it differently. Founders and executives need to invest their companies’ resources wisely, and this requires a thorough assessment of all of the various opportunities that are on the table.
Talk to a Strategic Business Consultant at Mithras Investments
If you would like to learn about the opportunities that may be available to your company, we encourage you to get in touch. To schedule an appointment with a strategic business consultant at Mithras Investments, please call 305-517-7911 or inquire online today.