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Recession Tactic 101 – Do Not Reduce Your Pricing!

September 19, 2011 by Frank Goley, Business Consultant

Well, it is great to get back to blogging after a long absence. I have been waiting on our new website and blog to be done before getting back into regular blogging. And now they are done! Let me know what you think about the new look and content.

This recession has a lot of companies questioning their tactics and pricing. Question your marketing and tactics but not your pricing. All too often I see companies who are experiencing less business reduce their prices. This is often a fatal mistake. The answer is not price reduction!

In particular, I have seen construction industry companies slashing pricing, thinking that is what is needed to get business in this recession. All too often they find this makes it worse with no end in sight. If you have a good price for the value you offer for your product or service, either leave it alone, or even increase it. Yep, I said price increase in a Recession! (and I am not crazy)

Pricing is often just a part of a very complex picture of a company’s success. There are so many other factors to consider in relation to and outside of pricing. Things like efficiency, cash flow, profitability, employees, management, etc all have to be considered, and the business needs to be comprehensively analyzed as a whole (sum of its parts) to come up with a viable recession strategy. Just cutting pricing and thinking that will help you turn things around in a recession will fail 99% of the time.

So what is the Answer in this Recession?

Two part answer:

1) Do a full Business Analysis and get an accurate picture of the health of your business and how the sum of the working parts of the business are working well, or not well together. With the analysis complete, you know where you are as a business- it a point to work from. Make improvements where you can based upon the results of the analysis, and most importantly, track the results of your changes and improvements over time. Tracking and tweaking along the way is critical! Also, fully establish that your pricing is in alignment with the value you provide– if it isn’t, fix that upfront– yes, increase pricing if necessary!

2) Improve Your Marketing: The answer in a recession isn’t price reduction but better marketing to a target of your best customers. You need to define who are your best customers, and how to market to them. The smart and successful companies in a recession expand their marketing budgets, not reduce them.

Pricing

Think of ways to package and combine products and services (and add ons) that offer substantial value to your customers, yet are highly profitable to you as a company. Then market behind those key product and service bundles/packages. Pricing strategy and marketing are one and them same– take each into careful consideration and devise a strategy that encourages maximum marketing ROI for “x” price component.

Marketing

Two words: Internet Marketing. Two More Words: Inbound Marketing. You won’t find a lower cost marketing method (if done right) for a higher ROI anywhere. The bottom line with any marketing campaign is to have your phone ring and boost sales. Why have mostly outbound marketing? It is expensive and often not very effective (low ROI). Inbound marketing is superior. Here are the keys to good Internet Marketing:

• Do Your Research: This is a critical first step.
• Develop an Online Marketing Plan
• Website Overhaul: Your website needs to be a sales director, not a brochure! Good Website Design and Marketing are one and the same.
• SEO: onsite Search Engine Optimization and offsite SEO Strategy.
• PPC: Pay per Click is only effective and affordable if combined with a strong SEO strategy. Good SEO significantly reduces PPC costs and makes PPC much more effective.
• Video: Having video on your website and a YouTube Channel set up is critical. Get your videos professionally done– try to resist doing it yourself. Have a good SEO and Social Media strategy behind the videos.
• Offline / Traditional Marketing: Only use in conjunction and in support of your Online Marketing strategy, not the other way around. Online marketing reduces your traditional marketing costs and makes it more successful when done correctly.
• Track, Track, Track and Tweak, Tweak and Tweak: Online marketing is awesome with all the software you can use to track the success of your campaign. The software will guide you in changes to make to increase both conversions and ROI.

Final Thoughts

The danger with a “lowering the price strategy” is you cheapen your brand and value, only making the hemorrhaging of cash and profits greater in the long run. Even worse, you may start a pricing war which often ends in disaster. Get the health of your overall business right, ensure your pricing matches the value you offer, develop out of the box pricing packages/bundles, and most importantly, spend your money and time on Internet Marketing, not traditional marketing. Does this sound like a tall order? It can be if not done right. Consider hiring an experienced business consultant to help with the business analysis, business recommendations, business changes, pricing strategy, and marketing strategy. If the business consultant is worth his or her salt, it is money well spent and vey easily recouped. Find a consultant that is results based!

