Product Strategy in a Downturn
What to cut, what to double down on, and how to keep morale and momentum
“Great leaders know that how they fight a war often decides whether they will win the peace.” - Harvard Business Review, Roaring Out of Recession (2010).
Downturns force clarity. Budgets tighten, forecasts wobble, and every roadmap line item competes for scarce cash and attention. The question isn’t whether to cut-it’s where to cut without crippling the future, and what to invest in so you exit stronger than you entered.
Large-scale research on past recessions shows the stakes. In a study of 4,700 public companies across three recessions, 17% didn’t survive, ~80% of survivors hadn’t regained pre‑recession sales and profit growth three years later, and only ~9% flourished. Companies that cut deepest had just a 21% chance of outperformance, and the “invest at all costs” crowd did little better at 26%. The best results (37% odds) came from progressive firms that selectively increased efficiency and invested in marketing, R&D, and assets.
McKinsey’s “resilients” echo the pattern: firms that prepare early, cut costs faster and smarter, deleverage, and then invest through the recovery outperform non‑resilients by ~150% over the following decade. They prune during the downturn, then lean into acquisitions in the rebound; roughly a quarter of their deals in the downcycle were divestitures, while ~96% of deal value in recovery was acquisitions. (McKinsey & Company)
So how do you translate this into a practical product strategy? Below is a battle‑tested playbook: what to cut, what to double down on, and how to keep morale and momentum while you do it.
What to cut (surgically, not with a chainsaw)
1) “Across‑the‑board” cuts.
They feel fair but often amputate the future along with fat. The HBR study warns that blunt prevention‑focused strategies-deep headcount cuts, deferred investments-produce the lowest odds of post‑recession leadership. Use a scalpel: preserve the handful of bets that will differentiate you 12–24 months from now.
2) Pilot purgatory and “zombie” initiatives.
McKinsey estimates that >70% of companies are stuck in “pilot purgatory” with many small digital projects that never scale. Consolidate to a few that can move EBITDA or growth in the next two quarters; kill or pause the rest. Set a hard rule: no project without a measurable customer or cash impact in 90 days. (McKinsey & Company)
3) Low‑signal features and SKUs that create complexity tax.
Complexity is expensive. If a feature doesn’t improve conversion, expansion, retention, or unit economics, it should be cut or re‑scoped. Use zero‑based budgeting (ZBB) to re‑justify spend from scratch; done well, ZBB programs typically reduce fixed and semi‑fixed costs by 10–25% within 12 months, freeing resources for reinvestment. (McKinsey & Company)
4) Vanity marketing and misaligned discounts.
Pricing and promotion missteps destroy margin. McKinsey’s work shows that, on average, a 1% improvement in price(with volume held) raises operating profit by ~8–9%; the inverse holds for across‑the‑board discounting. Tighten price realization and discount governance-especially in enterprise. (McKinsey & Company)
5) Duplicate tooling and vendor sprawl.
Consolidate overlapping tools (analytics, messaging, CI/CD, experimentation). Negotiate annual prepay for meaningful savings, but insist on data export and an exit clause so you don’t trade cost for lock‑in.
What to double down on (because the payoff compounds)
1) Customer retention and value expansion.
During downturns, the fastest path to resilience is to reduce churn and raise expansion. Decades of research (Reichheld & Sasser and subsequent work) finds that a 5% increase in retention can lift profits ~25–95%, depending on industry mix-because retained customers buy more, cost less to serve, and refer others. Prioritize activation, onboarding speed, and usage‑based nudges over top‑of‑funnel spend. (Harvard Business Review)
2) R&D that lowers unit costs or builds a moat.
Bain’s 2023 engineering/R&D research shows that ER&D spending has historically been more resilient than GDP and that winners keep investing through cycles, with case examples (e.g., PPG) maintaining above‑industry R&D intensity while cutting elsewhere. Focus on work that either (a) drops variable cost per unit or (b) deepens differentiation. (Bain)
3) Pricing & packaging hygiene.
In inflationary, high cost‑of‑capital environments, pricing is one of the cleanest levers. Tune fences, raise floor prices where elasticity is low, and create good/better/best structures that protect entry while monetizing power users. HBR and McKinsey both document outsized profit sensitivity to price realization; treat it as a product capability, not a quarterly fire drill. (Harvard Business Review)
4) Capital efficiency instruments.
Boards are measuring efficiency tightly. For recurring‑revenue businesses, the Rule of 40 remains a north star, and private‑company surveys show only ~11–15% of respondents meeting or exceeding it in 2023–2024, even as many improved EBITDA margins. Show how your roadmap moves ARR/FTE and burn multiple (net burn ÷ net new ARR) in the right direction.
5) Smart portfolio moves.
Resilient companies prune and then pounce. Build a “divest to invest” list now, and keep an acquisition target file for the recovery-resilients leaned into divestitures during the downturn and acquisitions during the rebound. (McKinsey & Company)
How to keep morale and momentum when anxiety is high
A downturn isn’t just a balance‑sheet event; it’s an emotional one. Engagement dips, rumor mills spin, and productivity suffers-unless you lead with transparency and credible metrics.
1) Use a resilience nerve center and one visible plan.
