Entrepid

The beginning of the series can be found here.

This post is about marketing in a recession.

Don’t Be Timid

Businesses that survive and thrive during slow-downs, and become even stronger during recoveries, are the ones who aren’t afraid to go after growth when their competitors are hunkering down.

Preserving profits and cash flow is important, and cost management (see Part 2) is an integral part of your recession-proofing strategy, but sustainable long-term financial health can only come by increasing revenues.

Identify Ideal Customers

Every business has an ideal customer type and you probably already have some on board, although you could use more.  Take a look at your customers and see who is profitable, who improves your cash flow by paying on time and who doesn’t take up your valuable time by making unreasonable demands on your customer service infrastructure.

After examining your customers for the above, look for common characteristics. 

• Are they large volume buyers or small? - a large group of small buyers can be very profitable because they don’t expect volume discounts.
• Are they repeat buyers?  - why or why not?
• Do they have similar demographics?  - age, gender, income level, etc. for consumers;  industry, revenue size, geography, etc. for businesses.
• How did they come to be your customers? - referral, advertisement, walk-in, etc. (more on this below)
• Do they tend to buy the same product or service?
• {insert your particulars here}

Fire The Bad Customers

This may seem contradictory - firing customers at the same time you’re trying to grow revenue.  However, bad customers can not only suck up profits, but they can put stress on your business that you don’t need at this time.

Would you rather have a $1 million business with $100k in profits, work 80 hours a week and have stressed-out employees…or…a $900k business with $150k in profits, happy employees and time to spend with your family?

Take the extra time, money and energy you’ll get by firing bad customers and go find some good ones.

Find Out What Works For Your Business

Just about every business, from the smallest to the largest, has some marketing techniques that are effective and some not so much.  The trick, however, is to know which are which.

Start with the information you gathered about your ideal customers and see if you can determine which marketing efforts brought you the best customers.  Since you want more of these kind of customers, this would be the logical place to expand your efforts.

Test.  And Test Some More 

Gathering information and looking for patterns is just hypothesis forming.  You have an educated guess, but not real evidence. 

If you think an ad in a particular publication is pulling in customers, run it one week and not the next.  Rinse and repeat. 

The same can be done with online pay-per-click advertising.  And search-engine-optimization.  And…just about anything you can think of.  The key is to start out with an educated guess and then test to see if you’re right.

Ruthlessly Eliminate Ineffective Marketing

If you have marketing efforts that aren’t bringing in enough of the right kind of customers, STOP.  Why would you spend the time and money on activities that don’t bring in customers, or worse, bring in the wrong ones?

Chances are, you’re doing it because you don’t know which marketing activities bring in the good customers and which don’t.  If you do your testing, you’ll no longer be marketing in the dark.

See Make Your Marketing Budget Work—Halve It  for some more ideas on  eliminating ineffective marketing.

Use Guerrilla Techniques

Marketing doesn’t have to be expensive.  Jay Conrad Levinson coined the term and created the system called Guerrilla Marketing and has a wealth of advice on his site to help you create smart marketing on a tight budget.  I recommend signing up for his newsletter.

What’s nice about GM is that it works well in a testing methodology - you can experiment with several different ideas without spending a lot of money.

Here’s the wikipedia page for Guerrilla Marketing.  And here’s the official Guerrilla Marketing website with easy sign-up for the newsletter.

Now, go forth and market…smartly!

This is the first of what I plan to be weekly links of interest - posted every Tuesday.  So, for our inaugural Tuesday links…

Jeff Cornwall, of Belmont University’s Center for Entrepreneurship and blogger at The Entrepreneurial Mind, posts on the importance of microbusinesses in the American economy.

Don’t misunderstand my point. I like high growth. high potential businesses. We get a few coming through our program and they are challenging, interesting, and fun to watch. I hope we get more.

But, they are not the heroes of our entrepreneurial economy. That title belongs to the average entrepreneur who will never get a dollar from a venture capitalist — who builds a successful business seemingly out of almost nothing.

Next, Dawn Rivers Baker of The Journal Blog points out the phenomenon of microbusinesses with big revenue. 

Now, here is my question: now that people are starting to notice that it really is no longer necessary to enlarge your organization in order to make a lot of money, will they stop sneering at microbusinesses for long enough to support the microbusiness way of growth?

Be sure to follow the link to the Information Week article as well.