Posted in Business Internet Strategies, Business Marketing Strategies, Business Recession Tactics. Comment

The Top Businesses during a Recession and Real World Recession Tactics

May 6, 2010 by Frank Goley, Business Consultant

Top Ten Businesses in a Bad Economy

According to One Coach the following businesses tend to succeed during a recession:

1.     Business Coaching

2.     Business Networking

3.     Alternative Fuels

4.     Environmental Services

5.     Health Care

6.     Nail Salons

7.     Discount Retailers

8.     Luxury Products

9.     IT and Technology Services

10.  Credit and Debt Management

It is debatable whether Nail Salons and Luxury products truly do succeed in a recession. Item #9 in my view should be ranked higher in the list as businesses utilize technology to become more efficient and profitable during tight, recessionary periods.  #3 and 4 are great forward looking businesses, but they carry a premium and subject to positive government policy and regulations.  Just know you need to be prepared for the long haul with Alternative Fuels and Environmental Services as demand will ebb and flow directly associated to the whims of the White House and Congress.  In addition, during down economies, you will need to aggressively sell how much these businesses can save consumers and businesses money in a significant, quantifiable way, since the offering will be products and services that carry a price premium. Glad to see my business at the top of the list! Businesses find out they need a business consultant and coach during downtimes—the smart ones know this before they get in trouble!

Real World Business Recession Tactics and Strategies

Some areas which Sara Wilson keyed on in the December ’08 Entrepreneur Magazine Article,  “Trend: Economy”,  which makes a lot of sense in this Economy:

1.     A Business Idea that is Working right now:  CouponMom

a)     Stephanie Nelson started a website that teaches consumers how to save money buying groceries using coupons.

b)    2008 Revenue has doubled and the site had over 1 million unique users in July.

2.     Local Scope:  Due to financial pressures and an uncertain economic outlook, consumers are spending more time at home and closer to home.

a)     Consumers are frequenting local restaurants and entertainment establishments, which are more low key and less expensive.

b)    Instead of traveling to Disneyworld, families are utilizing “staycations”, enjoying local area parks, lakes and beaches.

3.     Green Business:  Organics are and have been exploding in growth and the outlook is very good.  People want to eat healthy and feed their family healthy food even when things are tight financially. Green conservation is another growing business niche.

4.     Web Business:  Why spend large start up dollars on a brick and mortar Business, when you can run the same or similar business from home, utilizing the internet?

a)     Web businesses are very competitive and the learning curve is significant if you aren’t familiar with web marketing techniques. 

Resource: Please consider reading my article on Online Marketing for ways to explode the growth of an online business.

Sara Wilson had another good article, “How are Franchisees Dealing?” in the January ’09 Entrepreneur Magazine that interviewed four different franchise business owners on how they were dealing with obstacles during this current economic slump:

1.     Floyd’s 99 Barbershop:  The franchisee, Jay Palmer, couldn’t find a loan for a new store.  He tried using his home and his parent’s home as collateral and no luck with banks, including trying to obtain an SBA or Corporate loan.

a.     The Solution:  Mr. Palmer found a personal investor (Angel Investor).  The investor came into the shop for a shave and a haircut when Mr. Palmer wasn’t around so he could get a good feel for the business.  He ended up investing $150,000 after seeing a steady stream of happy customers and happy, energetic employees.  This was a great move on Mr. Palmer’s part, using a track record of success and clearly showing a sharp investor the real deal behind the potential success of his future business opportunity:  great service, great product, happy customers and content, energetic employees.  In just one site visit and the positive experience with the business’ services, the investor was ready to supply the needed capital even after multiple bank turn-downs.

