MPowerment Matters

Economic Blues

June 2008

We are at the midpoint of 2008 and it has been a rough year economically. And it looks like things continue to get worse. So what should we be doing to make sure our businesses are around when the economy turns? Are we taking steps to protect our businesses?

There are a variety of measures that can be taken to safeguard the existence of your organization.

EMPLOYEES
Many owners think nothing of reducing their labor force in the face of a slowdown of orders or rising costs. In their minds, workers are easy to replace and expensive to carry. Businesses that are working more than one shift can cut a shift, or can cut some workers from each shift to cut down on cost.

Or they can look to reduce the number of “non-essential” employees. Cleaning staffs can be let go, leaving office and warehouse workers responsible for their own areas. Administrative staff may be put on leave and everyone else pitches in to answer phones and do filing.

On the other hand, there some owners that have never had a layoff and do not want to start now. They may try to cut everyone’s hours so as not to totally lay off any worker.

When the economy improves, you may find that it is not so easy to re-hire or re-engage the employees you laid off. They may be bitter, they may have found other jobs, or even if they come back they may have resentment that inhibits productivity and affects the work environment. So, layoffs have their downside.

PRICING
Some companies begin to fiddle with their pricing, hoping to stir up activity. It might provide a little relief, but there are caveats to be minded in this area. First, customers may feel that you have been overcharging them in the past if you can cut your prices now. They could also sense weakness and switch to somebody else who gives off a sense of greater confidence. They don’t want to be connected to a sinking ship.

Even if your customers hang in there with you and buy at your lower prices, you still have a problem. Once the economy has improved, how are you going to bring your prices back up? You have set a level from which it may be tough to escape. Additionally, your competitors may smell “blood in the water” and find a way to take advantage of what they perceive as your weakness.

MARKETING
Some companies stop all marketing activity. If telephone book renewals come up during this time, they may cut them. They may stop print or other media ads. They look to save every penny. Trade show booths and attendance, organizational memberships and client entertainment can be cut.

These actions may save some money, but they too have their risks. When the economy does improve, you will have a ramp up time to get your name out there again. You will have to fill a now empty pipeline. If the competition has continued to market, you may find yourself far behind even after the good times are back. You will be extending your own misery this way.

SELLING ASSETS
Business owners may look at tangible assets as a source of cash to keep the business going. They can look at vehicles, inventory and equipment that are idle during a recessionary period and see in them a reprieve of a few months. But what kind of prices will they get in a recession? Probably bargain basement prices.

So, what is an owner to do? First of all, owners should be stockpiling cash during the good times to help them through the slow times. The temptation to spend is great, of that there is little doubt. But economies tend to be cyclical in nature, and bad times are always around one corner or another.

POSSIBLE SOLUTIONS
It is also during the good times that belt-tightening should be initiated. If you can run a tight ship when things are good, you will be better prepared when things go bad. Year-round vigilance is important. Sloppy cash management at any time is problematic.

Ongoing collaborative communication with customers and suppliers is also critical. Staying in synch with both allows you to keep your orders at the level needed to service your clients or customers. Perhaps you can get better terms from one or the other. If you work with your customers when they have tight budgets you can cement relationships for a long time and develop into a much larger source for them. If you can pay your suppliers in a timely manner, you will have earned their loyalty as well.

Think about a new marketing campaign that offers a service or product tied to the “tough times.” This may be the perfect time to get into a new area.

Some business owners refuse salaries or expense reimbursement during the tough times. They cut back on their “perqs” and those of others high up in the company. Shareholder distributions may be cut.

There is no “one size fits all” solution to business slowdowns. Economic downturns, acts of nature, terrorist acts- all can have an effect on business. Owners have to act decisively to staunch the negative flow of business during these times. Some of that action should be taken long before. Some when the signs become clear that bad times are ahead.

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I have been devoting more of my writing time of late to my blog, so this newsletter is likely to come out every other month rather than every month. In the meantime, please join me at www.entrepreneursmentor.net and get in on the dialogue.
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I have written a white paper, now posted on my website, titled “How to Thrive in a Growing Labor Shortage.” Please feel free to download it !!
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Some Summer Music you might enjoy:

Dr. Dog We All Belong
Spoon Ga Ga Ga Ga Ga
Steve Winwood Nine Lives
R.E.M Accelerate
My Morning Jacket Evil Urges
Jakob Dylan Seeing Things
Al Green Lay it Down
New Monsoon V

A Few New Business Books of Interest:

Innovation to the Core by Skarzynski and Gibson
Relevance by Apgar
The Back of the Napkin by Roam
The Secret Language of Leadership by Denning


A Few Non-Business Books of Interest

Soldiers Heart by Elizabeth Samet
A Terrible Glory by James Donovan
The World Without Us by Alan Weisman
The House of Mondavi by Julia Flynn Siler
Tree of Smoke by Denis Johnson
Peace by Richard Bausch
The Fall of Troy by Peter Ackroyd
Lush Life by Richard Price