Wednesday, April 15, 2009

Opportunity Knocking ... If You Have the Stomach

The New Yorker ran a great piece on capitalizing on a recession environment. The writer, James Surowiecki, noted that most companies “hunker down, cut spending, and wait for good times to return."

He writes, "They do all this to preserve what they have. But there’s a trade-off: numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts.”

But, he cautions, you have to be able to withstand and understand the vagaries of risk and uncertainty.

“Risk describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it’s not even clear what might happen, let alone how likely the possible outcomes are. Uncertainty is always a part of business, but in a recession it dominates everything else. So it’s natural to focus on what you can control: minimizing losses and improving short-term results." For most that means cutting costs.

He cites academics Peter Dickson and Joseph Giglierano, who have argued that companies have to worry about two kinds of failure: “sinking the boat” (wrecking the company by making a bad bet) or “missing the boat” (letting a great opportunity pass).

Many agency owners are far more worried about sinking the boat than about missing it. And, perhaps they should be. But, are they overlooking opportunities to edge out in front of their competition?

Some agencies seem to have the “stomach” for the uncertainty of today. I’ve recently read about agency acquisitions; new hires who bring a new service offering (e.g. word-of-mouth); investing in PR network memberships; starting new divisions and practices; creating new web sites and new digital offerings; and launching new advertising and marketing initiatives. These firms are investing in themselves and their future.

None of these investments (read “risks” because they all cost money) were made by large firms. Indeed most are small to mid-size agencies.

It's smart to be profit driven. But agencies that live and measure success solely by the bottom line will have considerable difficulty investing today as they see their margins shrinking. Yet these firms run the risk of being left behind by some of the more aggressive competitors who recognize the opportunities – and go for it. They will accept break-even or perhaps a small loss or gain today for greater revenue and profit tomorrow.

Food for thought?

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