2.     Kitchen Solvers:  Franchisees, Carrie and John Borden Kircher, customer niche based changed.  Their customer market became price orientated, and the business offers premium kitchen and bath remodeling.  Leads dropped 19% and sales are down 25% over the last two years.

a.     The Solution:  Their solution is rebrand their vans, get new signs; increase letters to past customers; leave a gift with a customer after a job is complete; and working with their franchiser on the operational side of the business.  Ok, as a Business Consultant I am going to give my two cents on the Borden Kircher’s proposed solutions:                             

i.        Rebranding Vans and New Signage:  In my experienced opinion, this is a waste of money.  I would instead spend this money on a new Marketing Plan which concentrates on two areas:

a)     How to target higher wealth clients in the market area.

b)    How to sell price based customers on why premium services and products can save them money in the long run.  Once the new Marketing Strategies bring in profits, then it is a good time to upgrade signs and re-brand with those growth dollars.                            

ii.        Increase Letters to past clients:  Ok, but what is the purpose of a letter?  The time to ask for referrals is the day the job is completed.  When the client is happy with their new Kitchen or Bath.  A newsletter with examples of completed jobs and customer testimonials, along with a preferred customer discount coupon, may be more effective in obtaining an add-on sale with an existing customer.  A newsletter can also be a forum to introduce other services to current customers which they may not be aware, such as, having an article on the Design Services that Kitchen Solvers offers.  The most cost effective, normally highest bang for your marketing buck, are continuing sales to existing customers.                             

 iii.        Leaving a Gift Basket with a Customer Post Job Completion:  The Borden Kircher’s are looking to implement better customer service and they believe customers are looking for the “Wow” factor.  Leaving a gift is not customer service, and the wow factor should be as a result of a beautifully completed job.  A Gift Basket will get neither.  Customer Service starts at the Sales and Design Stage and continues throughout the job.  The business owners showing up on the job to check on things and talk with the client is good customer service.  Meeting with the customer in person after a job is completed to go over everything and ensure the client is happy is good customer service (and a great time to drop off the latest company newsletter and ask for several referrals).  Customer Service is showing up on the job when the client is unhappy with the contractor’s work.  This type of highly motivated customer service will create the Wow factor for Kitchen Solvers, along with a quality, premium, beautiful look in the finished kitchen or bathroom, leaving a lasting impression.                           

 iv.        Work on the Operational Side with the Franchisor:  This is one of the fantastic advantages a Franchisee can leverage:  utilizing the experience and resources of the Franchisor.  Some Operational Tips I would make as a Business Consultant:

a)     Analyze product costs and see where you can cut costs yet still retain a premium, high-end image with quality products and value added results.

b)    Work on a Supplier Business Plan which strengthens your relationship with your suppliers, tapping their assistance, experience, resources and expertise to bring better product offerings to your customers.

c)     As previously stated re-work the Marketing Plan, along with making the resulting key changes in the Strategic Plan to better anticipate future market trends and adapt operations more proactively to those indicating trends.

d)    Examine the Operational Aspects of the Business Plan to see how you can better bridge the gap between the design sale stage and the install.  Customers are more prone to pay a premium for a smooth, effective transition from concept and design to install and completion.

e)     Incorporate add-on selling into your Strategic Sales Plan for existing customers.  A happy customer is more apt to stick with the same company to continue remodeling, so be sure to have a built in process which engages customers and shows them other remodels you can accomplish for them.  Add-on selling takes very little marketing cost for a big return and ties in well with solid customer service.

f)     Have the Franchisor witness some sales and installs to see if areas for improvements can be identified.  Incorporate these improvements into your Business Plan. 

Resource:  Please check out my detailed article on  Franchising  for more information.

b.    My Best Advice:  Find a way to sell a premium product and service to higher wealth clientele and offer a product/ service which has a premium look and finish, yet appeals to price conscious customers.  Search for innovative suppliers who can help accomplish this mix.  Follow-up this new business model with strong customer service throughout all the sale and install stages.  Concentrate on a post-completion walk-through which asks for referrals and start the add-on sale process.  Follow up with a monthly newsletter which contains add-on ideas and offers a loyal customer discount.  The Borken Kircher’s have a lot of challenges in this economy, and as they said, “you can’t just sit around waiting for people to call.”  Use this rough patch as a learning experience in staying ahead of changing market trends, analyzing costs and making new plans for future success.  A premium product + great customer service + a quality install + great value = a viable business model in any economy.  Just don’t wait two years to make changes.

