I read a pretty compelling, albeit morbid, email the other week from Jason Calcanis, founder of Mahalo. He spoke about “The Start-up Depression” in the wake of current economic conditions in the US. He followed up with an equally forceful article titled, “Good News for People who Hate Bad News“. It sounded more like Armageddon was imminent. His words were harsh and foreboding:
“The severity of what has happened can’t be underestimated. There will be no white knight. Even the massive coordinated government action–including the first global rate cuts and bail outs–has done nothing to stop the panic or create a bottom (at least from where I sit). Bottom line: there is zero chance of a short or medium term-rebound. Zero.”
It’s clear that he’s not overexaggerating. Market conditions are impacting investing. Here are some harsh realities:
• Just yesterday, Tim Hortons has decided to close many of its stores in New England citing lackluster performance.
• The big car giants are rationalizing big time and talks of merger between GM and Chrysler come out of a necessity to survive. It’s being felt close to home as families in Oshawa – mine included – are shaking their heads wondering where it all went wrong. In past economies these institutions have taken care of their employees, where you were seemingly guaranteed employment until you retired. The union would fight for the best benefit packages for their workers and the carmakers acquiesced – all at the expense of the company’s eventual survival. The funny thing is that GM, Chrysler and Ford’s market share was being taken away from the foreign competition AND their business did not adapt, let alone, anticipate what this could mean in times of serious downturn. And now they’re scrambling.
• Banks are going to feel a softening in credit sales, and mortgage services. Credit card companies, which would traditionally promote low introductory APR for 6 months don’t have the luxury of making these offers today. Mortgage rates will be at prime plus for the time being. Banks have no choice but to secure existing investments and mitigate risk. This “Death Spiral” as Jason Calcanis’ labels it, will impact consumer spending, so consumers will become much more aware of reducing their debt → the very necessity that have kept financial institutions going……until now.
• I went to the mall the other day and took a chance to observe. There were sale signs in many of the stores but the prices were not indicative of perceived discounts. Traffic to individual stores was pretty light. I noticed my favourite place, “Linens and Things had closed up shop – it had recently gone bankrupt — and a few more smaller shops had popped up in its place … a glimmer of optimism or maybe foolish hope?
There are those that equate today’s crisis to the Depression of the early 30’s. I don’t know if the coming year is going to be as doom and gloom as everyone predicts. I agree that people and companies will tighten their belts and look to create efficiencies, and produce more with less resources. While it’s upsetting to even think about how the jobless will make ends meet in a survival-of-the-fittest economy, I have to wonder about those who are fortunate to have secured their jobs. What kinds of pressures will they have to endure as they are forced to do the job of 3 people and continue to meet their performance goals, which probably will remain unchanged?
Businesses will have to start developing strategies that speak to these challenges. To sustain in these trying times, companies will need to create stronger efficiencies while not risking the health of their employees or business. Here are a few areas that I foresee businesses adapting:
1. Spending on accountable and measurable channels needs to be a primary focus. Metrics will validate performance and channels that can provide true attribution on a CPA and CPC will see an influx of traffic. This means increased online spending. But media companies be warned: you’ll need to prove out channel performance and provide increased optimization strategies to win your clients and keep their business.
2. Search Engine Marketing will see an increase in business mainly because budgets will have shifted from traditional branding channels and because search conveniently relies on consumers who are already engaged within the purchase cycle. It’s also a channel that’s highly measurable and much more efficient dollar for dollar compared to offline or even online media.
3. Search Engine Optimization is an absolute must for businesses with an online presence. You need to ensure that your site ranks high on search engines and can draw tons of relevant organic traffic. This will be especially important for companies who have low marketing dollars to spend.
4. Social media marketing will begin to see more traction in the coming year simply because it’s very much a nascent space and there are no standardized ad practices or industry rates that have been established. The state of the economy will push more consumers online → the social sphere will see incredible growth as consumers become involved in information exchange and conversation. The organic nature of this space provides a large spectrum for brand building and influencer programs. It’s still relatively inexpensive but also highly measurable, providing strong qualitative and quantitative data to prove its value.
5. Retention will be tantamount to acquisition. The low-hanging fruit for most companies will be retaining their existing customers. This can be done through email and existing customer touch points: telephone, retail (where applicable). Stronger customer service will be just as important to mitigate churn.
6. Vendors will play a more significant role in client businesses. Companies who have downsized will increase their reliance on vendors to make initiatives happen. It will be more important for vendors to step up, provide the additional attention to their clients and work harder to own the results as much as their clients. I see somewhat of a shift developing in these relationships as a higher degree of trust creates more of a partner mentality.
7. Bartering will become more prevalent. This is how original deals were created. Creating true value exchange between companies and a resulting win-win scenario can help companies through the rough cycles, and potentially develop enduring and profitable relationships.
Perhaps riding out this storm smartly will give companies some clear guidance in managing a future of uncertainty. Perhaps, it’s a lesson for all of us: Count your blessings now ’cause nothing is forever.
Here is a video I found with Bugs Bunny. It is a true metaphor for “The Death Spiral” we’re currently facing: