While most business owners are scurrying for shelter from the economic storm, a few will exploit the potential that lurks in turbulent times. The recession will create opportunities, not just to start a new company (see facing page), but to bolster your existing business in time for the recovery. The key: taking bold and decisive action as punch-drunk competitors count their losses. Here are three ways to outsmart your rivals while they’re on the ropes.
BUY UP COMPETITORS ON THE CHEAP
If your firm is adequately capitalized, this is the time to buy that rival you’ve long had your eye on. Many business owners whose balance sheets have been battered by the downturn will be open to a quick sale to unload their languishing firms, often at a sizable discount.
Drew Dorweiler, a vice-president and valuation specialist at Montreal-based business advisory RSM Richter Inc., says that acquisition prices have typically fallen by at least 20% to 25% in this downturn — and up to 40% in some sectors — as credit and cash flow have dried up and the number of potential buyers has dwindled. But you’ll have to move fast. “Valuations are always forward-looking,” says Dorweiler. “At the slightest concrete sign of the recession ending, they’ll bound up right away.”
Where to get the financing? Michael Epstein, managing partner of Toronto-based accounting and advisory firm Fuller Landau LLP, says banks are still providing credit to businesses with strong balance sheets. As well, “there’s debt and equity capital out there helping businesses do deals, so I think it’s a great opportunity.” Of course, you shouldn’t buy a dog just because it’s priced at 30% off. Two signs of a bad acquisition target, says Epstein, are depleted cash reserves and inflated inventoriesindicating mismanagement of working capital.
OUTSPEND YOUR RIVALS ON MARKETING
If you’re thinking of cutting your marketing budget, think again, warns Alan Middleton, marketing professor at York University’s Schulich School of Business: “Unless you do some marketing, the danger is that you accept that your business is going to go down.”
As a small or mid-sized firm, he says, “the likelihood is you have such a small percentage of the market that there’s no reason why, with the right strategies and tactics, you can’t grab a little more of it.” Middleton recommends investing in highly targeted ad campaigns, updated materials for your sales staff and one of your most important marketing tools: your website.
The payoff from investing while your rivals are scaling back can be huge. A long list of studies has shown that the return on investment from marketing spending is greatest during a downturn. For example, a 1986 study by McGraw-Hill Research concluded that business-to-business firms that upped their ad spendingduring the 1981-82 recession grew their revenue 256% faster than competitors that cut back.
HIRE TOP TALENT FROM THE OTHER GUYS
Cutbacks and bankruptcies are starting to put a lot of good people on the street. Even among the vast majority who haven’t lost their jobs, many will be ready to jump ship because they fear they might. Here’s your chance to nab quality people that are hard to find during boom times.
Chances are good that their salary expectations will be lower than what they used to make. Here’s one sign of employees’ weakening bargaining power: a new survey by Toronto-based HR consultancy Hewitt Associates found that 36% of Canadian employers have already reduced planned pay hikes for 2009.
You’ll likely need a headhunter’s help to find employees nervous about their jobs, but not to locate those who’ve already lost theirs. Lynn Brown, managing director of Brown Consulting Group, a Toronto-based HR consultancy, says outplacement firms helping laid-off staff land new jobs would welcome your call. A downsizing firm that’s not a direct competitor would likely be willing to tell you how to reach its ex-employees. And even a direct rival might do so as a humane gesture. Brown says she knows business owners who’ve persuaded competitors to do exactly that.