Business success in a recession?

Recessions have the effect of showing up poorly conceived business models. It’s one the reasons that more long term successful businesses are started during downturns. When the economy is giddy and people are spending, businesses that are providing luxury products or services will thrive as will businesses providing incremental improvements to existing business models. However when things get tough these kinds of businesses are the first to go. So, when you’re planning a new business or a change to an existing one you should ask yourself the question in the title of this post.

Necessity or innovation?

Sustainable business models come in two categories: necessities and innovations. Providing a necessity is what I call a ‘mom and pop’ business model. You can make a living but growth is limited because nearly all necessities are commodities and commodities are, by nature, priced down to the lowest possible profit margin. Gas stations, grocery stores, liquor stores, housing, Windows laptops- these things are priced by the market not by the business owner.

Are you adding value?

Game-changers or innovation-oriented business models are a completely different animal. At the risk of being unoriginal, I’m going to look at mobile phones as an example. Motorola owned the market several years ago with its stylish Razr phones. Because phones are a commodity it was easy for others to catch up to them and the profit margins became nearly non-existent. If Motorola had continually innovated they might have been able to maintain their dominance in phone sales. What they failed to understand is that the ubiquity of cell phones represented an opportunity to to change the nature of how we use technology. First RIM added email to the phone then Apple entered with its game-changing eco-system device, the iPhone.

Apple is a perfect example of how innovation can thrive in a recession landscape. Given tight choices in how we spend our money, we are going to choose the highest value service or product available. If I am going to carry a device with me I want to carry one that enables a higher value experience.

Look at what your business offers. Are you measurably improving the experience of your customers in ways that provide high value? That is the model for developing a growth business in a down economy.

Wondering about your business model? We should talk. MartinEdic.com