As the U.S. responded to the last recession of 2007-2008, a recurring theme became the quote made famous by Winston Churchill, “Never let a good crisis go to waste.” This was to describe the mindset of the top businesspersons during the time. Churchill made this claim just after World War II to portray the mindset necessary for recovery for the economy following the most financially-taxing war to date at that time.
Today the top 16% of CEOs must have this mindset when preparing for what could potentially become another recession in the coming 12-24 months. Paul Romer, a pioneer of endogenous growth theory, and a co-recipient of the 2018 Nobel Memorial Prize in Economic Sciences has taken Churchill’s theory and shortened it to “Never waste a crisis.” Romer described how growth can be achieved through proper strategy during times of unrest. There are 3 ways that you can achieve growth, 2 are viable options during a recession, and one is ideal for large companies:
- Market Expansion- During times of economic growth like these, CEOs place their companies in a growing space and achieve a return for their shareholders.
This strategy is not applicable in times of recession.
- Market Share Gain- Inside a sector, CEOs can adjust their go-to-market positioning such that they grow by “stealing” market share from the competition. This can happen in a growing, stagnant, or even declining marketspace.
In normal economic times, this is the least likely strategy for CEOs to chose. But in a recession, it is the most compelling option.
- New Market Entry- This is the most complex and riskiest option as the upfront cost is usually significant. CEOs usually do substantial research to justify the investment and often deploy new GTM capabilities. New markets can be geographic, sector-based, or even customer company size. This approach sometimes involves an acquisition, which accomplishes the entry more quickly than an organic approach. Examples include Google’s launch into Europe (organic) and Adobe’s acquisition of Magento and Marketo in 2018 (inorganic).
In a recession, this strategy is a viable option, but sometimes bounded by the necessary investment.
This blog will focus on the latter – New Market Entry. There are some options and rules for expanding into new markets. If you are considering New Market Entry, please refer to our Revenue Growth Maturity Model Diagnostic and answer the questionnaire. This will allow you to determine your maturity. Your maturity is measured on a Level 1-5. If you are Level 4 or Level 5, then New Market Entry is a viable option as you prepare for 2021 and beyond.
How You Can Grow
New markets can be geographic, sector-based, or even customer company size. This approach sometimes involves an acquisition, which accomplishes the entry more quickly than an organic approach. Geographic expansion can require the most substantial investment and should be considered based on your industry. Organic growth in one geographical market does not always lend to growth in other markets. Uber is a good example. With rapid North American growth and adoption, it seemed that Uber and the ride-sharing market was prime for Asia. Asia’s population density in large cities lends to heavy public transportation. The taxi market was also a large benefactor of the dense population. What Uber failed to recognize is that the taxi market in Southeast Asia is twice as large as it is in major US cities. Grab, another ride-sharing application understood this and immediately partnered with taxies rather than competing for their customers. In 2018 Uber exited Southeast Asia as they could not overtake Grab. Instead, they sold their Southeast Asia business to them. This is a very high-level summarization of Uber’s exit from Southeast Asia, but the lesson learned is that Uber did not fully understand the geographical differences when expanding to new geographic markets.
Other factors, like the latest tensions surrounding US-China tariffs, an impending British exit from the EU, and a struggling German economy, weigh heavily on the minds of global companies and must be considered as well.
There Can Be Opportunity in Sectors That Are Not Currently Primary Focus Areas for Your Business
Entering new sectors or industries does require steep investment. You can simply re-train your sales staff and ensure they are equipped with proper sales enablement tools like competitive battlecards, sales playbooks, and use cases/positioning statements. View this blog on having the proper sales enablement plan for reps selling new products to determine if your enablement is ready for a business shift into New Markets.
One of our clients at SBI is a large multinational provider that is experiencing a go-to-market shift as their original offering has been disrupted by consumer electronics and cell phone usage. To combat this, the client is making a big bet on using its technology platform to craft solutions for other sectors. As they are making this shift, they considered what their future customer will look like, what acquisitions would be useful, and how they would price and package their solutions. They already have a global sales team, so there is not a large investment necessary to shift focus to a different sector. They also took into effect that previous M&A activities had not gone well previously. They are now focusing their efforts on preparing and incenting their sales teams by shifting to a stratification coverage model with an industry focus and incenting their sales team through compensation design.
I tell this story to say that there may be opportunities to use your products to solve solutions for a new set of customers without a heavy investment or acquisition.
Finally, You Can Investigate New Customer Sizes as New Markets
Companies can change purchasing habits and compress prices during a recession. This is an opportunity to potentially move up or down a given market segment to address a different customer size. If you are a large company with a mid-market offering, it may make sense to offer a similar product to larger companies as they become more price sensitive. Alternatively, if your customers are primarily enterprise-level, then there may be a mid-market version that is “stripped down” that can be offered with lower OPEX and CAPEX attached to it. At SBI, we have a different client that has done that. They were able to take their enterprise offering and client-base to create an offering for SMB and mid-market companies to also partner with their larger companies through a similar offering. They were able to grow their mid-market 17% in the first year of this new offering.
A recession is imminent. Through proper planning and assessment of your products and offerings, you can enter new markets with or without significant investment. If your company does not handle change very well, or if you aren’t familiar with a specific geography, then M&A may be your best option. If you are already global, then new sectors may be an option. Again, feel free to take our Revenue Growth Maturity Model Diagnostic to test your maturity to get a sense of what options may be best for your company as this recession approaches.
If your products and solutions can be modified to a new customer, then a focus on a new market segment may be your best option. The key takeaway, You have options, just choose the best one for your business. Remember, “Never waste a crisis.”