Recessions Can Be Boon Times for Smart Business Owners
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Don't cut back on sales staff or marketing; look for deals on rent and supplies
There's no question that recession is a forbidding word for most Americans -- let alone entrepreneurs who live and die by the economy's health. This fear has become palpable in the business community in recent weeks, with grim talk of imminent layoffs, declining profits, and plummeting stock prices reaching a fever pitch.
Don't panic yet, though.
The truth is a recession can actually help strengthen your business if you make the right moves. The primary reason is two-fold.
As companies begin to feel the financial squeeze from declining sales and the credit crunch, weaker players are forced from the market. This opens up market share for stronger businesses. The fearful and uneasy environment created by a recession also offers unique opportunities, such as long-term leases and price breaks that would be otherwise unavailable in a healthy market.
Entrepreneurs who are prepared to leverage these aspects of a potential economic downturn may find that a recession is actually a boon. Here's how to use the dip to your business's advantage.
One of the best things a business owner can do to strengthen her position during a recession is to seek long-term contracts that likely wouldn't be available outside the downturn.
This strategy is particularly pertinent to real estate. During an economic dip, building owners and landlords are faced with the imminent reality that some properties will be vacated by companies that can no longer afford the space or go out of business. This is an excellent opportunity for business owners to secure a long-term lease at a low price. Because property owners must keep rentals filled to weather a recession, they are more likely offer a lease at a lower price. Negotiate a new lease with your property management company, bearing in mind that for them, empty space means lost income.
Suppliers are another segment typically hard-hit by a recession. As the declining economy weeds out weaker companies that cropped up during better times, suppliers for nearly any given product are left with excess inventory. Many of these firms need another business to pick up the slack. For business owners who are willing to step in, this presents a chance to secure substantial long-term inventory breaks. Such contracts will not only save a business money during a recession, but especially so afterwards, when the economy rebounds.
Consider looking for advertising deals during a recession. As sales and profits drop, many companies immediately reduce expenditures on advertising and marketing to stave off losses. As a business owner, make sure your ad agency has its ear firmly to the ground for news of any remnant advertising. Ad space that you've been coveting may suddenly become available -- for a great price.
Another potential benefit of a recession is that it provides an excuse for business owners to shake up staff. Every company has its rock star employees and its less productive staff members. A dip in the market is a reason to turn over ineffective and costly employees who aren't achieving results. The bonus is that if it's necessary to hire replacements, a recession job market typically yields more exceptional candidates because of higher unemployment and lay-offs.
Use the down time a slower economy affords to refine your business' systems. A recession offers an especially good chance to refine your sales pitch. As sales naturally slow, your team will become hungrier for sales -- forcing them, and you, the business owner, to figure out what techniques are most effective. Once the pre-recession volumes return, you can carry those systems that work best forward. The recession may slow business, but it is critical not to become lazy.
Just as important as strategizing what you should do in a recession, is bearing in mind what you should not. The gravest mistake many business owners make is cutting back on their sales team. While paying out costly commissions during a recession can be painful, this staff is the bread and butter of the business. Laying-off sales people can mean substantially reducing profits.
Many companies also make the mistake of cutting back advertising. Because advertising takes up a large portion of most businesses' budgets -- and because its impact is not always immediately tangible -- it is often scaled back dramatically. This is a critical error. Maintaining a healthy advertising budget is crucial to continuing to attract customers and drive sales, which are both key in withstanding a recession.
Above all, it's important to remember that a recession is just a dip, and that the economy will eventually rebound. Remain focused on the position you'd like your company to have when it's over, and leverage the opportunities presented by the downturn to get there.
Bryan Howe is founder and CEO of the Portland-based consulting firm MasterPlans, which provides business plans and financial models for companies ranging in size from startups to Fortune 1000s.
Portland Business Journal - Friday, February 22, 2008
http://portland.bizjournals.com/portland/
Reprinted from BuzJournals.com, Copyright © American City Business Journals Inc. All rights reserved Worldwide.
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