How to Prepare Your Startup for the Downturn


McKinsey blasted us again yesterday, this time with its foreboding “Special Collection: Coping with a downturn.” Every day the signs of our coming recession grow clearer, so it’s time to start rationing and stockpiling — or diversifying, depending on your business type. Only you can make the call about what strategy is best for your startup, but one thing is sure: find a way to build flexibility into your b-model.

McKinsey offers specific guidance on how to do this in Preparing for the next downturn. Having studied 1,300 companies, the article details the winning strategies used to survive the last economic lull by Starbucks, Verizon and Talbots, and highights others in this handy chart.


I know what you’re thinking: Verizon, Starbucks and Talbots are all far larger than your company, and you’re neither an industrial shop nor a bank. It’s true that “balance sheet adjustments” might not apply to you, but the “operational flexibility” tips sure do.

We’ll break it down. Start by thinking about 3 things:
* do cut SG&A by hiring more part-time staff
* so you don’t need to cut R&D
* so that you can continue to invest in diversifying your product offerings

Here’s how it works:

Talbots, for example, increased the flexibility of its workforce in the years before the recession, adding part-time workers during the growth period of the 1990s at almost double the pace at which it added salaried workers … Then, as the recession took hold in 2000 and 2001, Talbots also radically shifted its advertising mix away from TV and catalog operations and toward focused activities targeting customer groups with the highest sales potential. Although this strategy somewhat reduced the company’s ratio of advertising expenses to revenues (from 5.5 percent of revenues in 2000 to 4.3 percent in 2001), Talbots maintained advertising levels far above the sector in general [and] helped Talbots emerge from the recession as a leader in its sector, though it entered the recession as a challenger.


… less successful companies cut their R&D and advertising more deeply [than SG&A overhead], putting them at a disadvantage for tapping the opportunities these expenditures might create. Before the recession, their productivity per employee was lower than that of the leaders, and so they had to lay off more employees during the downturn, perhaps damaging their ability to attract and retain talent in the future.

There’s plenty more the in the McKinsey piece to help you “succeed in the face of decline.” Read and learn. Several months on, we’ll bet this is knowledge you’ll be very glad to have. “Preparing for the next downturn” was authored in April by McKinsey partners Richard Dobbs (London) and Tomas Karakolev (Prague), and consultant Rishi Raj (Delhi).


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