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In a recession there is a lot of belt tightening that goes on in businesses of all sizes. In some cases there is no choice. Business is down and costs and expenses have to go down too or the business will start losing money. In other cases sales are off only slightly or flat. But managers may cut expenses in anticipation of things getting worse. Yet some businesses, in spit of economic conditions, continue to do well. A young man I know recently told me that his company had a record year last year and five percent growth in sales and a 20 percent increase in profits in the first quarter of this year. Employees received a profit sharing distribution for the quarter. His company is doing well. There is no belt tightening here. His company is also in a position to take advantage of the downturn. Every business does not suffer in a recession; some prosper and can take advantage of competitors that cut back.
In tough times one of the easiest places to make cuts, often the first place, is in sales, general and administrative expenses. These expenses are not the direct costs associated with making a product or providing a service. These are items of overhead that represent the indirect expenses of doing business. It is relatively easy to cut or eliminate these expenses and continue to operate. It is in this category of expense that you find marketing, advertising and promotional expenses and expenses for sales. A business may let a sales person go or cut commissions. You would also find expense for travel and entertainment for customers. Items such as season tickets to sporting events used for customer entertainment, promotional items such as coffee cups and golf balls with you company name and logo proudly displayed are part of this expense category too. Ads in trade magazines, event programs and sponsorships are included here also. It is easy to see why a business will use the knife here. It is easy to reason that you can do without these expenditures until things get better. You certainly do not want to sink the ship with too much expense. But there is an opportunity costs to consider. When your competitors are playing it safe a little bold action on your part can put your company well into the black.
The point here is that those companies that see the recession as an opportunity can exploit it. The recession is an opportunity to gain a competitive advantage that could last for years. Obviously, if you have to cut expenses then you must do so to stay in business. But if you are playing it safe with the rest of the crowd you may miss a golden opportunity. Don't get caught up in all the gloom. You should advertise and entertain prospects and customers where you can because your competitors may be neglecting them. Turn your sales people loose and increase sales calls and promotions. If you do have some money for marketing and advertising activities this may be an ideal time to spend it. I've attached an article that recently appeared in The New Yorker Magazine about how Kellogg's gained a huge competitive advantage over Post Cereals during the Great Depression. They never lost that advantage. Today's economic malaise is similar opportunity.
I know that many smaller enterprises have very little money allocated for marketing, advertising and promotion. Often there is little to no money available for entertainment. But every business has to acquire customers and make sales. Almost every company is spending some time and money on sales. It's time to ramp up sales activity and exploit the weaknesses in the market. Many successful companies started operations or gained their competitive advantage during tough times. There is always opportunity amid the gloom. Those businesses that can increase marketing, advertising, promotional and entertainment budgets and sales activities can take advantage of a rare opportunity. Carpe diem.