3.     The Melting Pot Restaurant:  The challenge Franchisee Michael Frampton was facing during the Real Estate Crash in California was establishing the restaurant in a new shopping center when 10 other centers in the area were all opening at the same time.  On top of this significant challenge, property taxes went up from $500 a month to $2,500, which meant $2000 a month cost comes straight off the bottom-line, never being budgeted for.

a.     Solutions:  Mr. Frampton shows why he is going to be a successful business owner.  Clear steps and strategies to overcome the current situation:                     

 i.        Loyalty Cards:  This is a fantastic move.  Appreciate your regular customers during the hard times, and they will keep your doors open.                    

ii.        Mass Mailing:  Targeted within a 10 mile radius as there are so many competing restaurants in the immediate area.  Targeted mailing is measurable, which is key during tough times.                   

iii.        Analyze where you are spending money and the areas which can be controlled (not necessarily cut):  Mr. Frampton actually saved $500 a month in focusing on linen costs for towels used to clean the restaurant.  He also analyzed energy cost:  when they turn on equipment and the length of time it’s used.  A third major cost area for restaurants is staffing, which Frampton cost analyzed as well.                   

 iv.        New Business Opportunity:  He started opening for lunch on Sundays.  Why?  Probably because customers come after church with their families to enjoy an upscale meal, as do the late weekend risers searching for a good brunch close to home.  One of the best analyses a restaurant can perform is looking at the average customer flow, food sales, alcohol sales and costs for each day of the week it is open to determine what days are best to be open and the reasons why.  Armed with that information, you can adjust staff schedules, open hours and food prep costs much more strategically.  Mr. Frampton apparently thinks the added costs of being open for lunch on Sunday is worth it, based on good cost analysis. 

4.     EmbroidMe:  Wendy and Todd Diskin own a franchise that specializes in promotional solutions for businesses, which includes decorating apparel and screen printing.  Their challenge has been rising costs from their suppliers.  They have experienced a 5% increase in the Cost of Goods over the last year.

a.     Solutions:                     

i.        Competitive Pricing vs. Solution Based:  The custom product industry is price competitive.  With rising costs, the Diskin’s have provided a more solution based approach so the buying decision isn’t just made on the quote.  For instance, if one of their customers is trying to increase readership, they figure out how EmbroidMe products or services can help the client achieve that goal and come up with a program to do so.  Then the decision becomes one of “risk and reward and ROI instead of price…”  Selling solutions alongside your product and service offerings is a way you can separate your company from the competition and still retain premium pricing in a price based market.                      

ii.        Continuous Marketing Software:  This program sends letters and emails so the Diskin’s can “stay in front of their customers on a regular basis without a ton of effort….”  This software program keeps the company engaged with customers, giving EmbroidMe first opportunity to make another value added sale or track how customer market trends may be changing.                     

iii.        Vendor Relations:  Leveraging a strong advantage franchises have, EmbroidMe Corporate negotiates the best pricing and strategic relationships with suppliers for their franchises.  This is a huge advantage as it is a time consuming task and volume pricing from a Global Corporate level is much more advantageous than negotiating on your own as a single business unit.  So it is apparent that although COGs has risen, EmbroidMe is still very competitive and successful, even in a recession. 

Conclusion

This article used real world examples and combined it with the business experience of a 20 year veteran Business Consultant to provide you with real world examples and strategies to use in order to start, run or adjust a new or existing business in a struggling economy.  In my article on Recession Survival Planning I discussed how it is a must and utilizes good Strategic Planning, Diversification Techniques, Contingency Planning and Cost Management.  In another article I discussed various Recession Finance Techniques for your business which are particularly good during a Recession, which include Networking, Supplier Finance, Lease Finance and Local Business Loans.  For more detailed information on Alternative Finance Strategies for Businesses, please refer to my article, Funding Sources for your Business.  To conclude in this article, we identified certain types of businesses which excel in an Economic Downturn and why they are successful.  Our best advice for starting or operating a business during Recessionary times is as follows:

1.     This Recession will have an impact for at least 3 years.  So keep that in mind when planning for your business.

2.     Track record, Experience, Niche Market Identification and Cash Flow are keys in raising funds for your business.

3.     Solid, Comprehensive Business Planning, along with realistic, accurate Market Planning and Financial Forecasts are very critical during challenging economic times.  An effective Strategic Plan is integrally important in bridging the gap between a Marketing Strategy and Realistic Financial Forecasting. 

