“In times like this we get greedy.”
This is a statement recently made by Warren Buffett. It serves to remind us that simply following the rest of the pack, whether it be in stock market investing or investing in the growth of your business, is not smart. The time to be buying is when everyone else is selling. The time to be selling is when everyone else is buying.
In the March 08 edition of Harvard Management Update, reference is made to a Bain & Company study of 700 companies undertaken over a six-year period that included the 1990-1991 recession.
The study revealed more than 20% of the companies that were in the bottom quartile of their industries jumped to the top quartile during that recession. Interestingly, while that happened, more than 20% of the top quartile companies (the acknowledged leaders) fell to the bottom quartile of financial performance.
The study showed that firms that came out of a recession strongest were those that made gains during the recession rather than before or after it. In other words, the best time to grab a competitive advantage is when everyone else believes that poor financial performance is acceptable because of the state of the economy and therefore out of their control.
More than 70% of the firms that jumped into a leadership position were also able to sustain their growth in profitability after the recession while less than 30% of the companies that lost ground in the recession were able to regain their top quartile position.
This is exactly what happened to the firm in which I was a partner. We had experienced very little growth in the 40 years up to 1987–88, we then put in place a series of expansionary strategies that yielded more than 40% compound growth over the next 4 years.
The growth consolidated after that but the firm sustained its local leadership position and now has 13 offices and is part of the $300 million WHK Group in Australia WHK Group
Traditionally recessions are times when the weak get sorted out and the complacent get pushed aside. They are therefore times of great opportunity for firms that see and seek the opportunity to break from the pack.
When times are good virtually anybody can make a profit but in tough times true strengths and weaknesses are revealed.
Time and time again, I see new accounting firms pop up in a city and within a relatively short period of time (5–10 years) they are producing revenues of $500k to several million. One firm that I recently posted about achieved $4million growth in just 1 year!
The fee growth I’m talking about are fees that the established firms in those communities could have, and should have won, but too often they don’t even see it coming.
In a recession, the key for achieving growth and sustained profitability is to focus on your core business. If your core business is not sound you will struggle. Once you’ve taken care of that, you’ll be positioned to exercise some real muscle in the good years.
To do that you need to take a close look at your strengths and weaknesses and then formulate a simple strategy that embraces positioning, product definition and pricing, service protocols, team development and delegation, client selection (and de-selection) and most importantly, very focused attention on how to create value for your clients in a recession and how to capture some of it. This was a central theme in our 2008 Practice 2020 Annual Conference in Brisbane and will be the focus of my attention at our North American program this year.