Practice Management

Seafaring through the Recession of 2009

By Ronda Muir

In the April 20, 2009 issue of The New Yorker, James Surowiecki recalls that during the Depression (the one in the 1930s) Kellogg and Post, but primarily Post, dominated the cereal market. In response to uncertainty, Post reined in expenses and cut back on advertising. Kellogg, on the other hand, doubled its marketing budget. 'By 1933, even as the economy cratered, Kellogg's profits had risen almost thirty percent and it had become what it remains today: the industry's dominant player.'

During hard times, Surowiecki points out, most businesses act like Post in order to preserve what they have. 'But there's a trade-off: numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts.' They also maintain those gains well into recovery. '[R]ecessions create more opportunity for challengers, not less.' 

Why do most businesses insist, then, on pulling back? Surowiecki suggests the uncertainty that so dominates recessions makes any business outcome calculations unlikely to be reliable. Unable to gauge risk, managers forego the gamble.

Certainly there are managers who risk 'sinking the boat' by boldly forging ahead, but there are others who 'miss the boat' by failing to do so.

Full post as published by Law People on May 14, 2009 (boomark / email).