The Idea in Brief
Picture this: Facing an industry downturn and economic crisis, a financially fragile company launches a series of audacious acquisitions, makes huge plant investments, and accelerates production.
Did financial ruin result? To the contrary, these counterintuitive moves—which rivals ridiculed at the time—paid big dividends. Arrow Electronics boosted sales by more than 500%, turned operating losses into profits, and seized market leadership from a once-formidable competitor.
The secret to staying aloft during a downturn? Defy conventional wisdom: Look bad news in the eye with a systematic approach to detecting approaching “storms.” Stay focused on your core businesses rather than diversifying. Maintain a long-term view while relentlessly managing costs during good times and bad. Here’s how.
The Idea in Practice
Downturns have three phases:
1. Storm clouds gather. Analysts report slowing industry growth; divisional presidents hint at missed budgets.
2. The hurricane hits. Smaller competitors face potential ruin. Investor dollars, management talent, and public attention seek higher ground in industries with brighter prospects.
3. Skies clear on the horizon. Portents of economic renewal emerge; analysts predict a turnaround.
Here’s how to handle each phase:
Downturns are a recurring fact of life in every industry. Sooner or later, demand for an industry’s products or services declines—often dragging prices down along the way—regardless of the state of the economy as a whole. While it’s true that many more industries suffer downturns during recessions, it’s a mistake to think that any industry is safe during periods of normal economic growth. In the past two decades, at least 20% of all U.S. industries have battled a downturn in any given year but 1984, when GDP growth soared to more than double the norm.