Cutbacks to preserve profits can stifle growth

By Jerry Horwitz

For the last several months, we have been hearing about a slowdown of our economy. Every day our news people, politicians and leaders are telling us that signs and symptoms are appearing to bear out this word of doom: recession.

Corporations that have set unrealistic goals and values for the good of the stockholder are falling short and executives must rationalize their failure. True, business cycles are up and down, there is no denying that; however, a repeat of the 1929 Depression is not a realistic thing to expect. We have too many controls in the system.

SPONSORED CONTENT

The many benefits of simple, coordinated healthcare

Kaiser Permanente combines health care and coverage in one connected system to maximize employee health and minimize employer costs.

We have watched stock market values hit highs that were unthinkable. Many people were attracted to new wealth through purchases of stock that manipulated to excessive heights in worthless companies. People bought ideas and concepts ? all called dot-coms. When the market realized the value was not in the shares, eventually truth was realized. Consequently, the drop in value became labeled recession.

Managers and owners will start to believe they are in a recession the first time they see stagnant or receding revenues from sales. The denial to buy is excused by the expression: “We are in a recession, and I cannot commit to anything now.” Companies tend to believe that if they cut expenses to preserve assets, they will be able to ride out the period.

The concentration of shrinking revenues will force managers and owners to look at their budgets and expenses. Advertising and sales expenses will appear as a burden, particularly when companies adhere to the belief that they already have customers and therefore, revenue, in hand. The belief is that a cut in the advertising budget and some sales positions will lower costs.

The myth is that a business can sustain the lower revenues with a smaller organization and preserve profits from reduced revenues. The same disease of economic shrinking extends to the production line. The belief that lower volume needs fewer people, who would perform better because of the diminished numbers, is a management dream far from the truth.

If the changes were realistic, why did management employ so many people in production originally, spend money on advertising and pay salespeople to get their product to market during the “good old days”? The real skill of management is to operate a business in the most efficient way to create a customer for repeating revenues in any environment. Now management is thinking, we have to bring our costs into line for shrinking revenue.

The reality of cutting back action to protect assets and profits is really a step to shrink a business. Why not ask, “If we are to preserve sales and revenues, how should we increase the sales and revenues?” We do know that in a receding market period, business goes on ? it does not totally cease.

Companies still sell and buy during the recession to maintain an active profile in their operation. Why not look into the possibility that we can still move forward? Management should look at what the future of their business might be. The time to ease into changes may be now.

Why not consider a drive to increase revenues through new or additional sales and services to new clientele? Along with this research, businesses should consider what they might be marketing. Specifically, what else can we handle for a new product or service to bring in additional revenues?

This demands identifying the services customers receive in existing markets and determining what products can be produced or distributed to existing customers to increase revenues. After this is done, companies should go after the business to grow, even in a recession.

Businesses also need to review the customers or markets that are not regular. How and what will be the means to start sales with these new customers? This is important because new customers make up 100 percent of new business. This is where salespersons and advertising programs are necessary to place your company in view of new customers.

A good defense for going after new business in a shrinking market will mean a larger company in the future when conditions return to normal. In truth, a business that goes through the research and effort to grow is positioning itself as a leader in its field. Management has positioned its customer base to look to the company as the source for goods, services and knowledge that overshadows the competition. To their competition, the growing firm will become the power in the market.

For those who shrank their operations to preserve profits from lower revenues, the result is different. What they have done successfully is cut contact and service to an existing customer base and reduced their revenues. By cutting out the advertising and sales personnel, the means to stay in touch with customers and potential customers has been removed. The managers should be asking, “What are we really doing?” Then, “What can we do differently?” Honest objective evaluations can bring the recession to heel in the activity of a well-managed company.

Thomas J. Watson bought the International Time Recorder Co. and went on to prove this in the Depression of the 1930s. He did change the name of the company to International Business Machine Co. and grew in a market that had not been identified by many others. His means were a product that was useful and a sales force and advertising program that reached out and built revenues by building customers. All this was done in the depths of the Depression. His company is still in business.

Most important is to bring an organization into the campaign to grow in the recession. Employees must buy into the program. Hold meetings explaining what the program is, letting employees make suggestions and allowing for their agreement with the program. The outcome is a total effort in direction by every member of the organization. Life can get exciting, and growth in a down market becomes a reality.