5 simple steps to help you get through an economic downturn

The economic downturn has huge implications, not only for the multi-national conglomerates that make headlines on the news, but for the 26 million plus small businesses operating in the United States today. Small businesses currently contribute over $958 billion to the economy each year and that figure is growing at a rapid rate. However, a lack of solid planning and strong “economic resistant” road map contributes to over the 542 thousand small business failures that occur each year.

So how can a small business protect itself against the impact of an economic downturn and create a recession-proof plan to maintain or improve performance despite economic conditions?

Not surprisingly, the solution is rooted in strong and consistent planning and constant review of operating procedures. The following five time proven tactics can provide a strong safety net for small business owners in times of economic down turn and times of growth.

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1. Know your market: As self evident as this seems, many small business owners shortcut the market research component in their business plan or consider their customer segments to be static regardless of what is happening in their market. Today, small businesses are faced with customer segmentation that is so prolific that it is imperative to look for new customer segments, new distribution channels and new product categories on a regular basis (preferably quarterly) just to remain competitive in their existing markets, especially since over 600 thousand new small businesses start-up each year and are inevitable vying for the same customer group’s attention. There are 2 ways small businesses can learn about their market. The first (and this is the primary approach that could be taken if the business is a new start-up), is to collect and analyze demographic data about your customers and business statistics for your competitors from various sources, including the internet – make sure that any data you gather, is referenced, is from a credible source and is relevant and current. The second (and this is the primary approach that could be taken for an established small business), is to ask your current customers for information about themselves, their needs, their purchasing behavior and the way they make purchasing decisions. Both of these approaches can be as low key or highly detailed as your business (or budget) dictates. If the thought of conducting research is too daunting, consider hiring a professional to help.

2. Brush up your marketing plan: A strong marketing plan should detail every aspect of the way a small business promotes their brand, business and products. It should include both an offline and online strategy, even if your small business is predominantly online. One of the key elements that should also be included in a marketing plan are marketing metrics or the way in which you intend on measuring campaign ROI (return on investment). This allows small business owners to compare the results from differing campaigns to determine ongoing marketing approaches. A marketing plan should be firmly based on specific customer segments, what they are expecting from the business and what market competitors are doing.

3. Know your numbers: As the economy shrinks, many companies look to start cost cutting to improve their bottom line, but in reality this process should occur all year round, every year you’re in business. Small business owners should constantly be looking for opportunities to take cost out of their business operations, especially if the business has experienced any type of major growth or volume change. Ways to cut costs could include: negotiating a volume based discount from a supplier you’ve worked with for a period of time, revising your employee schedule or even looking to barter services from other businesses. Taking cost out of your business can be a long process depending on the number of lines in your financial statements (from COGS to SG&A), but the benefits are far reaching and can give you significant flexibility to reinvest in your business or improve your margin. Overall, there is an opportunity to reduce cost anywhere you spend money, by competitively sourcing other suppliers or service providers and renegotiating terms.

4. Review your Operating Procedures: One of the biggest buzz-words in big business right now is “transformation”. Transformation is really just a repackaged version of something that has happened in business ever since the introduction of TQM: continuous process improvement. Evaluating your business processes, taking out redundant tasks and putting measures in place to track things like sales lead time and order turn around time, can ultimately lead to a more productive and “lean” business. A more productive business typically generates up to 36% more revenue and spends 23% less cost than a business that does not look to improve or update any of its operating processes and procedures. Key processes that we have typically measured, monitored and optimized having included key business functions like: customer servicing, issue & problem resolution, project delivery, marketing ROI, supplier sourcing, initiative prioritization, system maintenance and payment and procurement, to name a few. Process improvement is probably one of the least sexy “initiatives” a small business can undertake to improve its performance, but it is also one of the most effective because it generally does not require significant overhead to lead, manage and communicate. Most business can readily identify “low hanging fruit” or obvious improvement that can be made as soon as the business kicks off a “productivity drive”. Process improvement initiatives should be broken down into manageable 60-90 day projects, regardless of process complexity to continually motivate employees and constantly yield tangible benefits that translate into top line gain and bottom line savings.

5. Build a strong Business Network: Strategic alliance partners can help your business in three ways: 1) they can help grow your top line through providing you with warm leads for a commission, fixed fee or bartering of products/services 2) they can help to expand your product/service offering to your existing market or enable you to expand your target market reach to other markets without having to duplicate functions that are not your core competency; and 3) help to improve your bottom-line by providing competitively priced back-office and front-office support functions. The networking approach also allows small businesses with limited physical resources to be able to get on with the business of running their business and compete without the additional time and cost of maintaining these functions in house. Alliance partnerships puts a small business owner in the drivers seat to create better management controls, incentives and penalties for exception over or under performance of these functions. One of the most important aspects of forging a strategic alliance with another small (or big) business is to determine what your business core competencies and capabilities are and which functions would be best suited to being completed/outsourced by a strategic partner. The second most important aspect is to determine the rules of engagement from non-disclosure to non-compete agreements for businesses who service similar target markets (this is particularly pertinent in a business-to-business (B2B) setting). It is always wise to engage the advice of a business lawyer to review any agreements that are made to ensure that both parties interests are protected.

By focusing on these five tactics in the upcoming months, small business owners will be better positioned to overcome tough changes in the economy and in their market.