Keeping on Track - Economic Slowdown

By R. Hougland

While some form of economic slowdown seems inevitable, the experts vary widely in their opinions of its likely severity. A few responsible opinions bear consideration. Interviewed on the KNX Business Hour, Jack Kyser, Chief Economist of the Los Angeles Economic Development Corporation retains his 40% possibility of recession prediction with the qualifier that Orange County will suffer more than other SoCal counties. On the same program, John Augustine, Chief Investment Officer at Fifth-Third Asset Management pointed out that two precursors to past recessions are not in place: there are no excess inventories in other than housing, and all segments of the export market are healthy. In testifying before a Congressional committee, Fed Chief Ben Bernanke expressed support for a prompt economic stimulus package, but maintained his position that 2008 would not see a recession.

Regardless of who is eventually proven right or wrong, its certain that at least the first half of 08 will be a period of slow economic growth. That means that some marketplaces and the revenue they generate are going to grow more slowly than normal…and some may even decline for a while. Permit me to share some thoughts from what I’ve seen about small businesses during down economic times over the last 30 years. You may well have thought of all of these, but it might be worthwhile to refresh your thinking.

You’re an entity: what happens in your marketplace and/or what happens to any or all of your competitors does not necessarily have to happen to you in similar proportion. When revenues taper off or even drop dramatically, every company in that market is not impacted identically. You have opportunities to influence how a slowdown affects you. Focus on your opportunities, not your limitations.

Think wide, not narrow: consider the value of chipping away at expenses and costs a little bit here and there rather than focusing on one or a few areas to slash. No one likes to lay off staff, but make sure you’ve explored the alternatives of reduced hours, cutting overtime, etc. And, consider the long-term implications of lay offs: you may be able to do some reorganization to permanently trim some fat. Just make sure your job descriptions are based on functions which need to be performed, not the particular array of skills of specific employees. Finally, don’t overlook profitability. If you can trim your profit expectations for a few months, you can relieve some of the cost-cutting pressure.

Don’t stop marketing: The biggest and most common mistake I’ve seen owners/CEOs make is to slash or even trash their marketing/sales/advertising/promotion budget(s) when revenue drops off. Of course, you gotta do what you gotta do. But, consider these things: 1) With very rare exceptions, your revenue stream isn’t going to totally dry up…there will be continued demand to some reduced degree for what you sell. 2) As your customers become more selective in their purchases of goods and services and as they seek to consolidate vendors, you have the chance to distinguish yourself even more from your competitors. 3) Its likely that some or possibly most of your competitors are going to chop their marketing budgets, and the ones who do are working from a position of weakness while those who don’t from a position of strength. 4) Numerous studies have shown that its more difficult for a customer to stop ordering or to cancel an order from a vendor with whom they have good rapport than one who’s just another supplier. 5) Perhaps most important, if you can gain some market share during a downturn, that will translate to better market share and profitability when the market rebounds. So, what can you do?

Maintain contact with your customers to the greatest degree possible. Talk to your large customers personally. Listen to their problems and see if you can offer any kind of help.

Be creative. Are there any ways you can “package” your products together to make them more attractive? Are there any premiums or freebies you could offer on the short-term? (Many industries, particularly the auto industry, have found that the most effective is something that improves the usefulness or enjoyment of the basic purchase). Can you give some kind of short-term financial break in return for a commitment to keep buying from you? Look at your vendors the same way. What can they do to help you to reduce inventories or costs?

Keep the blinders off. You never know what might be important to a customer or prospect, and what will influence them to continue buying from you. Some examples from my experience:

A client was seeking to take a $400K/yr contract with an aircraft manufacturer away from a competitor. Knowing the prospect was looking to cut costs, we interviewed the buyer and learned they had problems with internal distribution of large, palletized shipments among their many buildings over several square miles. We met with the receiving supervisor and several shop foremen, then returned to the receiving dock with an idea: custom, rather than bulk, palletizing with additional color-coded labels to identify destinations, backed up with availability of one of our knowledgeable people to answer questions. The supervisor agreed to write a letter to the buyer on our behalf, and we got and kept the contract without having to underbid our competitor. Our cost was about one manday of blue collar time per month and we maintained a normal profit margin.

A company providing technical consulting services to a major insurance company was notified of the necessity to look at cutting back or even cancelling the contract because of new budget constraints. We put ourselves in the client’s shoes and took the initiative to present a new proposal. By separating the observation and information-gathering portions of the project from the analysis and documentation portions, we could have our high-hourly-rate professionals work at home instead of client-provided offices and reduce their on-premise time to alternate weeks and even every third week. Because we didn’t have adequate office space, all the consultants agreed to work at home and we would reimburse them for telephone expenses (this was pre-internet). Finally, we prioritized some of the steps in the project, identifying those which could be abeyed without interfering with goals, and we told the client we’d pick up the long-distance bills. The client said the reduced billable hours along with reduced transportation, lodging, per diem, etc. didn’t quite match his economy goal, but it was so close that he agreed to the changes and found the dollars he needed elsewhere. Eventually, the hours that were postponed were made up.

My client who sold primarily to the hospitality industry was devastated by the impact of 9-11, and we rushed to see what we could do to salvage as much business as possible has hotel and restaurant business dropped dramatically. By learning some of the changes our customers were going to make, we were able to determine that earlier daily deliveries would be helpful. Since we used our own fleet, it was easy to schedule trucks to leave the plant at 2AM instead of 3AM to accommodate our customers’ new needs, and we implemented it within 24 hours. By taking a critical look at our internal operation, we were able to offer acceptance of orders until 4PM for next-day delivery instead of 2PM. Several large accounts actually consolidated their business with us because we were there promptly with two workable solutions, even though the total volume lagged for a while.

Keep your presence out there. As much as possible, maintain your advertising and promotion activities so your name remains in the minds of your customers and prospects. I’ve lamented with a number of CEOs over the years who, after the fact, realized that pulling in their horns in caused them to lose market share during a tough period and that they faced an uphill battle to try to win those customers back. One client thought long and hard about not attending a trade show which they hadn’t missed in years. Deciding finally to go, he discovered that both of his major competitors backed out, and he came back with plenty of business cards of people for follow-up.

Bottom line: your customers will continue to buy something from someone. You need to be aggressive and show interest to keep them in your corner, although in reduced volumes for a while. When the economy bounces back (and most experts seem to believe that will start happening in Second Half 08), if you’re the supplier or provider who helped that customer through his rough time, you’re in the perfect position to reap the benefits in a robust market. You could rebound with an increased market share.

Permission is needed from Bob Hougland to reproduce any portion provided in this article. © 2008

Bob Hougland holds a BA in Psychology and is a Viet Nam vet with almost 5 years' USAF active duty. He began his business career in the fast-track executive development program at AT&T, but sought out smaller employers. For most of a decade, he held sales management positions at L.A. radio stations KIIS, 93KHJ, and K-EARTH101, and created a successful marketing consulting division for RKO General Radio. With both sales management and marketing management awards under his belt, he founded RGH MARKETING! in February, 1979, and has worked as a small business consultant since then. He's found his best opportunities to add value are situations in which an a company is experiencing some kind of plateau or the owner/CEO recognizes the need for new and better ways to operate or when colleagues have identified a problem that presents challenges to solve. Bob's successful engagements have included local, regional, national, and international clients. He can be reached at 626-583-9000 or RGHmktg@pacbell.net.

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