The Rapidly Changing Face of Business (and Strategies to adapt)
Jeremy Heighton
Executive Director at Kamloops North Shore Business Improvement Association
The Problem
Some economists have been warning about a series of systemic threats to the health of our economic system. One is the price/wage spiral. This is a process in which “wage increases cause price increases, which in turn cause wage increases…”
This is a potentially devastating process, once started, it has the very real potential to disrupt the entire economy by causing wages to rise to an unsustainable level, in response to inflationary pressures related to pricing. Historically, price-wage spirals are limited to single economies, however, on the tail of the endemic, we are seeing indications of this cycle emerging in multiple globally focused economies.
Add to the predictive nature of this cycle the unforeseen pressures in our current economic system, such as manufacturing challenges, reduced labour forces (result of retirements, lack of immigration, and reduced numbers of temporary foreign workers), supply chain challenges, shipping issues, gas prices and a host of other influencers and its clear that we may have already tipped the scale toward significant and sustained economic downturn.
National banks will continue to try and set monetary policies, including hiking interest rates in order to cool inflationary pressures. However, I would be surprised to see market prices drop much for consumer commodities, with the exception of real estate, where I think there will be significant downward pressure in between 18 to 36 months.
It’s Pivot Time
Now that I have Doom and Gloom-ed you, what do you want to do to either adapt or prepare yourself for the challenges? In this article I look at a few keys areas of pain and some opportunities in each area:
Human Resources
I think we can all agree that living wages are critical to both maintaining employees as well as attracting new workers. However, it has become more apparent in the last few years that wages are not the only priority for workers. In fact, on the HR side, the cost of attracting new workers, can be higher than topping off wages or benefits for the employees you already have. A few years ago, I produced a white paper that categorized the costs of a turnover to a typical bottom line. These include the cost of marketing the position, the cost of lost productivity (often 2.25 times the salary for up to 6 months), the cost of review and interviewing time, and the loss of team cohesion and motivation (tax on the remaining staff through stressors, dropped tasks etc.).
It often makes more sense to retain the employees you have by looking at the following strategies:
1)????Raise Wages. Yes - this can fuel the impacts of inflation against your business. However, a better paid employee often performs better, has longer tenure and provides greater return on every dollar invested.
2)????Pluck the Thorns. Its time to chop out the dead wood from your staff so that the truly strong employees shine. The cost of a toxic employee is significant. Drop that person to show your employees that you are focused on building the best team.
3)????Provide Benefits. While this seems costly, a high performing younger professional with a small family craves benefits, and often will choose to stay because they exist.
4)????Alternate Compensation. Be creative in what compensation looks like in your firm. What if, instead of a pay increase, you provided an extra week off each year? What if you reduced the workweek to provide extra time off around long weekends? What if you build a profit sharing system that rewarded performance and tenure?
5)????Flex Schedule. Review and realign your staffing, to lighten your staffing during lower earning periods and staff up only to maximize staffing for your busiest or highest earning periods.
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So many of us are already experiencing the softening of the labour force, which shows up in your business as reduced candidate applications. Some owners have reported a drop from hundreds of applications for summer positions to only one or two.?Even at the NSBIA we have only received three applications for our Youth position. This doesn’t mean we should take any candidate who applies, as a poor fit can cause much greater disruption to your existing team. It does mean you may have to employ some of the above strategies to flex your staffing team.
Inventory Strategies.
Small Business Owners often lose sight of a simple fact: inventory on the shelf, in our cooler, or on order is cash out of the pocket. Cash can also be lost to uncounted or lost inventory. In an audit I did for a client a few years ago, when we started looking through the corners and poorly frequented areas of their site, we identified over ? million dollars that had simply been forgotten over the years. If you are serious about gaining ground on your cash position, this is a great start point.
1)????Count the forgotten. look for items you may have lost track of, then decide how you will recapture the cost (sales, donations etc).
2)????Reduce Inventories. This is the time to get brutal. If you only sold one _____ in the last year, don’t stock three. Always be aware of your inventory turns and order only what you need in each order period. This may mean being short, but it also means cash in the bank. Get brutal about the “we may sell that” stuff. If you haven’t moved one in 6 months, drop the line, and see if you can return any of those items you already have.
3)????Change ordering frequency. Instead of ordering bulk items on a broad re-order schedule, order fewer in a tighter delivery schedule. Yes, it may carry a slightly higher cost, but in the long run it may create greater cashflow by reducing “time on the shelf”.
4)????Change Inventory Sources. With the incredible cost of gas, shipping, materials etc., it makes sense to reduce costs as much as possible. Instead of ordering inventory from overseas, (yes it may be cheaper, although delays could cost you orders as an example.) look at regional or local options. In fact, ordering inventory locally has the added bonus of supporting another local business and its employees, which has a net positive impact on the overall local economy that could bring more clients into your business.
5)????Reduce Ingredients. This is aimed at Restaurants, but the lesson is good for any manufactured product which has multiple components or design options. Some of the most successful restaurants in our area have reduced their menu offerings. This may present as a smaller menu for your clients, however, it also allows you to maximize the use of fewer ingredients which you can order in bulk at a reduced cost. One restaurant I frequent has only six breakfast items on its menu, and five use many of the same base ingredients. This maximizes savings through bulk ordering, reduces staff training (fewer dish types) and increases efficiencies by reducing menu complexity.?
Technology Advances
The final area I will look at is embracing technology to maximize revenues, reduce staff costs and increase efficiency. I use a couple of big restaurant company apps, that allow me to fully order, customize, pay and then have the item delivered, picked up in store or at the drive through. I get this is a again a restaurant based example, however, the principle of simplified single point ordering is attractive. If you can set up a shopping cart, have that cart linked to a pay system, and the have pickup, curbside delivery or staff running items, instead of heavily staffing, you will win big on the HR costs. Integrated IT solutions can handle many of your core tasks, all while moving your systems online and actually expanding your potential customer demographic base. If you are a Techie, many tools are pretty straight forward, if not, you can often find local or regional experts to help you out. ?Image the power of an integrated customer ordering and payment system, which can double as a client management tool. Its completely achievable.
Finally, and I talk about these cash tips every year:
1)????Look for the lowest borrowing costs (if you have existing debt) and roll together ALL your outstanding debt. This can often lower payments, streamline repayment options and give you a much better handle on the financial flow of your business. ?
2)????SHOP Services. Make sure you aren’t overpaying for services. Shop providers and compare rates. When you do this, review what you are paying for. Do you use all those phone lines? Do you have a fax line, and when was the last time you received or sent a fax? Do you have an 800 number, and does it get used?
3)????Review your Insurances. This one may cost you more but save you millions. What does you existing policy(ies) cover, is it best practices? Are you protected for cyber fraud? There are many aspects to any insurance conversation, just make sure you have a great agent, impeccable policies, and you will sleep better.
I hope this gets you thinking about how you can do business better. Think of it as “Your business 2.0”.
Take a strategic approach to weather this storm, set a strong direction, and survive the coming pressures that will impact your business in the years to come.