During the 2007-9 recession, many companies had no choice but to hit the brakes on their growth ambitions. Today we face stagnation rather than downturn, but that is scant comfort. At least recessions imply recovery.
Unless Chat-GPT rides to the rescue with AI-driven universal productivity increases, the horizon is looking pretty flat. And unlike the great recession, we also have inflation to deal with.
Nonetheless, there’s still cause for optimism. We’ve had stagflation before – the term was coined by Conservative Shadow Chancellor Iain McLeod to describe Britain in the 1960s, and we’ve done fine since then. And historically, there are always companies that find a way to grow.
Today, I am confident that the best businesses can not only thrive and grow during this period of sluggishness, but also eventually revitalise the economy by doing so.
Facing reality: The role of leadership
Growing through stagnation, whether in specific industries or the broader economy, starts with accepting some difficult, but unavoidable truths.
First, growth will be harder for the foreseeable future. You can’t just do the same things and expect to expand like in the boom times. This also creates cash pressures that exacerbate the challenge.
Second, competition will intensify. Everyone’s got the same problem: a pie that isn’t growing. They therefore push for share, often by undercutting each other, making the market even less appealing.
Businesses can still grow and/or flourish (the two are not always the same), but not if their leaders sabotage them.
Unfortunately, this is often what happens. Under challenging conditions, the need to cut costs and improve return on investment tends towards layoffs, pay freezes, and lower capital investment and marketing budgets.
Those are not automatically acts of sabotage, but they can be if they come with unrealistic goals (“we still want you to achieve the same output with half the staff, or grow 10% annually with half the capex”) or if they’re taken to mean you see no future in the business.
With competition rising, you can’t afford for your employees to disengage or to think the company is an also-ran: they’ll move to somewhere with prospects.
The best leaders therefore cut costs with a scalpel, not a battleaxe, and always give their people something to believe in.
Trinny Woodall, of Trinny London, is a good example of that, creating the sense that the business is moving on not just hunkering down. As she told Harper’s Bazaar, “When a team is motivated by the bigger vision and mission behind the business and the work they’re doing every day, they’re more inspired by results that bring that vision to life.”
Innovating to grow
Belief in growth only means something if growth is actually possible. But unless you’re selling a commodity in a declining market, there’s no reason this shouldn’t be the case.
Lean, bootstrapped startups have repeatedly found a way to improve and expand without splurging cash, from giants like Toyota (which grew privately during the 1930s Great Depression), through to tech firms like Dropbox and smaller non-tech companies like luxury equestrian brand Fairfax & Favor.
Innovation is the key, differentiating a product to gain share, deter market entrants, and avoid competing on price alone.
Look at Indian curry sauces, a long mature market in British grocery retail. The Spice Tailor reinvented the category with its 3-step format, and has grown to become a market leader, spawning numerous imitators.
Ella’s Kitchen did something similar with baby food, as did the likes of Starbucks in coffee, which was once seen as a declining market. Each saw an opportunity to grow in a space where no one else did.
For existing businesses, this will not only mean horizon-scanning and paying close attention to customer needs, but also sometimes refocusing investment budgets away from established segments into new ones (without leaving existing ones to languish).
Westinghouse, now a nuclear generator company, once sold diesel generators, a market that suffered during the 1970s oil price shock. It successfully started a new business line providing services and maintenance, which helped it weather the following decade.
Today, finding growth might mean a new sector or a new geography: if trade wars allow it and you have a team with the right experience and skills, there are still plenty of high-growth emerging markets to sell into.
The not-so-appealing alternative
Topline growth may seem less appealing than profitability during times of stagnation, but that’s not the most important choice facing businesses today. The real choice is between sitting still and moving to make the business better.
You could just play it safe and wait for interest rates to fall and demand to pick up, maybe for regulation to decrease, trade barriers to drop and AI to jump-start a productivity boom. But that’s hardly a strategy, particularly when there’s no guarantee if or when any of those things are going to happen.
Growth isn’t going to land on our doorsteps, but it is out there if we’re willing to go out and get it.
