Editor’s note: Russ Lange and Mark Carr are partners in CMG Partners, LLC., a North Carolina-based marketing consulting firm.We all know that a tough economic climate forces us to increase our business discipline.

For most business owners and managers, this translates into expense minimization and keeping their heads down until better times arrive. By following such instincts, they often feel that they are doing right by their organizations.

For many businesses, however, cost cutting becomes the sole initiative, and means ignoring prime opportunities to position themselves for long-term growth. For others, it fatally weakens the organization and critically damages the business’s ability to grow when the economy recovers.

The best leaders and organizations carefully balance the risks of a tough economic climate with the benefits of investing for improved market position and long-term health.

Avoiding the downward spiral

In order to avoid the pitfalls, it is helpful to first understand the stages a typical organization goes through in response to deteriorating economic conditions. During the first stage of response, as the economy or market sector begins to slow, the typical business usually maintains some degree of optimism and takes limited actions to begin to contain costs (e.g. freezing budgets and new hires.)

When the economy does not improve, organizations soon enter a second stage of coping activity: they begin to reduce headcount, investments in employee development, employee bonuses and benefits, reduce marketing and sales initiatives, and to cut out R&D and new product development.

As the downturn continues, many organizations enter a continuous cycle of cost containment as they try to prop up their bottom lines with the ever-decreasing resources at their disposal. Even those organizations that reach some kind of comfortable cash-flow equilibrium often horde these increased resources until they see evidence that the economy is already back on track. They are afraid to invest.

The problem with this approach is that it often misses huge opportunities for strategic investment and potential growth. Sure, investing during a downturn has increased risk. For that very reason, when pursued intelligently it can often bear exceptional returns.

A smarter strategy

When we counsel our clients on their strategies for a down economy, we recommend the use of intelligent growth initiatives in addition to cost-cutting to achieve long-term corporate health. We fully subscribe to the application of intelligent cost containment. But we also believe that the resulting efficient and disciplined organization should then focus on getting smarter, and building organizational muscle and stamina. What do we mean by this? Simply the following:

Get smarter:

  • Gather fresh information — Move about, ask questions, listen. “Know Your Customer” ranks right up there with “I’ll start my diet tomorrow” as one of the most proclaimed pledges that are rarely put into action. So break out of the pack and follow through. Launch initiatives to build your competitor and market knowledge. This could be as simple as getting out in the field to really talk to your customers and your prospects outside the context of an immediate sale. Improving one’s insight into customers and prospects takes time, energy and resources — but it’s the only way that you can start making your company smart enough to make intelligent bets. So, just do it.
  • Interpret the information — look for discontinuities, holes, conflicting data points — take a different perspective. Just because you’ve had the same customers for years and offered the same products and services, doesn’t mean that there’s no room for improvement. Look for new information, and put old information under a different light. Look for the hidden opportunities as well as hidden traps. Look beyond the obvious to the underserved segments. Root out any false sense of security that exists in your organizations and plans. Its tough to look in the mirror — but it’s the best way to build on your newly acquired intelligence.
  • Form a hypothesis and then validate. Force yourself to develop conclusions, and then validate those ideas through external research and conversations with your customers and channel partners as well as a simple financial model.

    Get stronger:

  • Restructure for growth, not just cost-savings. Make sure your organization is positioned to support growth. This is not pruning for cost control, but rather this involves mapping out a structure that can support growth for the long term. Do you have the right personnel mix? The right skill sets? Are they organized correctly? Do you have flexibility and adaptability in your organization? Do you have enough capacity to support intelligent new initiatives? If you can’t answer ‘yes’ to these questions, you need to prepare to restructure with an eye towards building enough organizational muscle to lift growth initiatives.
  • Build your financial resources. Growth takes resources. Grab whatever you can, whenever you can. Make sacrifices, look for efficiencies, restructure — but build your financial muscle to get stronger and to build the capacity for investment, not just survival.
  • Review your plan for attracting talent. Few firms take full advantage of the down job market to hire the talent the firm will need in 12 to 24 months. But talent is cheap now, so buy more than you need today. Identify the qualities of the people you’ll need to have onboard as your business starts to grow and hire them now so that you’ll be ready for the upturn.
    Build endurance:

  • Invest in added value now — not during the eventual upturn. Don’t be afraid to use increased cash for well thought-out, intelligent investments. Start with those products and services you contemplated adding prior to the downturn. Do they still make sense? Consider test launching them now, so you can refine the approach and stomp on the pedal when the economy recovers.
  • Strengthen customer relationships through added value. Find ways to increase your value to customers today. Through re-engineering your current products and services, you can take advantage of the benefits of new technologies and/or develop new layers of value-added services to offer with your current inventory. Don’t do this in a vacuum; ask customers how your business could help them during these tough times.
  • Keep assessing initiatives for more sustained power. Not everything will go according to plan. Count on it. When something’s not working, admit it and adjust or get rid of it. Not dealing with failed initiatives can be truly destructive to your organization in the long term, and will stunt other growth initiatives.
  • Keep trying. Even if some initiatives don’t pan out, use your learning to refine your approach and try again. Don’t use it as an excuse to stop investing.

Not a panacea

Moving from a defensive posture to an offensive posture isn’t a panacea. Then again, neither is cost cutting and a unilateral hold on investment. Luckily determining which strategy is best for your business isn’t impossible. A few market-focused initiatives and a hard look at your business can often uncover some overlooked opportunities for growth.

Russ Lange and Mark Carr are partners in CMG Partners, LLC., a North Carolina-based marketing consulting firm specializing in helping businesses uncover and exploit market opportunities. For the past five years, CMG Partners has helped clients of all sizes in the U.S. and U.K. exploit market opportunities launching new initiatives, products and even companies into highly competitive marketplaces.

CMG Partners: www.cmgpartners.com