As the market (and demand) for a company’s goods decreases, the natural inclination for many CEOs is to cut cost in order to maintain profitability. However, many market-leading CEOs look at a recession as a time to undergo fundamental transformation in order to grow.
The Revenue Growth Maturity Model (RGMM) is a tool developed by SBI to help clients assess their growth capabilities and chart a path to an ideal future state. The 5-level model provides stage-appropriate strategies to evaluate your current growth capabilities and the likelihood of meeting revenue targets.
CEOs Have 3 Primary Levers to Grow Their Business Organically
Market Expansion Is the Least Viable Lever in a Downturn
When the economy is booming, capturing demand from new customers in the market is the cheapest and most viable option as future customers look externally for products and services to support and scale continued growth. For the last 10 years, the US economy has grown at a healthy 2% annually with some industries like software, information security, and construction significantly outpacing GDP growth. During these times, CEOs could align their offerings to growing sectors and reap the associated benefits. But when the market reverses, the volume of companies entering the market wanes and purchasing attitudes shift to viewing many products as expendable or postponable.
New Market Entry Expands Revenue Opportunities Regardless of Economic Conditions
Capturing revenue by entering a new market potentially provides the highest amount of upside opportunity but also is also the riskiest option. A new market could be based on a new geography, segment, vertical, or product. New market entry could happen slowly and organically, such as Intel’s notable shift to microprocessors, or inorganically, like Salesforce.com entering the iPaaS (integration platform as a service) market via the $6.5B acquisition of MuleSoft.
Market Share Gain Strengthens Positions in an Existing Market
Inside a sector, market share increases by capturing revenue currently going to competition. This change can happen incrementally as established competitors compete for the same customers (e.g., Coke vs. Pepsi) or abruptly like Salesforce.com, ServiceNow, and Workday disrupting legacy categories via digital transformation.
During a growing economy, market share gain is often the least likely strategy to be implemented. It’s more expensive, time-intensive, and simply harder to win over customers already using a competitor’s product than to persuade a firm with no solution to invest in your product.
During an economic downturn, the opportunity to grow through earning new customers to the market goes away, leaving market entry and market share gain as the only remaining options. Between the remaining two options, entry into new markets requires the highest upfront cost, time investment, and risk. If execution falls short or the hypothesis on how to capitalize on a new market proves wrong, it can be a costly mistake. This leaves market share gain as the most viable option to continue to grow during a recession.
This has led to a gap in the tool kit for many CROs and CMOs who have never had to think of usurping competitors’ install bases as a core competency.
As mentioned previously, there are three primary actions to capture market share from the competition:
- Redefine the market and competition: Gather data on who the key customers are in the market, and then prioritize based on net dollar potential and fit against an ideal customer profile.
- Align commercial functions: Tight alignment, collaboration, and focus across sales, marketing, product, and customer success becomes even more vital as the market declines. Many CEOs will establish Revenue Growth Offices (RGOs) to help manage this interlock and insert a unified operating cadence across departments.
- Change execution tactics: Develop and execute new plays to capture customers from the competition.
While developing plans to acquire customers from the competition, it’s also important to shore up the existing customer base as they do the same. Companies like Dell implemented key account plans as a defensive move to protect their most valuable customers during the last.
To assess recession readiness, get started by taking the Revenue Growth Maturity Assessment, which will help to:
- Benchmark the baseline and capabilities.
- Uncover gaps in the current go-to-market approach.
- Chart a path to the ideal state.
As the shock of the new world begins to wear off, and commerce resumes by leveraging the proven growth frameworks, organizations can be positioned for the greatest chance of success both during and after this downturn.