How To Grow During A Recession

President, Exiger | Regulatory, Financial crime compliance & Third-Party & Supply Chain Risk expert | AI & Technology practitioner.

The difference between a successful rocket launch and a disaster is painstaking precision. Engineers pouring over detailed inspections, launch data, historical risk indicators and, at the end of the day, trusting the tried-and-true physics. You must achieve the right degree of thrust at the very point that you’re facing the most gravitational pull and be durable enough to withstand the astonishing friction in that moment—a helpful analogy as companies attempt to defy gravity and grow against a recession.

Contrary to the belief that it requires doing something radically different or achieving the impossible, growing during a recession demands companies ground themselves in the fundamentals.

In my company’s case, we’re going back to the basics with rigor and conservatism. We’re drawing on experiences from previous launches—or attempted launches—tapping into our network and our private equity investors to inform an air-tight go-to-market, operations and cash management strategy.

Here is how we’re doing it, and why I believe your organization should, too:

Start by understanding where you face the most resistance.

To navigate this recession, Exiger is locked-in on when and where we’ll experience resistance. First and foremost is market demand. During any recession—and especially one characterized by rapid inflation—people are inclined to hold cash, which quickly causes demand to dry up.

Cost centers—traditionally areas like corporate IT, compliance and risk management—are the areas that experience resistance. Oftentimes, the knee-jerk reaction is to clamp down on these costs to preserve cash in the short term. The result, however, is that you could be trading short-term cost for potential long-term risk.

The third area of resistance during a pandemic is continued transformation. Many companies, especially those that are already profitable, hit the pause button on transformation plans, again prioritizing preserving cash in the near term. The danger is if your competition decides to continue investing in digitization and improved margins, you can wind up outmoded with outdated pricing.

Shore up your company’s propulsion mechanism.

You can’t launch a rocket without a jet propulsion system to power your ignitions and thrust. Capital is the propulsion mechanism for businesses. With inflation, the cost of that capital goes up.

Organizations need to interrogate the dollars they spend against their rate of return. The current market forces companies to focus on internal rate of return and generating the most effective outcomes. It’s wise to shift your thinking from “what will it cost” to “what can we afford?” Reframing your business to test the mettle on a new product before commitment, build accountability in your go-to-market organization on event spend or prioritize transformation programs that deliver the most certain outcomes will set you up to exhaust the potential of your best opportunities.

The key is to maintain ownership of those decisions. Manage your company in a way that allows you to decide the cost of capital that you can tolerate and that is appropriate for your business, rather than finding yourself in a position where you’re forced to take capital at any cost.

A good private equity partner can help you in this analysis, providing data you need to avoid blind spots and increase the probability of success.

Lock in the calculations—adjust if necessary.

As a growth company, your target growth rate plus profit margin should be at least 40% (the Rule of 40). Achieving this level of profitability requires active quota management. In a recession, where deals elongate in timeline and compress in size, companies may need to handicap their quotas to create more resilient budgets.

One piece of advice we received from one of our private equity partners was how to balance our desire for growth with our demand for resilience. If, for example, you can afford the staffing you need to grow by 40% while still dropping cash to the bottom line at 70% of your average sales rep’s annual recurring revenue bookings from last year, then that’s sustainable. If not, you may need to rein in growth goals and invest in efficiency for margin.

In a recession, relying on quota can lead to lots of untested assumptions; relying on proven data allows you to ground yourself in reality. This balance can be the difference between a catastrophic failure and an organization that’s built to last post-recession.

If you can’t afford it, ask yourself: What levers do I have? How can I increase productivity through sales training or methodology? Do we need to focus on different cohorts of our existing customers, or should we still go after new logos? Can I prioritize efficiency in product development, data or operational costs to generate more margin and defer the investment without losing the potential impact on my growth rate?

Once you take these market dynamics into account, get feedback from your private equity partners to find out what they’re hearing across portfolio companies. The goal should be to reach your ambitious milestones through conservative planning.

Prioritize investments that support your launch.

CEOs have at least 100 investments they can make at any given time. But during a recession, those investments need to be concentrated exclusively in the areas that will deliver value.

In a recession, every dollar has a substitutable alternative. Prioritize the spending that delivers the best net return, which is different from cutting costs. Some CEOs, for example, may be quick to cut back in areas such as employee experience; but, if your goal is to harden and upsell customers, you must retain employees to preserve knowledge and customer relationships.

Shifting spend from senior staff hires to investment in better training programs and other employee benefits may be a better approach. Instead of “more for less,” think, “Can we put more into less?”

The Bottom Line

Growing against a recession requires a carefully planned and seamlessly executed team effort. It’s not achieved by taking bigger risks and being more aspirational; it takes being less aspirational and focusing on the fundamentals required to get your rocket off the ground and into space.

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