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The Wall Street Journal warns startups to avoid this recession mistake

In this down market, CMOs and CEOs are forced to make tough choices. While the knee-jerk reaction is to slash budgets 20% or 30% across the board, according to data analyzed by The Wall Street Journal, it’s critical to employ strategy when cutting back on marketing budgets in order to avoid stunting your company’s ability to persevere and grow.

According to the Wall Street Journal article, “Top performing startups increased their sales and marketing expenses as a percentage of their total operating expenses from 23% to 27%, while worst performing companies dropped sales and marketing expenses from 33% to 26%...” (The data quoted in the article comes from an analysis of 500 private software startups that was run by Capchase Inc.)

Why is this the case and what should you do about it?

Over the past ten years, our team at Si14 Global Communications has propelled more than 100 startups, scale-ups, and mature companies in the U.S. market and we’ve seen the impact of previous economic highs and lows. Here are three key pieces of advice for what to slash and what to hang on to when you’re forced to choose.

1. Avoid inadvertently making a tough situation worse

When sour economic winds start blowing, companies cut corners across the board. Rule number one in the face of so much pressure to cost-cut is to operate via strategy, not stress. Some companies can actually thrive in a tightening market.

Why do companies that continue to invest in marketing and PR exceed those that don’t? In part, it’s because they seize the opportunity this moment gives them.

Your competitors are likely slashing their marketing and PR budgets. Now is the time to show strength. With the right marketing and PR strategies, you can increase your brand awareness and qualified leads in your pipeline. Remaining highly visible during an economic downturn shows that your business is solid and your services/solutions can be relied on for the long run.

While your competitors are shrinking their activities, you can:

  • Connect and engage with customers and potential customers to increase brand loyalty.

  • Put yourself in your customers’ shoes and create content that will inform and support them as they are likely also seeking ways to ride out these difficult economic times.

  • Think about ways to leverage your existing assets…the biggest ones being: your executives. Often they have broad reach and helping them leverage their existing platforms (for example: LinkedIn) can be a cost effective way to reach a broad audience.

2. Double down on PR

In November, Airbnb made a stunning announcement: Even as inflation soared and the company continued to fend off social media backlash, they enjoyed their most profitable quarter to date. How did they do it? Their secret is a long-term marketing strategy that leans heavily on public relations for brand-building rather than traditional advertising campaigns.

The knee-jerk reaction is to cut PR when things get bad because PR is a significant line item. But down markets are an opportunity for you to gain market share and brand recognition, especially if your competitors are slashing their PR budgets.

A seed stage startup with no runway and no big news to break might be well-served to hit the pause button until it has a significant story to share. But companies at Series A level or beyond, and certainly large corporations, need to continuously circulate their news and unique value propositions via the critical mouthpiece of publicists and skilled marketers, so that end users keep them top of mind and they stand apart in this storm and come out on the other side stronger and better poised for growth.

PR numbers can be the hardest to track return on. Publications don’t share their readership numbers on articles that mention your company. Conversion rates based on those articles are even murkier. And that might tempt the CEO to cut back. But when you count touchpoints, the value of PR becomes much more clear. Potential buyers generally need 10-20 touch points before they dive into a product. And articles in well regarded publications provide the highest level of validation, credibility, and name recognition.

3. What area can likely be trimmed? Peripheral rebranding

When the markets are humming and there’s plenty of budget to spare, one can institute a mix of must-haves and nice-to-haves. But in a downturn, marketing goals should be reconfigured so there is a total emphasis on increasing awareness and engagement to drive increased results. Ask yourself: how critical is changing the look of your website, redesigning the logo, or updating the company’s color scheme and brand book? Is your effort better spent focusing on activities that demonstrate the inherent value of your solution to end users?

The bottom line is that most brands vastly underspend on brand (long tail) and overspend on performance (short). It’s possible that marketers are either trapped in a 12 month (or even 3 month!!) cycle as CEOs and boards are breathing down their necks to show immediate results.

In a Facebook Live session, former MIT marketing professor and Marketing Week columnist, Mark Ritson, shared that, “Time and again, research during recessions over the past century has shown that companies who maintain or increase marketing activities during these times perform better than their competitors in the long run, gain more share of voice and reap the rewards by experiencing significantly more growth.”

Instinct will tell you, as the economic forecast grows stormier, to slash unsparingly. Whatever short-term budget savings you’re considering, weigh them against the potential for diminished market share and brand equity. Take a moment and think about strategy. There is added fat everywhere that can be trimmed in tight economic times. But abandoning your marketing and PR strategy is a recipe for disaster.

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