Lastly, Ben Yoskovitz of Instigator Blog offer us How to Use Perks and Rewards in Startups to Get the Best Talent.

And for the most part what this really means is that it’s very difficult to motivate people.

It’s very hard to truly motivate employees. Yes, working at startups can be hugely rewarding. But ultimately, most of the motivation has to come from within.

But all is not lost!  Read the rest for some good ideas from Ben.

Part 1 of the series can be found here.

An impeding recession is a good time for a well-managed business to make gains against the competition or to shore up its foundation for quickly capitalizing on the economic recovery to come.

This is the time to look at your cost structure and do some judicious cost management.  Effective cost management can entail cost cutting, but can also mean taking the opportunity to get some good deals now while vendors are feeling nervous about their futures.  This is just one of a number of good reasons to be as financially strong as possible - if demand is down, the customer with the cash can negotiate the best deals.

Renegotiate Leases

If your commercial lease is nearing it’s end, and you are fairly sure you want to continue in the same location, now would be an excellent time to approach your landlord and negotiate a new lease. 

Recessions are almost always difficult times for commercial landlords and they want need to keep occupancy rates as high as possible.  You might be able to get a reduction in your rent or some other financial concessions such as reductions of CAM’s (common area maintenance) or elimination of annual rent escalators. 

It doesn’t cost you anything to ask, and if your current landlord isn’t willing to negotiate, some other landlord will. 

Even if you have as much as a year left on your current lease, don’t be shy about approaching your current landlord or a potential new landlord about your wishes.  If we’re going to have several (or more) tough months ahead, securing a tenant in advance is valuable to a commercial property owner.  Use it to your advantage.

Ask for Discounts from Vendors

As with landlords, your suppliers and other vendors will place a premium on acquiring and keeping good customers.  This is a good time to approach them about discounts and/or more favorable payment terms.  Remember, paying the same price, but paying later, is the same as getting a price cut.

And if your current vendors won’t reward your loyalty, find some who will.

You, however, should hesitate to do the same with your customers.  If you’ve done what you should to keep cash flow and profits strong in a recession, you have much less of a need to offer discounts and extended payment terms.

Keep Headcount to a Minimum

When times are good, like they’ve been for the last several years, headcount tends to creep up.  In the hurly-burly of trying to keep up with growth, the fastest and easiest-to-implement solution is often to hire new people. 

In addition, we often staff our organizations for our future needs and not so much for current conditions.  Even if you think your business is going to stay relatively level (or even grow slightly) during the next several months, chances are you’re over-staffed.

Spend some time thinking about what your real needs are to get what you need to get done.  Determine the roles that need to filled and match up your needs with your current roster.  Chances are you’ll find roles that are under-staffed and a whole lot more that are over-staffed.  I know it’s a cliche, but "right-sizing" is a valid approach.

Also, take this opportunity to assess the what’s and why’s of the things you do.  Unnecessary tasks tend to accumulate during the good times, and if you hear any of your people say (or, if you ever say) "That’s just the way we do things.", it’s time to dig deeper and see if you can eliminate unnecessary processes in your business.

Put Off Big Ticket Purchases

Even if you’ve identified a need for a significant big ticket purchase, it maybe better to put it off for awhile and conserve your cash.  Especially now when the next several months appear to be problematic.  You’d be better off waiting until the recession (or flat-growth period) is almost over.  Not only will you be able to negotiate a better deal when the economy looks bleakest, but you’ll hold onto your cash until just before a recovery.

How will you know when a recession is almost over?  That’s easy.  When every newspaper headline, TV news report and financial pundit is bemoaning the "worst economy since the Great Depression," the worst of it is probably over.  The convention wisdom has a consistent track record of being late.

Unless You Get an Irresistible Deal

Sometimes you’ll be presented with a deal that makes so much sense you can’t turn it down.  If you’ve stayed financially strong you’ll be able to take advantage of these opportunities.  If the deal is that good - take it!

Cut Your Salary

You may think that your personal compensation is a secret, but I can almost guarantee your employees have a fairly accurate picture of how much you make.  If you’re going to ask your people to make some sacrifices, you can too.

Although, it’s not really that much of a sacrifice.  OK, it’s not a sacrifice at all.  If your business is a pass-through entity (S Corp, LLC, partnership or un-incorporated sole proprietorship) any salary cut you take is just going to flow to the bottom line.  And, if you’re an S Corp, cutting your salary, and taking the additional profit, will reduce your payroll taxes - it’s actually a reverse sacrifice!