4.     Out of the box thinking:  For Brick and Mortar Companies, key on strong local areas and/or utilize the web to efficiently bring a product or service to the market.

5.     Price Competitiveness becomes less important if you sell value-added business solutions to your customers and have tight controls on costs. 

Posted in Business Recession Tactics. Comment

Business Finance Tactics in a Recession

May 5, 2010 by Frank Goley, Business Consultant

During tough economic times, Finance is a huge challenge for business owners.  In the “Going Forward” section of the January ’09 Entrepreneur Magazine, Mark Hendricks quotes some sobering statistics:

Ø  During the Second Quarter of ’08, 65% of bank senior loan officers stated they recently tightened lending standards for small businesses.

Ø  In August ’08, 49% of business owners reported cutting back and by October that number grew to 69%.

Ø  Sales Growth for businesses in all sectors fell from an 8% average increase over the last five years to 6% for the year ending October ’08.

Our best advice to meet the challenges is have a well developed and implemented Business Plan and Financial Strategy which proves your Cash Flow Model and determines which financial sources and structures fit that Model.  With your Funding Business Plan, Loan Package and Investment Overview in hand, here are some real world funding options and strategies to consider when Lenders’ purse strings become increasingly hard to access:

1.     Networking:  Increasing your Networking activities through morning executive breakfast events, trade associations, Chamber of Commerce events and Rotary/ Kiwanis/ Lions Groups can be a great way to find suitable, local, private money.  Local investors are much more approachable in hard times as they have a connection and understanding to the area and your track record.  Other business owners in these groups, associations and events can be extremely helpful in finding suitable private money.

2.     Supplier / Trade Finance:  According to Rosalind Resuick, CEO of Axxess Business Consulting, no outside party has a bigger interest in your company’s success than your trade partners and suppliers.  Having your supplier as an Equity Partner can be very advantageous when you are having difficulty making payments or want to quickly develop a new market.  The participating Equity Stake is assigned to your past trends, present and future orders.  Start-up Consultant, Joe Fulvio, suggests your Business Plan “show not only a direct return on investment, but also the value of future business to be gained”.  By making your supplier a partner in your business, the supplier is better suited to understand your Finance needs

3.     Lease Finance:  When times are tough and your cash is tightening, Leasing can be the answer.  Small deposit, lower payments and flexibility are often associated with Lease verses Buy Terms.  At the end of the lease, you can easily upgrade equipment and roll into the Lease Payments so your out of pocket costs are much smaller than a typical finance loan. 

4.     Community Bank Loans:  Amy Loera, owner of Tio’s Mexican restaurant chain, was denied at nine different banks, for a loan to open a new restaurant, although she ran a very successful business.  These Lenders cited the Nation-wide downturn of restaurant sales due to the current recession as the chief reason for the loan declination.  There is no doubt a year ago, these banks would have lent to her.  Instead of throwing in the towel, Ms. Loera turned to a local, community lender, Arrowhead Credit Union, and she was approved for a $643,000 loan.  What was the difference?  The Credit Union was based in her business region, and she could make a strong case for the health of her restaurant chain. 

Reasons Ms. Loera cited for her success in obtaining her expansion loan:

1.     Low overhead costs

2.     Reasonable Prices

3.     Family-Style restaurants picking up the slack from people by the Fancier establishments in the area.

4.     Smaller, localized lenders are typically in better shape during an Economic Downturn

5.     Community Banks are more cognizant of the local economy’s health and vitality

6.     Larger / Regional / National Banks are more reliant on Credit Scores and cookie cutter Applications.  Local Banks rely more on a Business Plan.

7.     Niche Market:  Suburban market that likes an affordable meal at the end of a busy day

8.     Historical Financials showing track record

9.     Debt-free

10.  12 month Realistic Projection for the new restaurant

11.  Comprehensive Business Plan; every detail about the business

12.  Received approval from the Credit Union due to:

a.     Experience

b.    Existing locations cash flowing well

c.     Affordable meals in a recessionary environment

d.    Detailed, well-thought-out Business Plan

The Inside Story:  What the Local Bank Looks for:

1.     Not Credit Score Driven

2.     Look behind the scenes of the business

3.     Cash Flow is Key:  An important indicator of the ability to pay off the loan.

4.     Believable, forward-looking Cash Flow Projections for the new business.  Realistic Financial Statements.

5.     Provide Best & Worst Case Scenarios on your Financial Projections

6.     Small, Community Banks assess a business loan on a case by case basis.  This is a huge advantage over Regional Bank Loan decision making, especially, in an economic down-turn.

