Business opportunities in recession
Businesses are hurting in this recession. But there is a silver lining. Tess Vigeland speaks with Professor Donald Sull about how businesses can thrive in turbulent markets.
London Business School Professor Donald Sull (http://www.donsull.com/media/)
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Tess Vigeland: There are a couple of ways that businesses and individuals can go when deciding how to deal with fallout from this financial crisis. Hunker down, do whatever's necessary to slash costs. Or see this as a time to hunt for bargains and change the way business is done. Donald Sull says more of us should be contemplating the latter option. He's a professor of management at the London School of Business, and also writes for the Harvard Business Review. His article this month is titled "How to Thrive in Turbulent Markets." Professor Sull, welcome to the program.
DONALD SULL: Thank you.
VIGELAND: You know, everyday we get news of layoffs, companies that are making all kinds of cuts throughout to trim costs -- Is there a risk of cutting too much during this recession?
SULL: For sure there's a risk, Tess, of cutting too much. I think the more profound risk is missing the opportunities that are buried in this downturn. You know, in the midst of a downturn, very easy, as you say, to focus on the negative -- the layoffs, the falling demand. But that negative focus obsucres a fundamental truth, which is this: The worst of times for the economy as a whole can be the best of times for individual firms to create value.
VIGELAND: You talk in the article about golden opportunities. What are kind of maybe the top three things that companies can really take a look at in terms of taking advantage of the downturn.
SULL: Obviously your competitors aren't paying. So, your competitors are going to be pulling back and leaving opportunities on the table. So if you look at Adobe right now, they're being forced to pull back from web design software, creating a great opening for Microsoft.
The second thing is you're often seeing distressed sellers. So if you look at Oracle they're on a buying spree right now. 'Cause a lot of these very interesting start-ups can't get cash from venture capitalists, can't even get cash from customers.
The third thing is your customers aren't paying too. If you can offer products or services that allow them to cut their costs and retain their profitability that can be a great opportunity.
VIGELAND: What makes it so difficult to take advantage of this as an opportunity versus, I think you talk about, a lot of companies really focus on managing the threats inherent in a downturn. Why do managers overreact in this situation?
SULL: You know, a lot of managers and companies are what I call one-pedal drivers. So in a boom, it's pedal to the metal, full speed ahead, pursuing every opportunity in sight. And then comes a downturn and -- boom -- they slam on the breaks and give their organization a whiplash. So I think one of the things that makes it difficult is managers aren't accustomed oftentimes to tapping on the break and the gas at the same time -- looking for opportunities in a downturn, but also when times are flush, keeping control on costs.
VIGELAND: You gave us the driving analogy, but there's also an article you wrote for the Harvard Business Review where you compared business management in a recession to a boxing match.
SULL: Right.
VIGELAND: Why boxing?
SULL: Oh, I was an avid and very bad boxer as a young man through a university. So since I can't really do it well, I like to write about it.
VIGELAND: I think that's the case for most of us writers, right?
SULL: Yeah, absolutely. I mean, if I could box professionally, I wouldn't be writing articles. But no, I do find the metaphor's a helpful one to understand the following: In the downturn that we're in right now, organizations have two broad categories of ways that they can respond.
So one is agility, you know think Muhammad Ali in The Rumble in the Jungle, bobbing and weaving -- where you can spot opportunities, seize them, turn on the dime.
The other though, is absorption -- you know think George Foreman circa 1974. Just the ability to weather a punch, and you know, for a corporation that could be through a lot of cash on the balance sheet, diversification, sheer size -- you know General Motors can't go bust, Citi bank can't go bust, they're just too big too fail.
And the companies that I suspect are going to come out of this the strongest are the ones that have some absorption, but also have agility. So I think it's a useful framework for managers to think about what will allow us to get through this downturn. And for investors it may be helpful in sort of thinking about which are the companies that are likely to come out on the other side creating more value.
VIGELAND: Donald Sull is a professor at the London Business School. Thanks so much.
SULL: Thank you, Tess.
Comments
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From HI, 02/24/2009
But who will be sparing partner for George Foreman? Will it be Treasury Bonds? Chevron? XOM? What do you think? . We do not know these things in our country. Who knows these things? Englishmen know these things. We do not know these things.
From Los Angeles, CA, 02/21/2009
Where does the good professor get his information about web design software? He know something about boxing but nothing about web design software. Adobe is #1 in web software I know because I use Adobe software. Salsa dancing might be a better opportunity.
02/20/2009
Web design software isn't a new opportunity for Microsoft. They've been trying unsuccessfully to compete with Adobe for years.
02/20/2009
Thank you for airing a story on possible solutions to the economic crisis. It is very refreshing considering how much bad news and pessimistic opinions are aired on most major media outlets. Please keep it up. Thank you again. I really enjoy your show.
From Eden Prairie, MN, 02/20/2009
Social networking events appear to be thriving in this recession. I just got back from a weekend in Chicago where I attended the 8th Chicago Intl. Salsa Congress. This salsa dancing event had record pre-sales and record attendance. The organizers had lowered their pre-sale prices by about 20% back in October 2008. The event is an all volunteer organization. They contract with a hotel and vendors such as sound engineers as well as artists who teach dance lessons or perform live music.
I asked other attendees why they came in the middle of a recession and the consensus was that people needed an outlet to get away from all the bad news and the price was right.
02/19/2009
I'm not sure where Mr. Sull got his information about Adobe, but as far as I can see they are not pulling back from Web development at all. They haven't dropped products here and their flash platform moving to HD may rule video on the web.
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