Over the past few years, pandemic stimulus and cheap money have driven record revenues and profits at many businesses, despite labor shortages and supply chain disruptions. However, recent Fed interest rate hikes increase the likelihood of an economic slowdown which threatens to stymie growth rates.
At this point in the cycle, it is common for companies to hunker down to prepare for a potential downturn—a reaction that is understandable and often prudent. However, economic uncertainty often creates opportunities for middle market companies that tend to focus on long-term performance over quarterly earnings.
Below are five tips to create growth opportunities during a challenging economy.
- Blow the dust off your M&A strategy. Buying companies during an economic boom can be risky—with target earnings and valuation multiples at peak levels, it is much more challenging to generate high returns on investments. However, as multiples and target earnings contract, upside opportunities are much more abundant.
- Keep an eye on competition. If you compete with public companies for new business, economic downturns present great opportunities to peel away customers. While your competitors are busy restructuring, they often underserve customers or damage relationships by laying off key personnel. Instead of dialing back sales and marketing efforts, this might be a great time to dial yours up.
- Make sure your employees continue to focus on your customers. Serving customers at a high level during challenging times not only strengthens long-term relationships but often results in growth as teams identify new ways to meet customer needs. It also ensures that you do not leave the door open for well-capitalized competitors to take customers (see #2 above).
- Take a fresh look at your operations and financial performance. Almost every company gets a bit loose with spending during a prolonged economic expansion, so it is wise to take a fresh look at spending and operational efficiencies. However, instead of jumping straight to cost-cutting efforts, consider whether there are opportunities to channel savings towards research and development efforts that drive long-term growth.
- Communicate! When uncertainty abounds, communication with all of your stakeholders is critical. Employees are going to be concerned, which could impact overall performance. So, make sure they understand your plans, strategies, and results. Similarly, stay in front of other stakeholders such as investors and lenders. They value competence and communicating a coherent plan will ensure you have a stable source of financing for your growth plans even if you hit a soft spot.
Some of today’s strongest businesses were built during the most challenging economic times because they had the courage to go “risk-on” when the rest of the world was going “risk-off.” However, taking a step back to reevaluate new opportunities might just help you lay the foundation for an even stronger business on the other side of a downturn.
If you have any questions or would like to discuss potential growth opportunities for your company, please contact Chris Meshginpoosh, Managing Director, at Email.