You can easily go online and read any number of articles about companies that no longer exist. These stories often bring "blasts from the past" and may even evoke some nostalgia. However, while reading one such article, I noticed a very distinct trend: The companies on the list had failed to innovate.
This occurred to me because I had just finished reading an article about Coca-Cola, which is launching an alcoholic beverage for the first time in the company’s history. Coca-Cola has been around for over 130 years and continuously innovates. We all know the story of the New Coke debacle, but Coca-Cola did not stop trying new things because of a failure. Instead, the company pivoted and went in a different direction, Coca-Cola Classic, to great success.
Launching a new product is not without risk, but it can also carry great reward. Starting a new product line or venturing into a new market is one great way for a company to avoid some of the pain of a recession.
However, as with so much in life, timing is key. You need to know where your company is in the business cycle. Are you heading into a recession, and, if so, how long will the recession last? You also need to know if the market into which the product will be sold is heading into the same recession. Unless you are launching a product that sells well specifically to customers in recession, you are going to want to look for countercyclical markets. Countercyclical markets, or industries that go up when the majority of the economy is going down, will lead you to a more diversified product mix and help you mitigate some of the pain of your contracting industries.
Even within related industries, you can find sectors moving counter to each other. For example, US Single-Unit Housing Starts is in recession while US Multi-Unit Housing Starts has turned into an accelerating growth trend. You can also look to do business with companies tied to industries that typically avoid recession, such as gambling.
Your long-term planning needs to incorporate measures for mitigating the next recession. If you are unsure of when the next recession will impact your business, we can help you determine that. We can also discuss industries that could bring you some opportunities, so you can be better prepared to innovate and beat the cycle.
Jackie Greene
Director of Economics