Coming up in Part 3 - What to do about marketing in a recession.

From Seth,

“If you work in an urgent-only culture, the only solution is to make the right things urgent.”

Amen!

This is Part 1 of a planned series on managing your business during a recession.  Subsequent parts will be linked at the bottom of this post as they are published

I don’t have a crystal ball or some special insight into the macro economy that allows me to say we’re in the beginning of a recession.  The classic definition of a recession is two consecutive quarters of negative GDP growth, and since most recessions are short-lived, we often don’t know for sure that we’ve been in one until it’s over.

What I do know is that how people will react to the possibility of a recession has many of the characteristics of a recession - and can even bring one on .  Now is the time for judicious management, and if not actually growing now, at least laying the foundation for significant growth during the recovery.  Whether we experience an actual recession or just a perceived one, there are things you can do to protect your business and even make progress during turbulent times.

Cash is King - Don’t Let Your Customers Keep Yours

This is always good advice no matter the macro environment, but during a recession it’s doubly important.  When businesses sneeze, their vendors are often the first to catch a cold.  Delayed payments become common and bad debts increase.  You don’t want to be the vendor left holding the bag.

If you begin to have customers and clients who used to pay on time but now don’t, it’s a good sign they’re experiencing difficulty.  Many will try to ride out hard times by borrowing to fund operating deficits - borrowing from vendors through increased A/R and stretched-out payments, borrowing more on lines-of-credit, maxing out on credit cards.  As soon as you see this happening with a customer, you must be pro-active.  Waiting will just get you stuck at the back of the line and you may never get paid if your client goes bankrupt.

Here are three things you should do right away with slow payers:

• Lower their credit limit with you, and/or
• Put them on COD.
• Intensify collection efforts and don’t let up until you get paid.

Awhile back I did a series on 15 Things You Can Do To Get Paid Faster.  Now would be a good time to read it and implement some or all of the suggestions.

Restructure Your Borrowing

The Federal Reserve has been on an interest-rate-lowering tear lately, but it can’t, and won’t last forever.  Inflationary pressure and the weak dollar will force the Fed to raise rates again as soon as they feel the danger of a recession has passed.

Take advantage of the current situation and look at your business borrowings to see if you can lower your interest expense and/or stretch out payment terms to preserve cash flow. 

Specifically:

• If you’ve used a first or second mortgage to finance your business, look into re-financing to lower your interest rate, and/or
• If you’ve used a HELOC (home equity line-of-credit) to finance your business, consider a re-fi into a fixed-rate, fixed-term mortgage to lower your rate and stretch out payment terms.
• If your financial situation is still strong, consider obtaining a fixed-term working capital loan (the SBA has some good options) to pay off higher interest rate credit cards and unsecured lines-of-credit.
• Take advantage of credit card offers with zero-interest balance transfers.

If you haven’t sat down with a good banker in awhile, now would be a good time to do so.  Tell them you want to restructure your business borrowing and see what they can do for you.  You’ve probably heard about a "credit crunch," but I’m not seeing it in the small business lending arena.  Banks are still lending money to quality businesses.

In Part 2 I’ll be concentrating on Cost Control - the right way.  In the meantime, go collect some overdue A/R!

Here’s the link to Part 2 - Cost Management and the link to Part 3 - Marketing.

Conversation Starter, the free online companion to Harvard Business Review, has a long blog post / short essay on Staples attempt at new strategic innovation.

You should read the whole thing, but here are some nuggets:

…all strategies have a sell-by date. Just because you were a successfully disruptive business doesn’t mean you can’t fall victim to the same forces. Competitors will come, and absent entry barriers, they can simply copy what you’ve successfully done (without all that time-wasting analysis and experimentation to figure out the model, too).

Call that the Microsoft strategy.

Customers will — most irritatingly — take what used to excite them in the past for granted.

Remember, your customer is not your friend.  At its core, the customer-vendor relationship is a commercial one, and the minute you cease to provide value to the customer, they will depart.

But, no law says you have to do business with customers who don’t bring value to you as well.  A healthy business relationship is one in which both sides win.

Mark Cuban, of Dallas Mavericks fame, has a post on his rules for startups.

