My theory is, if the government really would like to know when a recession will occur, interview some SBDC consultants. Based on what happened back in the early 90's and what has happened recently, there are certain predictors we often see in terms of the small business habitat.
Not unlike Marlin Perkins and Wild Kingdom, we can do a little safari run, and look at some of the predictors we see that indicate we may be coming into a "dry season."
(1) More existing businesses come into the SBDC experiencing cash flow and payables difficulties.
(2) The lending market tightens up.
(3) Existing businesses request assistance in finding ways to increase sales, which suddenly drop (this is especially true of our retail sector clients).
(4) Existing and start-up businesses look to cheaper marketing avenues or "no cost" marketing, or may, unfortunately, drop all investments in marketing and advertising to cut corners.
(5) Existing businesses request assistance in stepping up their collection efforts (from customers/vendors who are paying them more slowly, or not at all).
(6) More easy-to-start, minimal-cash-required ideas are presented by preventure clients in terms of start ups.
(7) Existing businesses operate leaner. Inventory isn't warehoused or stocked as heavily, worker-bees are kept to those that are needed and there is no job overlap.
Personally, I can remember back in the early 90's trying to caution a start-up wanna-be retailer about the perils of starting her woman's clothing business. I wanted to present all of the market factors at the time which could affect her sales, and encouraged her to be as conservative as possible in her income projections as she approached the bank for financing. That's when I really began to learn the importance of small business starts during a recessionary period. This particular small business start opened her doors at the worst time, only to surpass her sales projections by nearly 20%. Why?
Well, she took advantage of the following characteristics of a recession:
(a) Suppliers to businesses will also be hurting, so it's the best time to negotiate good supplier contracts at less cost.
(b) Competing on service, quality or something other than price keeps the cash flow where it needs to be. By offering something more unique in the way of service (in my example's case, it was child care while you shopped, and dressing rooms that had all the ammenities), customers don't mind that there aren't necessarily price cuts.
(c) When unemployment rises, people start businesses, so the need for a competitive advantage is even more important to consider before entering the market, because more people will be entering it.
Tips For Small Businesses in the Heat of the Recession
- In the jungle, when we are down to the last 100 of a certain species, it normally goes on an extinction list. Then alot of effort is put into making sure it survives. In a recession, small businesses need to cultivate their customers in this same manner. Don't let them become extinct. Keep them by doing extra things to make their experience with you better.
- Remember, there will be more animals at the watering hole in a dry season. Get there early to drink. Capitalize on the areas of the watering hole that are not populated. Use targeted marketing or niche marketing, designing your goods and/or services to meet the needs of a very specific population. Baby boomers come to mind. I'm one of them. There are lots of us.
- The canopy of the jungle landscape can be a good protector against the elements. Be aware of the federal, state and local government policies and programs coming forward in the form of stimulus packages. Your local governments, for instance, could be receiving monies to perform services which your business can assist with. Understand how you may benefit from some of these programs.
- Realize that the jungle has preditors. Their hunting increases during difficult jungle times. Don't be a scapegoat. If it looks like a duck and smells like a duck, it's a duck. Don't fall for at-home-money schemes, or quick loans with no fees, or free money scams (see this blog for more info on "free" money). There is no free lunch. Even in the jungle, you have to work for what you eat.
Finally, any jungle analogy would be unfit to print without mentioning jungle law: the strongest survive. Now more than ever, small business becomes the strongest sector of the market. Recession is, after all, just an "R" word.