Tuesday, October 14, 2008

You have a business and the recession is upon you. Oh, crap.

Business has been good, so you’ve hired a few more people, expanded into larger facilities and even started giving perks to the employees. All of a sudden things start to slow down. You watch the news but don’t see a mention of anything slowing down. You start to panic – what am I doing wrong? Everything was working great. I just expanded!

Don’t ever forget you are a small business. Small businesses play in different sand boxes than big businesses. (And they very rarely play well together.) As the economy starts to slow big business notices it very slightly, and you catch a cold. As the economy goes into a major downturn, big business catches the cold and you have pneumonia. Bad news in the economy will always hit small businesses first. The irony is that the majority of the people in the world are employed by small businesses.

I always stress as a small business you need to remain flexible, not only when starting a business, but even as your business grows. It’s very tempting and ego-gratifying to expand. But, you are better off being a little late to get in on a growth spurt than be saddled with payroll, leases, etc. that continue to be due each month, even when there are no sales. Your vendors don’t really care about your sales. They care about theirs.

As of this writing, the U.S. and global economy is very, very slow. It doesn’t matter if you call it a recession or not. You aren’t getting the sales you need. Before I give you a few tips on how to deal with it let me make one point I learned a long time ago from a really smart economist: The economy goes in cycles. It always has and probably always will. It has been as consistent as the tides going in and out, since we began keeping track of the economy. So, regardless of how bad it is right now, it will change. It always has and it always will. Your goal is to survive until it does.


Cut early and cut deep – Let’s start with the most difficult issue first. As much as you love having your staff you cannot let your generosity put you out of business. This doesn’t help your family or theirs. Maybe you can hire them back when things get better. Adjust your staff level as if the downturn were to last for at least six months. Listen to me when I tell you this – I learned this lesson the hard way.

Review ALL your expenses – Make sure what you are spending is a necessity and not a nice-to-have. Free soda in the break room is a nice-to-have.

Stick with marketing programs that work – and ditch the other ones. I do agree that you need to keep a direct response program in place. But, go back and find one or two that delivered the best results and stick with those. Also, go to those vendors whose marketing programs you do use and explain what you’re doing. See if they’ll work with you on price, terms, added-value, etc. Chances are they are slow too and will be willing to work with you to keep your business.

Offer promotions – It’s time to give a little to get new customers and keep the customers you have. If you can give something two-for-one or offer a, sign up for one year and get one year free, do it. If you have extras that really don’t cost you anything, now’s the time to bundle them into your product.

Keep your employees informed – You aren’t the only watching the news. Your employees watch it and worry just as much as you. They probably worry more because they have no say whether you keep them or not; whether they get a raise or not. Their future and the future of their families can rest in your hands. Be as honest and as forthcoming as you can without scaring the pants off them. They will appreciate it, they will be more productive and it’s the right thing to do.

I ran into a friend of mine recently whose home remodeling business went from $100 million a year in sales to $30 million, in 18 months. You might say that’s still a lot of money. It is, unless your expenses are $35 million. He said something interesting to me. He said, “I can’t downsize quick enough.” He had invested in large facilities and equipment that came with contractual leases. He still needed to make the monthly payments on those leases regardless of his sales volume. He’s learning the flexibility lesson the hard way. Don’t you.

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