Wednesday, November 26, 2008

Run & Hide in a Downturn or Hit the Gas Selectively?

So much doom & gloom has been written about how to run a business in a recession I thought I would pose a contrarian perspective to see what other bloggers / readers were thinking.

Everyone in Silicon Valley is now familiar with the “PowerPoint” that Sequoia Capital sent out last month. They were the buzz of Silicon Valley when they invited their portfolio entrepreneurs & CEOs into a meeting and greeted them with an image of a tombstone that said “RIP Good Times”. The premise of the meeting was to cut costs immediately and figure out how to survive and successfully emerge on the other side of what they predicted would be a long downturn. From a historical perspective they also had a similar all hands on deck meeting before the last downturn.

Sequoia’s speakers (including Uber-investor Mike Moritz) told the Financial Times “It’s pretty clear that demand is going to soften across the board for every company - it doesn’t matter if you’re selling to consumers or companies.” They went through each functional area and showed their investees how they could/should cut costs to decrease their burn rate and increase their survivability in an extended down turn.

Now, as a fellow entrepreneur I’m very familiar with the need to extend your burn rate and believe that some cost cutting is in order in downturns. However, I take a different tact than many when it comes to marketing. When most companies and people are burying their heads in the sand I believe it’s the best time to get going and create some head wind for your company! Your marketing / advertising efforts will get more bang for your buck because there is less competition for head space. Your dollars will go farther and marketing / advertising is cheaper because they’re happy for any new business they can get. Last, this is the time to gain market share on your competitors and strike while they're scared and sitting around wondering what to do because “the sky is falling”, we better not do anything and just wait it out. Your more experienced Angels/VC's get that and the ones who do usually get the best valuations / long term deals because they kept at it during a downturn but became more focused and used their marketing budget proactively. However, we all know it is much easier to be a sheep than strike out (especially in Australia w/the tall Popeye syndrome!) and hit the gas judiciously.To my mind, more entrepreneurs should take the contrarian Warren Buffet approach and when all the sheep are headed to the pens go out in the field and look at this time as an opportunity to take advantage of, rather than to run scared and miss out on an opportunity to position your company for the coming up turn!

Check out the American Marketing Associations survey for more information on this topic.

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