The age of dumb capitalism is over. Dumb capitalism based upon excessive consumption fuelled by easy credit has run its course.
With quality not quantity the new buzz in financial markets this will filter all the way down the retail chain because as the easy money (or credit) disappears the consumption patterns of everyone from individual customers, through small business and large corporations will become far more cautious and selective.
So for businesses the business plan of “just sell more stuff” has also expired. This could be fatal for many small businesses since the majority I come across have no other plan. Most have not experienced a downturn and have no knowledge of how to counteract the effects of one on their business.
Sacking staff, prices and services is both a short term and ultimately defeating strategy. That’s a quantity strategy. What is required is to follow your customers into the area of quality. Yes they will make fewer purchases but that doesn’t necessarily follow that they will make cheaper and lesser quality purchases.
Many firms also start discounting in a downturn. This results in a race to the bottom. You will most likely lose existing customers on the way since when price dominates you just become one of the pack.
A smarter strategy is to consider how you can help your existing customers and how you can weather this downturn together. For instance how can you maintain quality while giving them a break on finance? Instead of discounting give them a little longer to pay which has the same effect. Instead of lowering the quality of your services or stock allow them to pay in instalments.
What you really need in a downturn is not fear and drastic measures but creativity. Being creative seems not that important when things are going well. It is critical when they are going bad though.
Like all downturns we usually get warning signs and the time to act is as soon as they are confirmed. This is the time to take stock with key staff and advisers to consider both a protective strategy and a rescue strategy. The former is proactive, and includes creative approaches such as those mentioned above, while the latter is reactive in case certain key indicators do go horribly wrong. Assessing them both now, before the ‘proverbial’ hits the fan, is wise.
The key to a protective strategy is that it must be both creative and actionable and go beyond the clichés of sacking staff and cutting prices.
To develop that strategy take your advisory team somewhere nice, away from the doom and gloom news, take a good facilitator with you and spend time getting people into a creative groove so they can develop a protective plan that actually improves your competitive advantage in the current climate.
Bold moves like this are the sign of a good business and good businesses not only survive downturns but they actually emerge from them even stronger.