A couple of years ago I wrote an article persuading you that in times of boom cost cutting is essential. The opposite is also true. In periods of economic decline investment in future growth is essential to drive the longer-term success of your business
I do not say this to be glib or to try and gloss over the pressures on current business performance. I am acutely aware that selling extremely challenging for most organisations.
However investing for longer-term growth is a vital component of any successful business and this is particularly true in a downturn. Here are five compelling reasons to invest in growth now.
- To be the leader you don’t need to move forward too much when everyone else is retreating. There are many studies that make this point. Here’s just two examples:
- McGraw Hill Research found that companies that maintained or increased advertising in the recession of the early 1980s had, by 1985, experienced over three times the sales growth of those that had cut their advertising budgets.
- A study by McKinsey of 1,000 companies that performed best following the recession of the early 1990s clearly demonstrated, during the recession, a greater appetite for acquisitions, a willingness to use their cash reserves and to invest in marketing, selling and R&D.
- Innovation remains the key driver of profit growth. The latest Business Week Top 50, which ranks companies by their return on capital and their sales growth (by sector), highlights that it is those companies who focus on innovation that perform best. For example, Nucor, operating in the highly cost competitive steel industry, has maintained profitability and growth by investing in new technologies that give it a quality, speed and cost advantage.
- You can build greater customer loyalty. Helping your customers today will create a bond of loyalty that will be repaid in the future. And loyal customers are cheaper and easier to sell to both in good times and bad. Bain & Co estimate that companies with loyal customers achieve over twice the growth of average companies. Building customer loyalty is not about knee-jerk price reductions, but about getting closer to them to understand and meet their needs better and to deliver a great experience for your target customers where it matters most.
- Investment is cheaper. The advertising giant Publicis is predicting a 7% fall in advertising expenditure in 2009. Great advertising deals will be everywhere. Unsurprisingly AG Lafley, the CEO of P&G, has said that the company will take advantage of these conditions to grow the company’s advertising ‘volume’ this year.
- It’s about focus, time and being innovative, not just money. Here is a small example of a big point. A couple of weeks ago I played my first gig, playing guitar with a group of relative strangers. Six weeks earlier Colin, the owner of Guitar Base, had brought us together. Colin attracted 25 or so mainly men who were mainly in their 40s and most of whom were playing in front of a crowd (rather than a mirror!) for the first time. He also marketed the event, which attracted a crowd of 150-200, provided the PA and organised the practice sessions. I am so energised by the experience that I now want a new guitar and amp. Where will I go to buy them? Of course, there is only one person I will seek out and that is Colin, who, incidentally, will be opening his second shop this month.
As with advertising there are also likely to be M&A bargains. KKR, the private equity giant, estimate that $300 billion of private equity funds are awaiting the purchase of ‘distressed’ companies in the next few years.
The bottom line
The winner of the Tour de France doesn’t build a lead going downhill. All the cyclists go equally fast at that point. Instead, the winner typically chooses one of the toughest climbs to make his move. Similarly, in these difficult times prudent and focused investment in growth remains the best way to create a successful business. What areas of growth are you focusing on at the moment?
To find out more contact Stuart by clicking here or call +44-(0)1636-526111.