7.     In recessionary times, certain industries will be hit harder than others, like Construction Companies or Auto Dealerships; therefore, it is very important to have a well developed Business Plan and a forward looking Strategic Plan that includes a well researched 12-18 month industry outlook, based upon a believable Marketing Plan.

8.     Small Bankers can see successful pocket areas in a struggling local economy.  These pocket areas often have a Strong Niche Marketing Offering

9.     Financial problems are best disclosed to the bank early on so a mutual solution can be implemented

10.  Small Banks do loan to Companies showing past financial “hiccups” if they can show they were proactive and overcame the issue

Resource: For comprehensive information on Supplier Finance, Trade Credit, Lease Finance and Bank Finance, please see my article on Business Funding Sources.

In my next article, I will review what businesses do well in a recession and provide more recession business tactics so you can succeed, despite this lousy economy.

Posted in Business Recession Tactics. Comment

Small Business Recession Tactics

May 4, 2010 by Frank Goley, Business Consultant

We are in a pretty bad recession.  Should you open a new business?  Should you be in the small business capital market right now?  The simple answer is YES! This blog post gives you real-time situational advice on how to be successful during a tough economic times.

Survival Planning

Ed Hess, author of “So You Want to Start a Business?  8 Steps to Take Before Making the Leap”, says the first step is to “analyze why you’re in trouble, why you’re losing customers or why customers aren’t paying you fast enough.”  I can’t agree more.  You need to rework your Company’s Strategic Plan, Customer Plan and Supplier Plan to come up with a Survival Plan to cash-in on the opportunities a Recession provides.   

So how can you increase or maintain Cash Flow in a down Economy?

1.     Diversification:  Dan Leader, Owner of Bread Alone, a wholesale and retail bakery with three outlets, used diversification to maintain his $7 Million in Annual Revenue.  One third of the business is targeted on Retail Stores, one third on wholesale distributors and the other third concentrates on Mail Order and On-line Sales.  This way if one sector is hit hard in an economic downturn, the business has two other Sectors to pick up the slack.

2.     Contingency Plans:  Just like you have an Emergency Fund in any good Personal Financial Plan, you should establish an Emergency Fund for your Business.  Mr. Dennis Ceru, adjunct professor, Entrepreneurship and Business Strategy, Babson College, recommends planning for “rainy days”, putting aside 3 to 6 months operating capital and salary.  Include in your Business and Strategic Planning an Emergency Plan for cutting costs.  Another option during a down economic period is to send out invoices the day of a sale with cash discounts for early payment, say within a week.  Waiting 30 days to send out invoices, during tight times, can be a strain on cash flows.  Managing Cash during a downturn is crucial so your Budgeting Process in your Company’s Strategic Plan is vital.  Other strategies could involve leasing verses buying or hire part-time labor verses full time employees.  You just need to survive until things turn around, and you can implement recession strategies.

Cost Management

Cost and Cash Management is crucial during tough economic times.  Here are some great Recession strategies to employ:

1.     Expand your business into profitable areas without needing additional capital:  Dan Leader of Bread Alone, a New York wholesale and retail bakery, sets aside one to two days a week to make sales calls on new customers that have multiple locations, which can yield $100,000 in annual business.  Mr. Leader presented new product offerings to Whole Foods, Zabars and the like which generated a surge in large orders.

2.     Weed out Costly Customers:  Analyze your Customers’ profitability, create a “perfect customer” profile and concentrate on that customer type.  This will help you to be more profitable on a per customer basis, which is much less of a strain on Company cash flows during hard economic times.  Concentrate on higher net profits per customer verses high volume sales with less profitable customers.

