How to Thrive in Tough Times – Lessons from Successful Business Owners

May 7, 2009

Keep your customers
Protect your cash
Sustain your team
Focus your head

Seek new opportunities
Ready your recovery fund
Inspire your team
Envision your recovery
Snap up resources

In the business media, it’s all doom and gloom and hunker down. Yet many small businesses are doing well. They are taking measures to protect themselves, yet making money and preparing for recovery. Of the owners I work with, 20% are in the pits, but 80% are either doing very well, or are at least getting along.

Here are a few things owners I work with are doing right now–in marketing, customer service, finances, staffing, and operations. You can apply many of these ideas to your business tomorrow.

Lesson #1. Banish “doom and gloom” mentality. At each Business Group meeting, members say, “Things aren’t going too badly. But we constantly hear all these horror stories on TV. We’re running scared. When will it hit us?” We’re lucky we have each other to share problems and successes, so we don’t succumb to this. If you’re on your own, it can defeat you. Don’t hang with doom and gloomers; stick with the problem solvers.

Don’t make decisions with long-term implications based on near-term negative outlook. “I was ready to shut down our second office until I talked with my group members and vented.”

Focus on running your business. Get yourself out of the minutiae. Do the things that are the most important to preserve health and stay forward-focused. Hand off the other stuff, or let it go for now.

Lesson #2. “Don’t lose your current clients.” Here’s what a few of my clients are doing:

“We’re switching from time and materials billing to monthly retainer. Clients love this. It gives them a known amount to budget for. It also shifts our culture from, ‘Spend the hours you need’ to ‘Get this done as quick as you can.’ We should have done this long ago.” (Tech consulting firm)

“We met with each major client and suggested how we could cut back our monthly billings 5% to 10% by deferring some work till later. They loved this.” (Business financial services)

“One client told me they loved us but could no longer afford us. I asked, ‘How much could you afford.’ He gave me a number–about half what he’d been spending. I replied, ‘Great! Here’s what we can do for you for that amount.’ He stayed with us. Keeping 50% is better than losing 100%.” (Facilities management firm)

“We emailed all our clients telling how we saved money for one client by helping them use their equipment with greater energy-efficiency. It wasn’t just the money savings but also feeling that they were doing their part for energy conservation. This email has attracted interest from several other clients.” (Engineering services)

Lesson #3. Ask, “Who’s buying?” Too often, we focus on who’s NOT buying. Sure, your big customers from 2006 are long gone. So raise your antennas and see who IS buying what you offer, and how you can refine what you offer to meet their needs and desires.

Lesson #4. Go for cash flow. Ask yourself, “What’s the shortest route to cash-generating sales?” Create a table with two columns. In the left column, write down all the marketing actions you do—or could do. In the next column, write how long it takes for each of these to pay off: “One week,” “a month,” “3 months,” “a year” and so on. Go after fast payoffs to generate cash flow now. This can give you financial breathing space to focus on long lead-time strategic initiatives. I call this “marketing triage.”

Here’s an example. “Our big growth potential will come from building our distributor network throughout the region. But that is a year-long project. For now, we’re focusing on building our store’s retail sales. There’s less upside potential, but we can build sales faster, and it’s higher margin. Profit from this will help fund our regional outreach.” (Gourmet food products)

Lesson #5. Don’t take on unprofitable work. During the last downturn, a BG member watched with dismay as he lost job after job to desperate competitors. As recovery gained momentum, he was swamped with business from people who had previously gone elsewhere. Why? “You are the only one left!” they told him. Lesson: lowballers go belly up.

Focus on profitable work. If you are doing marginal or unprofitable work, either let it go or raise the prices. Focus on the customers that like you, value you, and pay on time.
Simplify product lines or range of services offered, so that you are selling the most profitable items.

Lesson #6. Collect money faster.

• Stay on top of your accounts receivable. “If the invoice is Net 30, we call on day 31 if it’s not paid.”

