Companies Can Scale in a Recession, Says Jeff Nock Iowa
COVID-19 has created economic uncertainty. The National Bureau of Economic Research has announced that the U.S economy is officially in a recession. Although scaling may be easier during boom times, scaling also is possible in a recession, says Jeff Nock Iowa.
Scaling is growing revenues at a faster rate than adding costs. For example, a company may increase monthly revenue by $45,000 but only increase costs by $5,000 for a new marketing campaign. People often confuse scaling with growth. A company grows if it increases monthly revenue by $50,000 but also increases costs by $50,000. Profitable scalability is the goal. Companies that act defensively and cut too much in recessions do poorly, as do those companies that are too aggressive, says Jeff Nock Iowa. A good way to scale during a downturn is to balance cost-cutting with investments.
One strategic way to cut costs is to improve operational efficiencies rather than just slashing employees, says Jeff Nock Iowa. For example, a company should examine every aspect of how they do business to determine the most efficient way to organize the company and its supply chains. A recession is a prime time to challenge a long time operational processes and renegotiate contracts with suppliers to gain more favorable rates.
It also is an excellent time to determine if technology, software, and automation can improve efficiency and to look at ways to carry less inventory while still meeting customer needs. A company should determine if some operational aspects could be handled better through an outsourcing partner. These operational changes will lower cash needs during the recession, but will also allow the company to maintain lower costs when the economy improves, says Jeff Nock Iowa.
Strategic companies also use economic downturns to invest in technology, software, equipment, and other assets while prices are low, as long as they can do so without adversely affecting their credit rating, says Jeff Nock Iowa. They use some of the money gained from operational efficiencies to invest judiciously in research and development and marketing. For example, the recession may be a great time to add talented salespeople while wages are lower.
It also is a good time to survey customers to be sure the company’s products or services continue to meet needs. A recession also may provide an opportunity to take customers from the competition. For that reason, it also is a good time to survey non-customers to see what products or services they need, as well. The R&D and marketing spending likely will grow revenues only a little during the recession. Still, they will position the company for significant growth afterward, says Jeff Nock Iowa.
Companies who hope to scale during a recession should continually find ways to provide better customer service because keeping current customers is critical. Smart executives also will consider if they need additional software and tools, such as CRM, chats, or chatbox apps, to reach their goals, says Jeff Nock Iowa.
Consider the difference between how Office Max and Staples operated during the 2000 recession, says Jeff Nock Iowa. Office Max cut its workforce by 6 percent but made few other operations-related cost cuts. Staples increased its workforce in high-end categories and services while containing operating costs and closing underperforming facilities. By 2003, Staples’ sales had doubled, and it was 30 percent more profitable than Office Max, says Jeff Nock Iowa.
Jeff Nock Iowa is CEO and founder of Prescient Consulting LLC, which helps already funded early-stage and mid-cap companies achieve their vision and growth goals. Jeff Nock Iowa received a bachelor’s degree in political science from the University of Boulder and a Master of Science in Management from Regis University. He is an experienced executive, consultant, and leader with a demonstrated history of growing startups, non-profits, and established companies.