In a Recession, The Best Defense is a Good Offense

One of my very close friends and mentors who owns a high-end sales and marketing consulting and sales training business sent me an e-mail expressing concern over what the economy is doing to alter her clients’ and prospects’ thinking about sales and marketing.  To paraphrase, “40-50% of my 2008 business may not be there in 2009, she said.  Everybody is cutting back all but ‘essential’ expenses.”  I’m sure I’m not alone in hearing this; I hear it from many sources.   ”We’re discontinuing this or that [marketing] consulting arrangement because of weak sales”  “We’re cutting your expense account.”  Re-allocating marketing resources makes sense but cutting them for the sake of cutting them is just poor management.  When tough times make you feel defensive, you’ve got to go on offense.

The bottom line is, unless you sell, nothing else matters.  That applies to GM, it applies to Apple, it applies to Adams Capital, and it applies to any law, consulting, or accounting firm.  If you’re great at making cars, or media players, or valuation reports, that capability is much less valuable when fewer customers are paying you to apply that capability.

We see time and time again that when times get tough and demand gets soft, companies decide that marketing and sales are “discretionary” expenses.  Now it’s one thing if the environment is so bad there’s just no way to sell because the market is stacked against you.  The U.S. auto industry faces this issue.  They can advertise all they want right now – they aren’t selling more cars.  Even if someone wants to buy, many people who would have qualified for a car loan in August can’t get one now.  According to CMW Marketing, nearly 83% of auto loan applications in the U.S. were approved in 2007.  That rate has now plunged to 63% (and 22% among subprime borrowers), and interest rates have shot up from 7% to 10%.  Guys in fur coats with brass knuckles don’t charge that much.  More marketing and sales expenditures won’t fix the fundamental issues.  If your industry is that bad, do something more productive than reading my blog.

For the rest of us, cutting back on marketing and sales is basically an act of surrender.  It’s no secret for example, that law firms (as with many other industries) have it very tough right now.  Law firms nationwide are laying off attorneys left and right, including nonequity partners.[1] Ask OJ Simpson, Bernard Madoff or Rod Blagojevich if nobody’s hiring lawyers.  The U.S. legal services industry is $180 billion in size.[2] Even if we assume a 20% contraction in legal services, that means there is still $144 billion in legal work to be had.  Even the ATA would invest in a $144 billion market!  When you throw in the marketing towel, you’re just letting your competitors have more of that market.

The answer is to fight for market share.  If my firm makes $5 million a year in a $144 billion market, and my sales are down 20%, I’m saying, “Ok how do we get that $1 million back out of the $144 billion in legal work out there?”  That may mean you need to spend more on sales and marketing.  On the other hand, when and you start dramatically cutting back on sales and marketing, you’re basically saying “we’re not good enough to compete, so we’re conceding the market to our competitors, and we’re going to let the economy dictate our business.”  That, to use a technical MBA term, sucks.

Marty Schottenheimer got burned again and again for conservative game plans in the playoffs

There’s also a messaging effect when you slash sales and marketing that can exacerbate the impact of the downturn on your business.  When you pull back from the market, here’s what your stakeholders hear

Customers – My supplier is being careful.  If they are being careful, I had better be careful buying from them.  They may know something I don’t.  Also they may not hear you at all, which is just as bad.

Referral Sources – I don’t see them as often as I see other folks.  I want to be associated with companies that are successful and visible.

Employees – It’s batten down the hatches time.  No point in even trying to sell if the firm thinks the battle is already lost.  And I’d better be open to exploring (or at least listening to) opportunities with more stable companies.

Competitors – Now is the time we can increase our visibility in the market and set ourselves up with a leadership position in the future.  Ours might be the only firm selling this widget at the upcoming trade show!

Scaling back marketing and sales can start a vicious cycle.  Demand is off, so you slow down marketing, which drives even less traffic to your firm or product.  None of this is rocket science, and many executives are thoughtful and intelligent enough to understand all of this.  So why do they do it anyway?  I think the first reason is that the effects aren’t felt right away.  You pull out of a few conferences or cut some expense accounts, the phone calls keep coming for a few weeks.  This concept is illustrated in a book I recently read for Bob Littell’s business book club.