McKinsey recommends a “resilience nerve center” to stress‑test the balance sheet, pick a single planning scenario, and speed decisions. Clarity reduces anxiety: teams know the score and how their work moves cash and customer metrics. (McKinsey & Company)
2) Protect psychological safety and learning loops.
Psychological safety-people feeling safe to speak up and surface problems-correlates with team learning and performance (Edmondson’s foundational research). In product and engineering, this means blameless postmortems, quick customer feedback, and small batch releases. (Massachusetts Institute of Technology)
3) Shorten the delivery cycle; measure with DORA metrics.
Elite software teams ship smaller changes, more often, with faster recovery when things break. The DORA research popularized four metrics (deployment frequency, lead time, change failure rate, time to restore); healthy culture and strong delivery correlate with higher organizational performance. Make these your operational heartbeat to keep momentum. (Google Cloud)
4) Be humane and data‑driven about workforce changes.
Layoffs deliver immediate P&L relief but often damage engagement for 12–18 months afterward, according to HBR research, raising the risk that you’ll miss the rebound. If reductions are necessary, prioritize redeployment and targeted performance management, not broad cuts-MIT Sloan has long warned of costly “layoff blunders.” (Harvard Business Review)
5) Invest in managers and communication cadence.
Gallup’s meta‑analyses link engagement to productivity and profitability across tens of thousands of teams. In 2024, global engagement slipped to ~21%, with Gallup estimating $8.9T in lost output from low engagement. An explicit weekly cadence (wins, risks, next bets) and manager enablement are high‑leverage. (Gallup.com)
A 30‑60‑90 day product playbook
Days 0–30: Stabilize cash and focus
Freeze net new bets; kill or pause anything without a customer or cash impact inside one quarter.
Run a ZBB sprint on non‑core spend (vendors, travel, tooling). Target 10–25% structural cost reduction.
Rebuild the portfolio into three lanes: (1) Run the business (SLO/SLA, security), (2) Cash now (retention, monetization, onboarding), (3) Moat builders (few, well‑funded). (McKinsey & Company)
Days 31–60: Re‑accelerate the value engine
Retention blitz: instrument activation and early‑life churn; ship fixes weekly; stand up a win‑back playbook.
Price/packaging review: raise floors where justified, tighten discount approvals, and test fences. A 1% price liftcan move profit dramatically. (McKinsey & Company)
Pilot consolidation: cancel or fold pilots into two to three scale‑ups that clear a CFO‑level business case. (McKinsey & Company)
DORA heartbeat: publish deployment frequency, lead time, and recovery time; hold a weekly ops review. (Dora)
Days 61–90: Create optionality for the rebound
Divest to invest: package non‑core assets for sale or sunset; redirect talent to moat projects. (McKinsey & Company)
R&D bets: fund 1–2 initiatives that lower unit cost or create defensible differentiation; Bain’s data shows winners continue building through downturns. (Bain)
Deal file: identify acqui‑hires or tuck‑ins you’d pursue if multiples fall another 10–20%. (McKinsey & Company)
A one‑page canvas you can reuse
Downturn Product Strategy Canvas (v1.0)
Outcome & time frame
What business result are we buying? (e.g., “Reduce 90‑day churn from 9% → 6% by Q4.”)
Unit economics snapshot (today → target)
ARPA = ___, GM% = ___, Contribution/Unit = ___.
CAC payback (GM‑adjusted) = ___ months. Rule of 40 = ___. Burn multiple = ___.
Portfolio (three lanes)
Run: SLOs, risk/security.
Cash now (90 days): activation, retention, monetization experiments.
Moat (12–24 months): 1–2 differentiated bets; explicit kill criteria.
Cost actions
ZBB targets (by category) and expected 10–25% structural savings. Owner & date. (McKinsey & Company)
Pricing & packaging moves
Price floors, fences, discount guardrails. Expected profit uplift from 1% price realization. (McKinsey & Company)
Delivery & morale
DORA targets and cadence; psychological safety commitments (blameless postmortems, weekly wins/risks forum). (Dora)
Governance
Single planning scenario, decision gates, and a resilience nerve center owner. (McKinsey & Company)
Practical tips that work in the room
Don’t hide the math. When you defend a roadmap item, show the cash it moves (churn, expansion, price realization) and the payback. Tie it to Rule of 40 and burn multiple so finance sees efficiency improving.
Cut complexity before people. ZBB and vendor consolidation often surface double‑digit savings without losing institutional knowledge-and they don’t crater engagement like layoffs. (McKinsey & Company)
Ship smaller to ship faster. A faster DORA cadence maintains momentum when attention spans are short and targets keep moving. (Dora)
Keep the “why” visible. Engagement drives outcomes; global engagement slipped to ~21% in 2024, with enormous economic cost. Managers are the fulcrum-invest time there. (Gallup.com)
Conclusion
The goal in a downturn isn’t austerity for its own sake; it’s optionality. The evidence is consistent: companies that balance cost discipline with targeted investment exit stronger. Cut pilots that never scale, misaligned discounts, and the complexity tax. Double down on retention, R&D that changes unit economics, and disciplined pricing. Build a resilience nerve center, measure delivery with DORA, and protect psychological safety so teams keep improving even when the macro picture darkens. Do these things, and you won’t just endure the cycle-you’ll be positioned to win the peace that follows.