Thursday, March 26, 2009

4 Principles of Recession Survival For Businesses

The recession is here - but that is no reason to panic. We have been through many downturns in the past and I can guarantee that we will see many more in the years to come. Business is cyclical. There are times of great prosperity - always followed by downturns. Followed once
again by - upswings!

It is what it is. You can dwell on it and blame it for all your woes. Or, you can take control of your business and make it work - in spite of the current conditions.

The truth is - the problem isn't the recession . . .
It's how you react to it.

Do you look at the current market conditions as a problem or do you look at them as an opportunity?

I, personally, believe they are an opportunity. And I believe if you approach things with the right mindset you can not only survive, but actually thrive. And, in doing so, set yourself up to lead your market when things begin to pick up again.

The truth is anyone can survive and grow in a booming market. When there is demand galore, it doesn't matter how you market yourself or how good your product is, someone will buy it. If the growth is strong enough, there are even people who will jump into the fray who have no idea what they are doing. As an example, look at the mortgage industry through the early part of this decade - it was filled with fat and unscrupulous brokers (just trying to make a buck).

But when the pendulum swings the other way - oooh, look out. To survive in a recession, you actually need to have business savvy (or at least understand some the basics of business), a quality product, and excellent customer service.

Look at the mortgage / banking industry now! Since the collapse of the housing market there are over 200 well known mortgage companies that have gone under (big and small) - declared bankruptcy and left the business. Do you think they are the strong ones - or the weak ones? It is true market "Darwinism" - and the herd has been thinned out.

There is no magic way to survive during a recession - it is simply doing the things that every business should do all the time, but most businesses are too lazy to stay focused on - when the cash is flowing in.

I've been working with small businesses from varying industries and marketplaces for the past two years. I've also been doing some thorough research on down-turned markets in the past and how best to survive them. The trick to surviving can be reduced to 4 Principles of Sounds Business. Those principles are:

- Cash is king!
- Take care of your customers or someone else will!
- Deliver a consistent product / service every time!
- Marketing the smart way!

But. . . before I break these basic principles down for you, let me give you one other principle that applies as much to life as it does to business.

That additional principle is that all things being equal - there is an inverse relationship between spare money and spare time. It's rare to have both - money and time. So when money is down, you need to take advantage of your available time to make money. And when business is booming, there is rarely enough time to do the things you want to do, but plenty of money to pay someone else to do them.

So when sales are down (as they usually are in a recession), and there isn't a lot of work for you to do "in" your business - that is the best time to work "on" your business. And prepare it for the long road ahead. That may sound obvious, but most people don't seem to take advantage of the slower sales / customer traffic to do the work that needs to be done o create new business both today and in the future.

You see, when sales are up, you tend have a lot excess money and very little spare time. So you spend, spend, spend to get things done. But when things slow down, the opposite is usually true. The trick is to take advantage of the slow time to improve your business - apply the four principals to your business, survive the downturn and prepare for the big upswing that is forth coming by having a better run business.

Now, let's break the original Four Principles down a bit further.

Cash is king!

In any business cash is important. But during a recession, the businesses that have a ready supply of cash are going to thrive more than any other. Why is this more important during a recession than during a growth stage? Basically cash is more important during a downturn because credit becomes increasingly hard to come by - everyone is hurting and Banks / Lenders understand the importance of cash more than anyone.

There are many cases when profitable businesses go out of business because they failed to manage their cash flow properly. Don't let this happen to you. Look at your cash flow and begin to figure out where you can make adjustments to both accounts receivable and payable to ensure a healthy cash flow throughout your year.

Take care of your customers or someone else will!

During a downturn, most businesses will struggle and many will go out of business completely. This means that when all is said and done, you should have more market share after the downturn than before - though your sales may fall off. So, just because you might start gaining customers from others misfortunes - or misgivings, the one thing you do not want to do is lose your existing client base.

Your current clients are today, and will be for the coming months, your life blood. Take care of them. Nurture them. And by all means, make sure they know how important they are to your business.

And if you see them starting to leave - stop them! Get them back in your store - at all cost.

Deliver a consistent product / service every time!

The truth is, whether we are in a recession or not, for most small businesses across America (especially following the holidays) sales are slow and time is plentiful. The early part of the year tends to be a "breather" time for many businesses from retail to manufacturing.

Retail sales are down, so most retailers are cutting back. And most manufacturers are either re-tooling or re-evaluating for the coming year. So, take advantage of the slower times to build the systems and procedures that will enable you to deliver consistent products / services regardless of your staff.

The trick to long term success isn't being able to produce today - but to be able to produce a consistent product today, tomorrow and next month. If you product is hamburgers, make sure that everyone tastes the same, and the experience the customer gets every time is the same. If you product is mortgages, and one of your marketing elements is turnaround times for brokers, then make sure you can consistently deliver what you promise.

This requires strategic planning - to not only make sure you can deliver today - but also making sure you can deliver consistently on your promise during spikes in business as well as slow downs.

Make Decisions Based on Actual Measurable Facts - Not Gut Feelings!

All too often, small business owners will tell me "sales are down". I have no doubt that they are. But . . . the follow-up up questions is usually, how do you know?

Now, if they are able to pull up sales numbers quickly, I'll take it one step further and ask them Why? or Where are they down? To that question, I rarely get an answer. And without it, the right solutions to the problem are very difficult to come by.

Let me explain. So, what if we are talking about a phone sales company. We look at the data and overall sales are down 10%. That's bad right? Could be, but what if the product you main product is selling for 15% less this year than last year and overall volume is up 3%? Is that bad or good?

Or, what if new customer sales is up 100% and repeat customer sales are down 25%?

What problem needs to be focused on then? Or what if those numbers were reversed - what problem should you come up with a solution for?

Everything comes down to numbers and looking at them objectively - no matter how painful it might be. But I can tell you this - it might be tough looking at the numbers now and facing the facts that they present to you - but it is far better to find out the real truth now, when there is time to fix it, than in bankruptcy court, when you can only say to your lawyer, "My gosh, if I had only realized that back in December 2008, things would have been much better."

Over the course of the next four months, I will be taking these concepts and drilling down deeper so that you can make sure you know how best to apply them to your unique situation.

1 comment:

  1. Thank you for such a great article. I am the owner of the Insurance Lead Management System-AgencyIQ and I have been running AgencyIQ with those four principals since day one! We have found that excellent customer service and delivering what we say we deliver has been refreshing (yes, I said refreshing) to our clients. We get comments and testimonials daily about the stability of our staff and our product. Some days I think my customer service department is a little overboard on how seriously they take comments, but reality is that it works. Thanks for posting this for small business owners like myself..great encouragement!