The 2008 election is now history. The 111th Congress, featuring substantially expanded Democratic majorities in both houses, is now seated. And depending on when you receive this issue, President George W. Bush may already have stepped aside for Barack Obama to be inaugurated as the 44th President of the United States.
Our new president takes office in a nation at war in two places, with a floundering economy, financial markets recently in meltdown and “rescued” to the tune of more than 700 billion taxpayer dollars, a $10 trillion national debt and a federal budget deficit that some experts estimate could reach as high as $1 trillion this fiscal year.
The State of Things
The National Bureau of Economic Research declared late last year that the United States had been in a recession since December 2007. The estimate of third-quarter growth in 2008, minus 0.3 percent, reaffirms that our economy is in distress, and the near-term outlook is worse. The fourth quarter will likely show contraction of 2 percent or more as both business and consumer spending retreat. GDP in the first quarter of 2009 likely will match the fourth-quarter drop. In addition, rising unemployment in 2009, projected to be around 8 percent, will dampen consumer income and spending so that even when growth resumes, it will be subpar. Look for GDP to be flat in 2009, following a weak increase of about 1.5 percent this year. Exports won’t be as strong next year but will increase. Business investment will be flat at best and may decline slightly.
In response, the final product of the 110th Congress that convened in a pre-inauguration “lame duck” session may be a second economic stimulus package. There appears to be a growing consensus that a second, spending-oriented stimulus of significant size is needed to boost demand in an economy featuring sinking consumer confidence. The emerging package is grounded in the thought that the first one was insufficiently large given the size of the economy it was supposed to “stimulate,” and that its tax benefits were used more to pay down existing consumer debt than to boost demand. Estimates of the size of the package start at $300 billion, but no decision had been made at press time. Stay tuned for the size and composition of “Stimulus II.”
A Crisis of Confidence?
It has been said that most economic downturns are “crises of confidence.” Many factors are affecting overall consumer confidence, which has been shaken to the core as of late. However, plunging gas prices are a confidence booster, which is positive for Main Street. So is the stabilization of the U.S. banking system. On the other hand, there are several highly negative forces affecting the consumer, from the continuing housing debacle to the consumer credit crunch and the growing jobs crisis. Maybe “Stimulus II” will help in that regard.
Still, it seems as if there is a significant vacuum in economic leadership at this time. The events of the past couple of months thrust the federal government into a new and much larger role in the functioning of the U.S. economy. And right now, Americans realize the rules of the game will change, but they’re not sure how.
The Steps to Take
So how should big growers react to this economic climate? What strategies should you consider going into 2009? While I’ll have more to say on this in future columns, let me offer these to start:
Invest in people. Devote time to further developing relationships with your top 10 customers. Tapping the potential of current customers is about getting them to buy more — and more often — also called upselling and cross-selling. Compared to seeking out new prospects, this tends to generate more revenue while taking less time, money and energy. This lower “cost of sale” makes current customers an important category to develop.
Get a leg up. Spend some time learning about the customers of your weakest competitors. You might be inclined to go after their largest and most attractive clients, but be aware that your rivals are probably working desperately to save those customers. They might not, however, have the time and resources to focus on smaller clients. Hone in on these potential new customers, particularly those with attractive growth prospects and strong balance sheets.
Assess the risks. Identify your most critical suppliers and distributors, and determine whether any face the possibility of severe impairment to their business as a result of the economic downturn. Assess the risk to your business if they should falter badly or even fail completely. Then, examine ways in which you might help those suppliers and distributors weather the downturn. Even the smallest gesture can sometimes build an enduring loyalty that will pay off for years to come.
Think about your talent needs. As weak companies lay off employees, many good people will find themselves searching for work. Other skilled workers may still have a job, but they may be disenchanted with their struggling firms. Capitalize on this opportunity to identify and attract talented employees, while slack exists in the labor market.
Do your homework. Invest heavily in research and development now so that new products and services are ready for launch as the economy begins to grow again. Your competitors may be inclined to cut R&D, particularly if they face high interest payments and substantial drops in revenue. If so, your acceleration of investment now will yield a strong product advantage in the coming years.
Stay the course. Growers actually need to consider increasing their marketing efforts during times of economic contraction. Yes, you read that correctly: I am encouraging growers to increase their marketing budgets right now. As others make cutbacks (marketing is usually the first thing to go during hard times), an increase in marketing efforts can lead to increased customer “mindshare.” While you should normally spend 3 to 5 percent of gross sales on marketing, consider increasing this to 5 to 8 percent. Speak when others are quiet, and even a whisper can be heard. Imagine if you shout!
To close, let me offer this bit of encouragement. The current economic downturn, though severe, is a normal part of business cycles. We have had 11 recessions since 1948. On average, that equates to one every six years. What is my point? This is not the first downturn we have experienced, nor will it be the last. So take heart, tighten your belts and put your best differentiation foot forward to best position yourself for the remainder of this downturn.