The year is 2007. The real estate market is flush. Stocks are booming. Getting a loan has never been easier. Companies are investing in themselves, growing their businesses, and increasing shareholder value.
Now fast forward to 2008. The real estate bubble has burst. Banks are failing. Unemployment rates are rising. Businesses are not thriving.
And when you’re in the business of business, and those businesses are cutting their R&D and operating expenses left and right – you’re on the chopping block. That investment they had planned to make in your solution? It’s not happening this year – they can’t afford it. Better luck next year, or maybe even the year after. They’ll make do with what they have for now.
When a recession looms, how can you drive your business forward? Better yet, how can you make sure you are making strategic decisions now – before a recession has even begun?
Take SBI’s Revenue Growth Maturity Model Diagnostic to see how you rank among market-leading companies, and if you are prepared for the next downswing in the economy.
One prime example of a business that made strategic decisions that helped propel it forward is Oracle.
Oracle Relied on Two Key Strategies for Growth
By 2007 Oracle was a software giant, second only to Microsoft in software services. It had been steadily growing its revenue to almost $18 billion by 2007, with EBITDA of about 39%.
Going into the recession, Oracle had been focusing on growing its software services in key industries – financial services, retail, and telecom. Oracle aimed to be the #2 (if not #1) supplier to each of these industries. And Oracle relied heavily on software licenses for its revenue – new licenses accounted for about 33% of 2007 revenue.
Another critical strategy for Oracle in the early 2000s were acquisitions. They targeted their acquisitions to build out their software and application platforms, allowing more variety and customization for their customer base.
Using the Recession to Oracle’s Advantage
The recession left few companies unscathed. Decreasing demand and higher borrowing costs left many companies struggling to survive the pressures of the economy. But Oracle was able to use the recession to its advantage.
First, it was able to build on its strategy of being the predominate software supplier to its key industries by making very targeted acquisitions. To become an even better provider to financial services, Oracle acquired insurance software maker Skywire Software LLC in 2008 for only $150M as well as AdminServer Inc, which helped manage insurance policies for $100M. At the time, the annual revenues for each company were $95M and $40M, respectively. Oracle was able to take advantage of the down economy to purchase companies at a discount and further enhance and complement its overall suite.
As the economic pressures increased, companies that could afford to make acquisitions had the upper hand. By 2009 public companies were being sold for 30% less than before the recession. And private companies were being sold for about 50% less. Oracle found itself at a prime advantage in this market, with over $7 billion in cash on its balance sheet.
Oracle Maintained a Focused Acquisition Strategy
Oracle had remained focused on growing revenue through acquiring the right companies at the right time, and 2009 was no different. The recession allowed Oracle to make one more key acquisition – Sun Microsystems. Oracle had a vast array of software products, but it lacked a few essential software and hardware solutions to be a full technology product suite to its customers. Sun Microsystems had the hardware that Oracle lacked, as well as a few key software solutions, including MySQL, Java, and Solaris.
Hardware companies like Sun Microsystems had been experiencing low to no margins on their hardware products and increasingly relied on maintenance contracts and service offerings for their income. This made them particularly vulnerable in the recession and led to consolidation, and – you guessed it -acquisitions. After some lengthy proceedings with the DOJ, Oracle was granted the right to acquire Sun Microsystems in 2010 for $7.4 billion.
So how did Oracle’s acquisition strategy affect its ability to withstand the pressures of the recession? Quite well, actually. For one, it was able to grow its revenue year over year, going from almost $18 billion in 2007 to just under $27 billion in 2010.
Oracle focused its acquisitions on the products and services that would complement its full product suite. This allowed it to sell more affordable niche offerings to clients that were cutting back on bigger ticket items but still needed software support. Unlike one of its competitor’s SAP, who sold a one-size-fits-all solution, Oracle had a suite of customizable products. This allowed its customers to take advantage of what they needed most when they couldn’t afford an entire solution.
But Oracle Could Have Done Even Better
Oracle did experience a few setbacks in the most recent recession. For example, Oracle had year over year quarterly losses in 2009 for the first time in years. And customers found the sales process difficult. Although Oracle had acquired more and more complementary products, merging those sales teams proved to be a challenge. Oracle maintained separate sales teams for the individual products, which left finding solutions and specialized pricing across the product suite more challenging. Retention and customer growth proved more difficult in the face of those frustrations.
Oracle didn’t face a unique challenge during its acquisitions. In fact, acquisitions are primary trigger events for customer turnover. Without a focus on customer success, talent design, and sales process before and after M&A, companies can face severe losses in value realization. Even though Oracle did well during and after the recession, imagine how many more customers they could have retained and grown had their acquisition strategy focused on customer success and sales synergies as well as the product synergies.
SBI Can Help Your Company Plan for and Thrive During a Recession
Recessions don’t have to be your company-killer. They don’t even have to be something that you and your company survive. With careful planning ahead of time, you can take advantage and thrive during a recession. Check out SBI’s Revenue Growth Maturity Model Diagnostic to determine where your company is most vulnerable to a recession.
Whether it’s knowing which products and services could complement your business in an acquisition or how to merge your sales and customer success teams during and after, SBI can help you uncover ways to prepare for and thrive in the next recession.