In order to understand why a down market creates so many opportunities for a startup company, you first need to understand why a bull market makes it so difficult to succeed.

In a bull market the cost of everything skyrockets.  As more capital becomes available, so does more competition.  New startups spring up everywhere, competing for talent, marketing opportunities and of course, customers.   At one time you were the only game in town – now you’ve got three guys pretending to do exactly what you do – all the while increasing the cost of running your business.

Conversely a bear market drives the cost of everything instantly downward.  Companies go into a panic, losing sight of their growth goals and in some cases falling into bankruptcy altogether.  The sudden drop in demand forces the prices of everything sharply downward, creating a perfect storm for a well-prepared company to create unprecedented gains.

Get Lean Early

Before you get your offense together, you need to get your defense lined up, which means getting very lean very quickly. 

The problem with coming off of a bull market is that we’re not used to pulling back.  We’re used to knowing that the next year will be even bigger than the last, so we plan and spend accordingly.  This time around we’ve got to create a very different plan. 

This plan is about reducing staff, reducing marketing, and reducing every possible operating cost you have, before you have to.  Make no mistake, this is going to suck.  No one is ever excited about downshifting, especially after a good run, but it’s better than sending the entire company home because you weren’t ready to make changes.

A healthy approach is to plan for a very long winter.  Assume you’ll lose more sales than you can possibly forecast.  Think of your business in terms of “what is the least we can operate on and still keep the lights on.”  You can always add more resources if you need them later but you won’t be able to make up for overshooting your income forecasts.

Attack the Competition

Kicking butt in a down market isn’t just about crawling up in a hole and waiting for Spring.  It’s about getting lean so you can get focused on hunting again.

Your competition may not react as quickly as you did, which is great news for you.  Chances are their lack of planning is putting the company in a tight spot.  Their senior management is more concerned about making payroll than making acquisitions.  Their foot soldiers are more worried about whether or not they are going to have jobs than whether or not their customers are as happy as they can be. 

And that’s where you swoop right in.

There is never a more cost effective time to attack the competition and take over their customers than in a down market.  The cost of advertising plummets as the competition pulls back.  The challenge of getting media attention dwindles as fewer companies are vying for attention.  And the cost of wooing customers drops as sales reps go into a defensive tailspin.

In some cases you may not even have to attack their customers.  As your competition pulls back or goes out of business altogether, you can let your customers come to you.  Try that in a bull market!

Pillage Cheap Resources

Think of the aftermath of a bear market to be like a “startup company liquidation sale” where everything is 90% off.  In some cases, I mean this quite literally.

Companies that fail to plan for a down market get hit so quickly that they are forced to sell off valuable assets at fire sale prices.  We’re not just talking about Aeron chairs here.  We’re talking about valuable intellectual property, customer contracts, and even talented employees. 

The value of an asset is virtually nothing to a bankrupt company and the deal of a century to a healthy one.  Just ask any surviving banking institution right now.

Take inventory of the assets your competition has and what you would be willing to do to acquire them.  Like a bargain shopper at a flea market, get aggressive and pillage any and all assets you can get your hands on at the right price.

Preparation and Patience

The key to kicking butt in a down market is being prepared and being patient. 

Being prepared means taking measures to get very lean long before anyone else realizes that a storm is coming.  Being patient means planning for a long, cold winter but knowing that when spring comes, you’ll be one of the few companies that made it through.

With the right planning, this bear market could be the greatest opportunity you’ve ever had.