Originally posted on Linkedin Pulse.
Companies that are hungry to grow should look forward to economic slowdowns. This time provides the perfect opportunity for companies to accelerate their growth by buying weak competitors and snagging market share at a bargain. But they can only do this if they have the capital. Now is the time to accumulate that war chest.
Long periods of economic expansion are kind to all companies, including slow-growth and weak companies. However, late in the economic cycle (where we are now), it becomes harder for aggressive-growth companies to outpace average industry growth and still earn a reasonable ROI. Without an economic downturn to cull the weak, the marketplace is crowded with sellers. Aggressive companies are tempted to overpay for acquisitions. They may overspend on marketing and business development to wrench away market share from competitors. They pay high salaries to attract talent in short supply. Attracting investment capital gets costlier, and interest rates on debt grows higher.
Spending big money on growth isn’t wrong; it’s how you grow when the “good times” have no end in sight. But the end is in sight. We are in the late stage of the current economic expansion. Credit is starting to tighten a bit. The stock market is turbulent again. The demand for head hunters has eased just a bit. We are at or nearing full employment (and you know what happens after most peaks). Everywhere I turn, I see small signs that the economy is slowing down.
I doubt it will be as epic a downturn as in 2008. I hope not. But even a small recession will provide an incredible bargain hunt for growth companies—if they have a strong enough balance sheet to snap up the bargains first. What kind of bargains are in the hunt? Bargain basement companies (who didn’t build their balance sheet), bargain assets (equipment, etc.), bargain technology, easy to land customers (when weak competitors make mistakes), and more.
I hope the next down cycle is one, two or three years away—it can take that long to truly prepare a company to be strong enough to be a power bargain shopper when the downturn presents.
Preparing to be a power bargain shopper means building a war chest within your balance sheet while your business (and the economy) is still in growth mode, as well as building a well-vetted shopping list. You can do this by following these five steps:
With all that ready, just sit back and wait. When the economy slides from late-stage expansion to early-stage recession, you’ll be armed and ready to start bargain hunting.
Companies that seek to grow aggressively must change their tactics in the year or two before the downturn begins. This will position them to snap up bargain-priced market share, acquisitions, personnel and assets when the downturn arrives.
Originally published on Forbes online http://blogs.forbes.com/robertsher/?p=1263