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MONEY

Saving Your Way to Success: Why You Can't Do It

It's hard to invest when the economy is poor. But that's exactly when you need to do it.

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This economy is making us way too conservative. For years, the big guys have been cutting back on their research and development budgets to protect pennies of earnings, thereby killing any prospects for real innovation. Smaller players, like us, have been saving our shekels rather than advertising and promoting our businesses. 

But we should be investing aggressively in the future--like we really mean it--or many of us won’t have a future to worry about.

Now’s the time to demonstrate to that you have the courage of your convictions. When the whole world finally wakes up and jumps back into the fray, it’ll be too late. I like to think of running ahead of the pack this way as “getting ready to get lucky.”

When you bet on yourself and your future, you accomplish three other important objectives:

(1)   You effectively set the pace for the rest of the market. You can become the market leader even if you’re a tiny company.

(2)   You reassure your customers, your employees and your vendors.

(3)   You build your business at the expense of your competition, without spending a lot of money to do it. Your competition will have pretty much left the playing field to you.

Increased market share is taken and grown not in good times, but in difficult times--when everyone else is sitting on the sidelines and nursing their wounds.

In good times, people want to advertise. In bad times, they have to advertise. The minute you stop, you start to slide down the sales slope.

Take a look at what happened to Saturn.

 

When sales dipped a tiny amount at the start of 1995, Saturn started to cut their ad spending. That flattened 1995 and 1996 sales. Saturn tried to get back into the game heading into 1997, but panicked when the sales didn’t immediately recover. They cut the ad spend again. This killed not only 1997 results, but the 1998 and 1999 sales as well--even though they boosted their spending in mid-1998. The bottom line is that trying to “save your way to success” is like trying to catch a knife. Most of the time, you just can’t do it. Even if you do, it’s very painful.

Here are results from a survey of 600 U.S. companies whose revenues increased after the 1981-82 recession, and what they did with their advertising during the recession.

  • Companies that increased their advertising saw revenues increase 275%.
  • Companies that decreased their advertising saw revenues rise only 19%.

It couldn’t be much clearer. You have to spend real money to make money.

Get going.  There are a number of things that every business should do right now to prepare for the better days to come. And there is one thing that is absolutely critical to understand--in good times to be sure, but even more so in tough times--you can’t save your way to success.

Last updated: Jan 3, 2013

HOWARD A. TULLMAN is the CEO of 1871 – Where Digital Startups Get Their Start and the General Managing Partner of G2T3V, LLC and of Chicago High Tech Investment Partners. He is a member of the Chicago NEXT & Cultural Affairs Councils and the Illinois Innovation & Arts Councils; an adjunct professor at Kellogg; and an advisor to many start-ups. He is the former Chairman and CEO of Tribeca Flashpoint Media Arts Academy. Over the last 45 years, he has successfully founded more than a dozen high-tech companies. @tullman
@tullman




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