3.     Examine your Technology Costs: Technology is key to running an efficient business but make sure you only have what you need for a good price during recessionary periods.  Heavy technology costs are hard to justify when you are fighting to retain and gain customers.  After analyzing the effectiveness and necessity of available technology, negotiating the terms of delivering the technology which can be met and sustained by your company.  Low cost per acquisition unit, high unit profitability and platform flexibility are key factors to keep in mind when assessing your Technology Plan.

4.     Poor Employee Performance during tough economic times can’t be ignored.  Ensure you have a suitable Performance and Control Mechanisms in place to proactively manage your human assets.

5.     On the flip side, retain your talented people even though they may be expensive.  Experience prevents mistakes, which can be very costly.  Your most expensive employees to hold on to should be your most productive ones.  They can pick up the slack during company cut-backs.

6.     Analyze the payoff of your Marketing Dollars.  What specific strategies are paying off?  At what profitability?  What is the ratio between marketing dollars spent and the resulting unit / customer profitability?  Exploit your high profitability areas and refrain from generalized Marketing Strategies.  Analyze your Marketing Plan to determine the best target, niche markets and the most profitable methods of selling to those targets.

7.     To retain those highly talented, skilled, experienced people in recessionary times, you must continue to offer good benefits.  Don’t cut your benefits to save on costs and expect your best people to stick with you when things are tough.

Chris Pentilla’s Article, “Employee Benefits in Today’s Economy”, in the January ’09 Entrepreneur Magazine, gave good tips in retaining key employees:

1.     Provide Breakfast at Staff meetings

2.     Lunchtime training Sessions

3.     Presenting employees CASH bonuses for meeting company goals

4.     Employee cost-shared in-house day care

5.     Matching Employee 401(K) Contributions even during business slow periods

6.     Company principals tell the employees the Truth, sharing information about the Company’s Budget so Employees understand how they can positively affect the bottom-line.

7.     During tough economic times a business owner may have to scale back perks but do it with the involvement of company employees

8.     Understanding how employees will react to changes in perks or benefits is key to a good Company Communications Plan

9.     Offer Discount programs on a range of consumer goods for employees to offset benefit cuts the company has to make, such as having to increase the Co-pay on an Insurance Policy

10.  Make a strong link between Perks and Performance:  Work flexible hours; work-life balance initiatives; work at home, telecommute; and giving more responsibilities to a high achiever are some ways a Company can offer performers unique perks which they have earned.

11.  Mentoring and training programs

12.  Recognizing Volunteer work and endorse a company-wide volunteer event or cause

13.  Strong ties with the Community

14.  Gas discount cards

Refrain from Across the Board Cost Cutting

Across the board Cost Cutting is a desperate measure.  Effective Cost Management should be a day to day tool you employ in your Company’s operations.  When times get tough, the Cost Management System you have in place will pay off large dividends, while making you very profitable during boom times.  Cost Management should be an integral part of your Company’s Strategic Plan, Product Development Plan, Marketing Analysis and Strategic Plans. 

With effective Survival and Cost Management Plans and Systems in place, your Company will be well situated to cash in on the limited availability of Business Capital in the Lending Marketplace.  Tough economic circumstances really tighten lenders’ purse strings, so it is important to concentrate on Funding Strategies which can be successful in such conditions, which is where I will pick up in my next blog post.

Posted in Business Recession Tactics. Comment

Smart Start up Strategies in a Recession – Part 2

November 30, 2009 by Frank Goley, Business Consultant

Blog Sponsored By: ABC Business Consulting 

In the previous blog, I tried to explain in simple terms, why a Smart Start Up, or any stage company for that matter, concentrates on three main financial areas:  Cash Flow, Sales & Profitability and Debt Burden.  This is a necessary foundation which needs to be built for these forth coming strategies to have traction.  In that blog, I also referenced some other ABC Articles which properly dissect each area for your follow on exploration.  With that said…….Let’s look at some strategies you can use as a young Company in a challenging economy.

Plan for Revival

The disguised blessing of a Recession is the pressure cooker demand which is waiting to be released Post-Recession.  No matter what the nay-sayers are prognosticating, we are already there in terms of Planning.  Start planning now for economic rebound so you will be hitting all cylinders when stimulus dollars really kick in and demand returns.  When the statisticians say demand is back, it is too late.  You have missed a ton of business and the opportunity to be the market maker.  

