Top nine mistakes owners of small to medium sized businesses make during an economic downturn
I see many articles being written about how to survive this economy. Few, however, point to how to create growth. Well, here are nine mistakes that, if avoided, will force you to grow, while your competitors continue languishing and complaining.
Mistake #1: Believing that price discounting will overcome the problem
Discounting only makes things worse. Every time you discount your product, you prove that it really wasn’t worth what you originally said it was worth. It takes a lot longer and requires a lot more investment to raise your prices than it does to lower them. So it is worth finding ways to sell why you are worth more rather than taking what looks like the easy way out and cutting prices to try to attract customers.
Mistake #2: Following big companies
I continually wonder why small to medium-sized companies are so infatuated with large companies. Perhaps the fact that I have worked as an employee in two of the largest and have consulted with more than 50 of the Fortune 500 on creating growth helps me keep a more rational view.
The fact is that larger companies are not as profitable, not as flexible, not as nice to work for, and not as capable of creating dramatic growth as smaller companies are. So why do so many smaller companies try to emulate what big companies do?
During tough times most big companies hide out. They cut costs, often eliminating the very things they need to create future growth. They make their employees miserable and demoralized. They make suppliers dislike them. And they generally behave like angry pouting children.
Don’t follow that. Use your strengths to be aggressive and visible, while the big guys are hiding. Invest wisely in the things that will make you stronger and more attractive when things turn around. (These things will also make you more attractive now.) Make employees glad they work for you. Make suppliers so happy to work with you that they will turn down calls from larger companies to help you instead. And act like an Alpha – confident, calm, and controlled no matter what the marketplace seems to be doing.
Companies that follow this model invariably take share from their larger competitors.
Mistake #3: Following competitors
Leading is the key to long-term success and greater profitability. Every time you follow what a competitor does, you make that competitor look better than you. You should be looking for something different that you can do that makes you look smarter and better.
Finding that “something different” requires an understanding of what customers really want to buy, not just what they have been forced to buy. You need to discover what will make people feel better about themselves (smarter, more knowledgeable, more appreciated, more powerful, etc.) and what will make them believe that other people think better of them (envied, more attractive, smarter than they, etc.).
Mistake #4: Believing that leadership during tough times comes from the top of the company
Contrary to popular belief, success does not come from the top. Great leadership at the top may make it easier for a company to thrive and grow, but long-term, self-sustaining success comes from much further down the corporate ladder.
The most successful companies of any size know that it is much easier to be successful and to create growth when every employee becomes a leader of positive innovation and growth. The best thing a manager can do is to engender a “leadership” and “innovation” attitude among all employees. They should believe that you want new ideas to lead the company into a leadership position and they should be rewarded for helping that be accomplished.
While other companies are trying to get more out of terrified, demoralized employees during tough times, you should be engendering a more positive attitude of teamwork to move forward.
Mistake #5: Believing that you can’t affect change until the new market defines itself
Right now is the best time to invest in growth… before things get better. Why? Because while almost everyone else is holding back, the companies that confidently define what the market will become will be the leaders coming out.
It happens in every recession. But in this one, this may be more true than ever before. Large companies may never be the same after the government has terrified both corporate boards and stock holders with their heavy-handed tactics of government control. Many smaller companies have the opportunity to make huge, sustainable strides right now, while larger competitors are wondering how to even run their companies in the future.
Don’t miss this opportunity. Become the definer of the future and you can be its leader.
Mistake #6: Believing that product or technology innovation is the secret to success
Products and technology are the things that you may sell, but they are not what people buy… except when there is no better alternative offered. People want to feel better about themselves. They also want other people to think better of them. You can innovate in these areas for far less investment and greater return on investment than you can with any product or technology innovation.
New products or technology drive entire new markets or business models. These can occasionally create dramatic growth, if sufficient investment in made. Innovation in helping people feel better about themselves and better about how others think of them is far less cost intensive and drives far greater ROI more consistently.
Mistake #7: Believing that you must improve on product quality or performance to demand a higher price
Actually, most of the highest-priced products in the world are not superior in either quality or performance. People prefer to buy ego-satisfaction above function. In fact, in my 15 years of research into how to create dramatic, self-sustaining success, I discovered that people will pay almost anything to feel better about themselves and to make other people think better of them… even when the product or service being offered is of lower quality or performance than competitive products. At least as long as “minimum” functionality is provided.
Harley-Davidson, Victoria’s Secret, Mercedes, Tiffany’s, and John Deere are just a few of the Alpha companies I studied that sell more for higher prices despite lower quality or performance than many competitors.
You can sell more by innovating to provide greater ego-satisfaction than by innovating to create greater functionality.
Mistake #8: Believing that cost-side management alone can save you from trouble in a tough economy
You can’t “save” your way to sustainable success or growth. Cost-side management has created many spectacular failures, but revenue-side management has always been the key to real growth.
If you wish to grow (especially with sustainable growth), you must focus upon the revenue-generation side. And right now is a better opportunity for revenue-side growth than there was two years ago. Customers still have needs, even if they may be looking for things to put off until later. The winners will be those who address the most burning needs with believable promises of ego AND functional needs satisfaction.
Mistake #9: Believing that growth cannot occur during tough economic times
While the press and other media focus upon the failures and the reasons for fear, there are a few companies in almost every product or service category that will create sustainable growth without discounting during a recession. There is no better time for significant, sustainable changes to occur in markets and product categories than during an economic downturn.
This is your chance, so take advantage of it.
When the marketplace gets tough, all that means is that someone has a chance to define a new future for the category. If it’s not you, then it’s someone else who you will end up having to follow once things get better. If you’re happy with following behind someone else, picking up whatever is left over, then ignore everything I’ve said. However, if you want to take control of your market or category and make others follow your lead, then avoid these nine mistakes and watch yourself grow.
If you would like to understand how to overcome these nine mistakes and grow your business no matter what the economy is doing, you need to read my book, The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success. You can get your copy for just $24.95 at www.ballgroup.com, or you can buy it through any online bookstore.