Tuesday, January 29, 2008

When recession strikes, who wins?

The media is exaggerating the coverage on two topics these days: Presidential candidates and a possible economic recession in the US. After almost two weeks of silence, I've been pretty busy with interesting projects, it is time to speak my two cents on the second topic. As usual, I will be brief, and will not go deep on whether we are heading into a recession or not. Instead, let's talk about how to act and who gets affected.

When a recession comes, who does it affect mostly?

First, it will initially impact the smallest and reactive businesses and then large and slow corporations. This is because even though small companies can usually react quickly, they are affected by a small change in the economic environment more profoundly. The good news is that by the nature of start-ups and small businesses, these companies can adapt on the spot and change direction to survive the storm. This is something that large companies can't usually do: they set up yearly budgets, and then have committees to make decisions on what to do about it. If you can quickly make decisions, then you can quickly swim to shore.

The other type of company that would be affected the most is point-product sales oriented companies. That is companies that sell only physical goods. If the main stream of revenue comes from sales of a specific physical good, people will just stop buying it and look for ways to avoid that cost. On the other hand, if the most profit comes from the sale of a service, customers will typically seek more of that. In particular, if t is something that will help them save money. That is why is so important to have a solutions based approached of selling, and have your services more profitable than then product.

Lastly, companies with a value proposition of cost savings will prevail. Usually cost savings is the second or third thing that a customer looks at, and it is a very difficult message to sell. However, when recession strikes, everybody will look for ways to save money, streamline process and drop cost. After all, everybody wants to save money, right?

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