Business Strategies for an Economic Downturn

  • Comments: 6
  • Written on: December 16th, 2008

While Nebraska’s agricultural hedge helps insulate the local economy against the kind of tough times the people in Michigan or South Florida are experiencing, it is surprising to me how many small business people are just sitting back and waiting for the “economy” to inform them of their company’s future fate.

I have even had people ask me why I am expanding my business in the face of such economic uncertainty.  I believe this mentality of fear will separate the next decade’s successful entrepreneurs from those who struggle.

You might think I am crazy – and I suppose the results will judge that – but here are some of my basic business principles that I follow in an economic downturn.

Never, Ever Stop Advertising

There are times in every industry when downturns happen.  As money gets tight it is very tempting to look at the big ticket items on your balance sheet and start slashing.  It is very tempting to reduce advertising spending to cover ongoing operational costs.

While this is an easy decision that gives immediate short-term relief, it CAUSES a major long-term problem.  Don’t forget that you advertise to attract new customers.  If you stop acquiring new customers, you earn less revenue.  If you earn less revenue you have to cut more costs.  This longer this cycle continues the more difficult it is to pull out of it.

In 2009 I have signed major year-long advertising contracts for TV, radio, and yellow page advertising.  By signing annual contracts I received some substantial discounts and more importantly I will avoid the temptation to cut my advertising budget no matter how bad things get.

Maintain Your Customer List

It’s vital to continue attracting new customers to your business to ensure its long term success.  With that said, it is always more expensive to attract new customers than it is to market your new products and services to your previous customers.

One of the easiest and least expensive things you can do to grow your business in an economic downturn is to maintain a customer list with as much information as possible.  Don’t overlook details like cell phone numbers and email addresses.

Use this list to communicate with your customers at every opportunity through email, text messaging, phone, and through postal mail.  Every sale you generate by sending an email is just as valid as one that results from a radio advertisement!

I communicate with every single one of my customers no less than four times a year.

Offer Value in a Recognizable Way

In an economic downturn people are looking for a deal, even if they don’t financially need one. Play to this demand by advertising a value to get new customers into your operation.

For example, in 2009 Schrock Innovations will be pounding our free hour of labor deal for new customers.  We want people with broken computers to bring them to us for repair.  This allows us to build a mailing list (more on this soon) and introduce ourselves as a company.

(We also send coupons to our existing customers to head off any new vs. old customer rivalry)

Most of the time we fix the customer’s problem in that free hour.  The only thing people in an economic downturn love more than a great deal is bragging about the great deal they just got.

By offering a free hour of labor ($80 value) to a customer we have added them to our customer list, we are now their default computer repair provider if they have future problems, and they are telling their friends about us.

While it might seem like an expensive way to attract customers, let’s compare it against other forms of advertising.  Most radio commercials cost about $40 and TV spots can go into the hundreds.  Imagine spending $80 for a guaranteed customer, a personal endorsement to their friends, and their future business.  Its a steal!

What does your company have that it can offer for free to bring new faces in the door?

Do Not Become a Low Cost Leader

This is the most tempting and dangerous principle of all. In an economic downturn people seek to escape joblessness by marketing their own personal skills and abilities.

Michael E. Gerber, author of the E-Myth explains that most entrepreneurs who fail are simply technicians suffering from an entrepreneurial seizure.  That is to say that they know how to perform a skill, but they don’t have the necessary supporting skills like strategic planning, marketing, and accounting.

When unemplyed technicians enter a marketplace as service providers they typically charge less for their services then the competition.  They are also hungry for work, so they tend to provide levels of service that are unsustainable when compared to what they are charging their customers.

As marketplace conditions improve, they can’t raise their prices because their customers will all flee to the newest low-cost leader.  They also can’t lower their service levels with out losing their value-conscious customers.  They are trapped and most of them will be doomed to fail.

As an established business you should not lower your prices to meet this new competition.  Remember that you have a sustainable business model and they don’t.  You have a track record of success and they don’t.  You will be in business tomorrow and they won’t.

This doesn’t mean that you sit by and watch these competitors take your value sensitive customers.  Use your marketing prowess to offer special sales, coupons, and one time discounts that maintain the precieved value of your product or service while at the same time keep your price-conscious customers loyal to you.

There is opportunity in every boom and every bust and that is why I am expanding my business now.  I am betting that my competition won’t adhere to these principles when the going gets really tough.  I am betting that if they do, the systems I have set up will be better than their systems.  I am betting that I will absorb their customers as they exit the marketplace.

Will it work?  I believe it will, but the results in 2010 will speak for themselves 🙂

  1. devtrench said on December 16th, 2008 at 10:46 am

    Nice post Thor. Any advice for someone trying to start a business now? I’ve read the emyth book and it made a big impact on me, but I still struggle with value pricing (I think it’s because I’m a big value customer myself). Any other good books or resources that helped you get your business off the ground?

  2. Odzyskiwanie danych said on December 16th, 2008 at 11:36 am

    Great advice This is crucial that in these dark times, as the doomsayers say, we double our efforts to fight both the failing economy and the fear and depression we might feel. I am grateful to you for this post, I hope more people read it and learn from it.

  3. Thor Schrock said on December 19th, 2008 at 5:26 pm

    Hey Devtrench… There was a revision on the E-Myth called the E-Myth revisited. I would highly recommend it.

    The best thing about shaky economic times is that game-changing developments can create opportunity everywhere for those who can see them. A down economy doesn’t depress me. It gets me excited!

  4. rumblepup said on December 23rd, 2008 at 2:57 pm

    Thror, I just came up on this post today, so sorry I’m waaay late, but I can’t agree more with your assessment. The market might be shrinking, but that doesn’t mean there isn’t market to grab for a new business. At a time where all the big businesses are “bucking down” I’m expanding my business and being very, very bold. I’ll grab some of the market, then grab some more, and when the market turns around, the percentage I have will only increase.

  5. Jason
    Jason said on February 15th, 2010 at 9:53 pm

    Hi Thor. Nice article. You really put some great advice in there. To answer Devtrench, I know that Ja-Nae Duane, CEO of Wild Women Entrepreneurs, just published her book, “How to Start Your Business with $100”. I am looking to start a business and am headed to a book signing of hers. I think the book can be found on her site: http://www.Ja-Nae.net.

    Any other books out there that anyone can recommend?

  6. York Computer Repair – A Success in the Making said on July 27th, 2009 at 8:45 am

    […] Every reason you should NEVER try to be a low-cost leader […]

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