Ways to Outsmart a Soft Ecomony
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.
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
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
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
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.