• Give an extra collection effort. “But we’re not being aggressive with past due accounts. We’re working with people. When we stay in communication with them, we get paid sooner.”

• Invoice sooner. “I’ve increased the initial deposit for jobs.” (Custom furnishings) “We’re invoicing twice a month.”

• “Up to now, we’ve never let big jobs pay by credit card, because of the merchant account fees. But we’ve changed on this. Now we get paid sooner, there’s no collection cost, and truthfully, people are more willing to buy. That’s worth 2% to us.”

Lesson #7. Watch clients’ financial health and nip problems in the bud. “Our biggest account went from paying within 10 days to 30 days. Rather than letting it slide, I met with them. They confided they saw trouble coming. I stayed in close touch, so when they went to Chapter 11, I was on the creditor’s committee. In the end, I got 85¢ on the dollar instead of pennies.”

Lesson #8. Watch your money like a hawk. I see business owners going without paying themselves—or even borrowing money—to meet payroll. This is nuts. You destroy your ability to take advantage of opportunities as the economy bounces back.

• Cut your biggest expense items. For many of us, this is labor cost. There are options to laying people off. Cut everyone’s hours. Trim back benefits.

• Cut fat, but not muscle. Look at a year’s worth of expenses across a spreadsheet so that you can spot anomalies, overspending.

• Where can you save money without sacrifice? For example, look at how much you’re spending on display ads or telephone services or utilities or vehicles or networking meetings.

• What outside services do you pay for that you use infrequently or not at all?

• Call your vendors and ask how they could save you some money. This includes your insurance carriers. The phone company. Yellow pages. Landlord.

Little things build up. You may be able to save yourself $1000 a month or more in this way, without any loss of needed services.

BUT . . .

• Don’t stop spending on key things such as marketing and training.

• Don’t stop paying yourself. Pay yourself first! You are the most important person working for your company.

Lesson #9. Don’t keep unnecessary labor. We’re all loyal to our employees, and we don’t want to let them go. What keeps business owners from cutting back on payroll? For one thing, embarrassment. We don’t want people to think we’re in trouble. Second, fear that our good people will leave and we won’t be able to get them back. Trust me, you’ll be better able to find good people later if your company is still solvent.

• 1st, let go of people who aren’t cutting it.

• 2nd, be frank with your good people. “Times are tough, but we can pull through it if we share the pain. We need to cut hours by 20%. If possible, I’ll make it up to you when the market recovers.” We’re afraid they’ll quit but where will they go?

• 3rd, cut benefits if you have to, but not health care. Most people would often rather have lower pay than lose health coverage.

• 4th, find something to compensate for their sacrifices. Days off? Acknowledgement? “Toys,” i.e. tools, computers, software? Training to prepare them to take on more challenge later?

Lesson #10. Inspire the troops. Be open with your employees about difficulties and future opportunities. “We all see the problems. But we’re basically healthy. We’re doing better than many other companies.  If we tighten our belts a bit, we’ll be just fine. Here’s where I see us going over the next couple of years . . . I can only do this with a team like you folks. So let’s talk about what we must do in the short run, and also to get ready for a rebound. I see what my role must be, and here’s the support I need from you . . .”

Lesson #11. Lay groundwork for recovery. At the end of a downturn is the best time to add needed people and resources that can help take you to the next peak. Examples:

• “We were amazed when two top people from our biggest competitor showed up looking for work. They’d just been laid off! We didn’t even know this place was in trouble. This makes it a lot easier to lay off two chronic complainers.”

• “When the workload of our three top people fell off, instead of cutting their hours, I decided to invest in having them develop this new software package. I know our customers want this, and during busy times we can never carve out the hours to put it together.”

• “We’re acquiring this small outfit run by a husband and wife team. They’re getting ready to retire, but they’ll stay on as employees for a couple of years. This will get our foot in the door for a new niche that should pay off for us in the future.”

• “I’ve got my eye on this commercial building. If prices go down a bit more, I’m buying it.”