Monday, February 23, 2009

The "R" Word and Small Business: It's a Jungle Out There!

Turn on your television to watch the news, read your morning paper, everywhere you look the word "recession" rears its ugly head. It's amazing to me that a word that was mostly avoided up to a year ago and was "something we were not in" according to the past administration, suddenly became the vocabulary of the day.

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.


  1. Good post. In tough times many re-think their advertising budget which is a good thing for new media companies. Marketing strategies can become like Bon Jovi hair-styles that are kept around (and still sold) long after their freshness date.

    "What have you done for me lately?” is the question that is finally being asked by many small business owners. Nothing drives innovation faster than a change to the status quo.

    This week Philadelphia Newspapers filed for bankruptcy and with advertising precipitously heading online this tough economy may finally kill Bon Jovi hair for good.
    Sort of bitter sweet I guess. I for one never want to give up the ability to read local news with a morning cup of coffee. There is just something so slow about reading a local newspaper that seems healthy. Local is the key. Nobody reads USA Today in this way because both the brand and content are homogenized. Sectionalize it as much as you can, facebook will never offer local impact. Did I say facebook?...sorry I meant to say USA Today (but the same holds true for the MySpace’s of the world.)

    One truth that is becoming very clear is that the Internet does not remove all local barriers. Just because one’s message is available online doesn’t mean that anybody will actually see it. Often it takes a local brand to grab the local consumer’s attention. Is this not the whole purpose of branding? Branding is about attraction while sales are made by people…“Bring em’ in with branding and then sell stuff to em”. (Confucius)

    National media, no matter how sectionalized they become, will never be local media. I do however love the concept of a national community because high volume is good. (hey man…is that freedom rock? Well turn it up! )

    Sorry…back to the point: The reason many small business owners kept their Bon Jovi hair styles (traditional media campaigns), was because they didn’t want to lose the effectiveness of ‘local impact’. But this economy will force new marketing strategies to be adopted. The winners will be local online media brands that offer both local impact the while simultaneously offering small business owners the ability to participate and promote themselves within a national community.

    So for the online media companies that offer this dual approach the glass remains half full.

  2. Here is a great article that continues this thought: "The 10 Major Newspapers That Will Either Fold or Go Digital Next"

  3. Often we forget the little guy, the SMB, in our discussions of the comings and goings of the Internet marketing industry. Sure there are times like this when a report surfaces talking about their issues and concerns but, for the most part, we like to talk about big brands and how they do the Internet marketing thing well or not so well.