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13 Ways to Outsmart a Soft Ecomony

By Ray Silverstein

for The Business Journal (Phoenix)

 

It’s back again: the dreaded “R” word. Entrepreneurs everywhere are asking the same question: Are we headed for a recession? That I can’t tell you. But I can tell you this: There’s an upside to everything, including a soft economy.

 

When business is lean, certain opportunities present themselves. Instead of bemoaning rough business conditions, be ready to take advantage of them. Here are some of my favorite ways to turn lemons into lemonade, if and when tough times arrive.

 

1. Upgrade Your Personnel

Are you satisfied with your employees? Would you hire these people again, knowing what you know today? If the answer is ‘no,’ now’s a great time to make changes. When the economy dips, talented candidates are easier to find. Don’t settle for mediocre employees—they can make or break your business now.   
 

2. Review Your Compensation  
In most small companies, employee compensation is the single largest expense. If your compensation formula isn’t tied to performance, change it. Is it possible to lower base salaries, while increasing results-driven bonuses? Do you have performance measurements in place?  


3. Maximize Vendor Concessions
Now’s a good time to renegotiate with vendors. Use your imagination. For example, renegotiate your rent. If your lease will expire in the next few years, suggest a longer-term lease with concessions as a trade off. Or, negotiate long-term supply contracts. If you can pay promptly, use your position to negotiate price discounts, promotional allowances, etc.

 

4. Improve Work Processes
In soft markets, it’s essential to squeeze costs out of your system. Many companies have used TQM (Total Quality Management) or something comparable to achieve improvements. If you haven’t tried a formal system, now’s the time.
 

5. Refine Your Sales Strategy

Categorize your customers—who’s not profitable? It may be necessary to “fire” some accounts or raise prices for unprofitable clients. Focus your sales team on selling your most profitable product/service. Use gross profit as a measure, or better yet GMROI, (gross margin that considers inventory turns on products).

6. Increase Throughput
Customers typically purchase in smaller quantities during economic downturns. Be ready to shorten lead times, set-up times, etc. Instead of turning away small projects, look for ways to handle shorter runs. It adds up.

 

7. Create Strategic Alliances
Strategic partnerships don’t have to be sophisticated. You can reduce expenses with simple strategies such as buying pools, rent sharing, and equipment sharing. Or find out if manufacturers’ reps and export agents can help boost sales.


8. Target Your Competitors’ Customers
Is a competitor in trouble? Woo their customers. When a competitor is struggling, chances are it’s having trouble maintaining quality and service. If your competitor’s customers fear a supply disruption, that may be the catalyst you need to win them over.


9. Acquire Competitors
Better yet, acquire the competitor, but only if the acquisition furthers your strategic goals. (During tough times, such goals often include increasing market penetration and amortization of overhead, etc.)

 

10. Enhance Mind Share
When threatened by recession, many firms reduce expenses by cutting marketing activities. Bad idea! Studies show that businesses that maintain or accelerate their marketing efforts during soft economies enjoy larger sales increases later.  

 

Bonus: Marketing firms are hungrier for business during tough times, so you’ll also get more for your marketing dollars.

 

11. Review Cash Flow and P & L Activity
Cash is king, especially now. Make sure your lines of credit are adequate. Don’t allow yourself to run short of working capital or you’ll spend all you time managing cash.

If your company doesn’t have financial controls, put them in place. Cash flow projectives are especially important—you may need to manage by cash and not your profit and loss statement. 

 

12. Know Your Strengths and Weaknesses
This is the time to review your company’s strengths and weaknesses. If you have big weaknesses, remedy them now, before they leave you vulnerable. At the same time, build on your strengths; you’ll need them more than ever.  

 

13. Keep Your Eyes Open

Be on the lookout for fresh ideas and solutions. Read voraciously. Attend business seminars. Join a group advisory board. See how other entrepreneurs are getting through this and how their strategies might work for you.

 

As Darwin once noted, survival is all about adaptation. During a soft economy, the old rules and methods no longer apply. However, you can survive one and even thrive, provided you are agile and willing to change.

 

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