My favorites are:

1. Don’t start a company unless its an obsession and something you love.

2. If you have an exit strategy, its not an obsession.

4. Sales Cures All.  Know how your company will make money and how you will actually make sales. (emphasis mine)

 

He also links to a post, How to Save Money Running a Startup, by Jason Calacanis that has some really good tips for cost control that can be used by an existing small business, not just a start-up.  Be sure to read the comments too for some other good ideas.

Sometimes in the hurly–burly of running a business every day we lose sight of why we do This Thing of Ours. Here’s a three-step process for eliminating the things that get in the way and focusing on what’s valuable.

What Do I Know How to Do?

All too often the entrepreneur has a hundred ideas for making money, but no clear idea of how to actually make it happen. A good starting point is figuring out what abilities you, or your organization, have. If you attempt to develop a new product or service – or even a whole new business – and don’t have the necessary skills, you’ll put undue stress on yourself and your people. There really are a million ways to make a buck and you’ll be more successful if you stick with what you know.

This doesn’t mean you can’t do new things. Just don’t overdo it. Make sure your current business is on solid footing before going off in new directions. And, don’t try too many at one time. Focus!

Can I Make Money Doing It?

Just because you can do something doesn’t mean you necessarily should. You might be a highly skilled buggy whip maker, but I doubt you’ll build a successful business in buggy whips.

Ask yourself a few questions:

• Are there enough people willing to pay me enough to make a profit?
• Is the competition sparse enough for me to carve out a place?
• Does my intended market have legs? Or is it a fad?

After figuring out what you can do and what you can make money doing, you have one more question to answer:

Is it Fun?

Fun can mean different things to different people. Fun can be enjoyable or socially worthwhile or challenging. How you define it isn’t important. The fact that you are having fun, as you define it, is.

Fun is what will get you through the hard times – and every entrepreneurial endeavor will have hard times. If you get up in the morning dreading going into the office or the shop, you need to re-evaluate just what it is that you’re doing with your business.

Mark at Productivity501 uses an example of a client’s accounting system to illustrate the importance of integrating processes over having “best of breed” software.

“If you choose your solutions based on integration instead of features, you’ll increase your productivity–even if you have to sacrifice some features. If you choose your solutions based on features and ignore the integration aspect, the time savings benefits will be greatly reduced.”

My response is a hearty “Amen!” If I had a nickel for every dysfunctional work process I’ve seen I could stop working for a living and blog full time. I’ll go a bit further than Mark, though, and say that lack of integration isn’t just limited to software. Processes can break down for a whole host of reasons:

People – if you have employees who just cannot work as part of a team, the best designed work process will not function to its potential.

Physical Space – if people, or departments, who should be working together are too separated physically, communication is thwarted. While modern communication tools are great, and have done wonders for keeping people connected, there is no substitute for the regular, spur-of-the-moment face-to-face contact.

Strategy – by this I mean the lack of communicating the strategy to your people. It doesn’t matter if it’s because a strategy doesn’t exist or because you don’t communicate that strategy to the rest of the organization – if your people are making decisions in a vacuum they won’t all be on the same page.

These are just off the top of my head. I’m sure there are plenty of others. Care to add your two cents?

One last bit of wisdom from Mark:

“A well designed integrated process with average tools is much more productive than the best tools, but no integrated process.”

I had a conversation the other day with a client in which he was lamenting his difficulty in securing supply. This client takes a partially manufactured item and processes it into a completed specialty item for sale.

Making the partially completed part takes millions of dollars in equipment and the industry is dominated by large ($100+ million ) organizations. The specialty business my client is in consists of small companies with annual revenues between $500,000 and $1,500,000. Since the large suppliers are going after mass markets, supply for the specialty items has been problematic since the beginning of time.

My client has done a better job than his competition at securing supply, but he still spends a great deal of his time on the effort. As we were talking, it hit me that THIS is his competitive advantage. Doing the difficult thing – the thing nobody else can do.

It made me think that just about every business has something difficult, something that can be marketed and delivered, that can separate them from the competition.

The software company that spends the time to make the interface intuitive.

The landscaper who sweeps up the clippings instead of spreading them around with a blower.

The appliance repairman who shows up at a specific time, not within a 4-hour window.

The blogger who posts something worthwhile every day. (I’m not above preaching to myself.)

What difficult thing can you do to distinguish your company in the marketplace?