Recession-Prep: Don’t focus on cost-cutting. Focus on growth.

moran.jpg These are turbulent times: Bear Stearns, tough credit, long returns, and everyone worried. A time when everyone is once again, focused on cost. What can we cut? Where are there some savings? Are there any heads we can let go?

My experience is that cutting costs is not that hard. As a consultant, I once had a client ask me to only get paid for costs I could cut. I thought to myself, “This could be my biggest payday yet. I will cut all costs. I will get expenses down to zero.” I didn’t say that and we came to an agreeable compromise but it is a good reminder that cutting costs is not hardest part of organizational transformation – growth is harder. Growth is what makes an organization successful, it is what keeps people in their chairs and it is the hardest thing to do.

Don’t believe me? Here is a scenario that has taken place in a thousand conference rooms in the last three months.

The executive group has finished the last round of cost cutting:

* Fresh half-and-half for coffee has been replaced by “white death” in an impossible-to-open package.

* First class airfare is long gone and words like Southwest and Jet Blue keep cropping up.

* Boondoggles to vendor events are impossible because even the vendors are going Dutch treat.

* Every single property lease has been renegotiated or eaten.

* The “counter” is active on the copier machine.

* Every executive assistant is supporting 20 executives.

* Email is flooded with messages from former employees asking about who might be hiring.

At the weekly Executive Staff meeting there is some self-congratulation that “we all survived” as the CEO looks at the group and says, “OK everyone, it is time to turn one hundred percent of our attention to growth.” Everyone looks around in agreement and then there is stoney silence.

Boards of Directors are beating the stuffing out of CEO’s to find a way to grow. Sales teams are out there pounding the pavement knowing that if they can’t stimulate growth, they could be selling vanilla lattes. The federal government guesses about what it will take to stimulate growth. And through it all, not a lot of growth is happening.

Why is growth so hard to achieve? In my years as a VC, board member and

consultant, I’ve consistently observed two major impediments to growth:

1. “Hope Floats.” It is just plain easier to stay the course, cut expenses incrementally every quarter and hope the economy comes back and all ships will rise again. But hope is the lazy-man’s driver for growth: Hope that things can’t get worse, that competitors have it just as bad and things will start picking up again any minute now. Working toward a growth target requires new ideas, new products, and new ways of collaboration. It may require new leadership styles and new organizational structures. Compared to “as is”, growth is way out of the comfort zone.

2. Companies invest at the wrong time. Down-markets are the best time for investing! My grandfather used to point to properties he could have bought during the Great Depression for ridiculous sums. He always said it was a bad time for investment but he wished he had bought a few of them at the time. The time for investment for growth is not that different. Sometimes the opportune time for investing for growth is when it seems you should hold onto all of your marbles and make no investments. Using this logic, there may never be a good time to invest in growth! You might be wondering: how can we invest in growth in a bad economy? But it’s an easier question to answer than you think. If growth is already occurring, you have a slimmer upside, so why invest? When growth isn’t occurring, it’s all upside!

Growth through acquisition is an important way to grow but to a growth purist, it doesn’t count. What you’re buying is the work that someone else put in to make a company grow. The additional revenue is always good, but it doesn’t reflect anything other than that you’ve opened the checkbook. So growth through acquisition can be a part of the growth plan but is not a surrogate for growth.

Inherent in growth are words that are not part of today’s vernacular: take risks. No pain, no gain; no risk, no growth.

It’s time. Time to take risks, time to demonstrate leadership, time to think about and focus on growth.

Richard A. Moran is a Partner at the CV firm Venrock in Menlo Park. He is also a former Accenture consultant, and the author of five books, including Nuts, Bolts and Jolts: Fundamental Business and Life Lessons You Must Know. Richs’ previous FoundREAD posts include ‘How to Work the Room’ 2.0: The Holiday Party, and Pitching on a Prayer & a PowerPoint. Also check out his blog.