I think the second reason is that for many companies, sales and marketing are seen as noncore operations.  If you’re a carpet manufacturer, you see yourself in terms of how to make great carpets.  That’s a mistake.  Any successful company in good times and bad sees its core business as selling whatever it does.  If your software company undermines its sales functions, suddenly your coders can spend more time playing Left 4 Dead, or your engineers spend more office time doing whatever it is engineers do with spare time.

Of course, this doesn’t mean writing blank checks to your sales and marketing functions when times get tough.  That’s silly.  Ideally, we never spend $1 more than we have to, and every $1 we spend is building optimal value, and we are always vigilantly examining where every dollar goes and holding every dollar (and its spender) accountable for its return on investment.  When you find that company, please let me know and I’ll max out every credit card I own and lease my cats to a tennis racket factory to raise cash and go all in on that mythical firm.  A soft patch always prompts us to re-examine all expenditures and investments we are making.

What you absolutely don’t want to cut back is any expense that enhances the effectiveness of what you already have.  For example

1. CRM systems. CRMs make your sales force more effective, if properly used.  If they aren’t being used properly, spend the money on training and crack the whip on marginal sales people that aren’t following the rules.  (Don’t crack the whip on your top performers.  If your top performers make their numbers using a magic 8-ball, then for Heaven’s sake, leave them alone.)
2. Sales training and coaching. Your sales staff needs MORE training and coaching in a recession, not less.  Good sales training makes your people more effective and your ROI on your people will be higher.  Sales techniques in a recession may be very different from selling in good times (it’s certainly easier).  Don’t leave your people in the wilderness.  This is often the cheapest thing you can do to keep sales up.  You may also want to consider training your people to sell more effectively by phone, videoconference, or the web so reduce travel expenses and time.
3. Research and information sources. You have to understand the market to sell to it, and you have to be able to research prospects.  Making your people switch from a professional database to Google not only makes your people less effective, but it is immensely demoralizing.
4. Thank you gifts. You should be more, not less grateful to people who send you business when everyone is really hungry for it.  Grinchiness is lame.
5. Reporting tools. Selling competently is a process.  It is an imprecise process, but it is a process that needs to be managed and monitored.  Abandoning or scaling back reporting tools in a recession is like reading your Blackberry mail in heavy traffic.

Marketing expenses you should consider cutting

1. Expenses whose true intent is to help out a friend or mission rather than generate sales.  Many event sponsorships and professional affiliations fall into this category.  Did that $50K Platinum sponsorship generate $60K in identifiable profits (which might mean $250K in sales)?
2. Expenses which are more properly defined as employee perks rather than value-adding investments.  Many conferences and seminars fall into this category. (You don’t think the American Society of Appraisers frequently holds their annual conference in Vegas because it’s the ideal learning environment do you?)
3. Expense accounts.  Cheap is chic right now.  Do you really need to take that prospect out to Bone’s? Would they enjoy Ted’s just as much?
4. Redundant event attendance.  Swarming a 100-person event with 5 people is amateurish, especially if they are junior people.  No one gets excited talking to the company’s receptionist and chances are they’ll wind up talking to each other anyhow.
5. Prestige and empire building.  Do you really need to take out a full page ad in the Atlanta Business Chronicle because you hired a new warehouse manager?  Also, see sponsorships in point #1.

Leadership and management are easy when times are good.  You find out who the good leaders and executives are when you see who can be bold in times of adversity.  Vladimir Putin was credited with the Russian Economic Miracle when oil was $140/barrel.  Now that oil is $40, he’s not making flight reservations to Stockholm just yet.  Down economies create opportunities, and not just for bankruptcy lawyers. By playing offense when the market is playing defense, you can both blunt the blow of a tough environment today and reap tremendous profits tomorrow.