IN THE second of a three-part series on recession strategies for SMEs, we examine how historically, many firms have invested heavily in periods of recession, and gone on to reap the rewards.

STRATEGIC change in business is a complex process at the best of times, involving planning by business owners and senior managers, and entailing long-term consequences for business performance.

Recession complicates things considerably, because it presents businesses with a dilemma: firms must be able to cut their cloth to survive harsh conditions, while at the same time continuing to invest in business development if they’re to sustain satisfactory performance beyond recession.

Studies show the most success businesses are both ‘statically efficient’ (they make the most efficient use of resources in given circumstances) as well as ‘dynamically efficient’ (capable of surviving changing circumstances).

Small business and recession: 1. Adaption strategies

So how, exactly, do businesses adapt under recession conditions? 

Examples include:

1. -New product development;
   

2. -Targeting new market niches;
   

3. -Increased marketing spending
   

4. -‘Value-centric’ pricing strategies (whereby resource-rich firms emphasize quality and brand rather than low prices to attract customers); and
   

5. -‘Predatory pricing’ policies, to maintain low prices in price-sensitive markets.
   

Firms who follow one or more of these strategies perceive recession as an opportunity to invest, innovate and expand into new markets in order to achieve or extend a competitive advantage during the recession and beyond.

Small business and recession: 2. Some big lessons from history
Many of today’s household names launched successful businesses during recessions.

1. Rockefeller and Carnegie established dominant positions in the emerging oil and steel industries during the 1870s recession by taking advantage of new refining and steel production technologies and of the weakness of competitors

2. Edison established General Electric.

3. Hershey developed its brand and distribution advantages during the 1893-97 depression

4. 4.Kellogg’s grew out of the 1920s Depression.
   

5. 5.Coca Cola grew out of recession, after ploughing money into marketing during the 1920 Depression, going on to dominate former soft drinks market leader, Moxie, who felt marketing in a depression was ‘inapt’.
   

6. 6.Microsoft and Apple were both founded in the mid-1970s, following the oil crisis.
   

As ever, history holds all the best lessons for businesses looking for ways to survive recession, and then thrive in the ensuing upturn.

This blogpost was drawn from ‘Business Strategies and Performance During Difficult Economic Conditions’, published by Kingston University Department of Business Innovation and Skills. Click here to download the entire report.

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