Recession Forces Niche Marketing

A Recession forces young companies to be very smart and make targeted decisions which offer the greatest chance for success.  For this reason, Niche Marketing becomes much more pragmatic and has much less risk involved.  This is a blessing!  Niche Marketing is much more profitable on a per unit / per sale basis.  Your chance of success in a Recession increases exponentially if you concentrate on bulleted, narrow scoped marketing.  Spend time narrowing down the most profitable niches, select one or two, market to them, learn, revamp and perfect, then roll it out more aggressively yet still keeping your Marketing Strategy highly targeted.  Getting good at Niche Marketing today will bring survival success in a Recession and growth success in a rebound.

Earn your Own Seed Money

Funding may be tough right now, but you can make it much easier by earning your own seed money.  Put your money where your mouth is before going to funders.  I’m not talking about using your Credit Cards to seed start your Biz.  Some have successfully started this way, but I highly discourage it.  I am talking about equity cash you earn working two to three jobs and living frugally.  Amass cash.  Do not cash in your 401K!

There is nothing more impressive to a funder than a presented growth opportunity, already seeded by the Owner’s earned cash.  You will be amazed how many multi-million dollar companies were started on just a few grand.  These companies grew successful, quickly, because ownership was forced to build it block by block, putting in place a solid business model, which quickly grew when growth capital was supplies.  I have started all my businesses with a $3K – $5K Business Plan, keeping it focused, niche oriented and using technology to be super competitive.  For more on Seed Finance, see my Bootstrapping Biz Finance Blog and the ABC Finance Articles.

Use Open Source Software

Technology is absolutely essential when trying to survive in a Recession with little capital assets – to be ultra competitive – to be small but have large, yet sophisticated, imprint on the market.  Open Source Software is often better than for purchase software and certainly cost effective compared to proprietary products.  In this age, think Online Business Models.  Build your company around an online interface of multifaceted, open sourced software and web ware.  This technology gives you the footprint of a larger company but without the payroll burden, while giving you a platform to perform highly targeted, sophisticated, niche marketing.  Best advice I can give:  build your company around an Online Strategy & Architecture.  And by the way, you do not need to be Tech Savvy to be highly effective with open Source.  Dive in and learn by doing – it’s not that hard in today’s user friendly software and web ware platforms.

Work from Home

Picking up from the Open Source, Online Model, there is no need to have a money sucking office and all the money pit holes involved in having an outside office.  Work from home and use open source collaboration software to communicate with your partners and manage associates.  I think I ran better businesses using the online, home based model.

Use Mentors Effectively

There are a host of volunteer mentoring services and Associations in any community – take advantage of the free entrepreneurial, experienced help.  Go out, go online, network and seek out targeted mentors to help you make smart decisions.  The smartest move any good business person makes is who that person surrounds him or herself with – you are only as smart or good as those around you.  Particularly during a Recession, when business decisions have little room for failure, experienced mentorship and collaboration is absolutely essential.  Take an hour every morning to read forums and blogs to learn what others are to be successful in this economy.

Strategic Alliances

Partner with experience and strength, reduce your risk, and maximize marketing dollars by affiliating and cross promoting.  Find others who have a similar niche and add value to their offering and customer relationships with your solutions.  The biggest trait to look for in a Strategic Ally is Integrity, as well as, one which you should espouse.

The Y Combinator Example

In the June ’09 issue of INC., “The Soul of a New Start-Up Machine” by Max Chaftein, Paul Graham, Start-up Incubator Guru, explains the wave of the future with his Y Combinator “hybrid venture capital and business school that invests in and advises” 40+ start ups a year.  One founder company gets $6K in funding and ratches up to $18K for 3 founder companies.  Y Combinator’s average stake is 6%.  Graham puts the “students” through a fast tracked, real world biz school and urges the entrepreneurs to release products as quickly as possible, often in just a couple – few months.  He keys on young tech stars that opt to starve for Key Knowledge and opportunity to do something special.  How special?  Less than 20% fail and the others find follow on investment, get acquired or rework their direction.  Reddit, a social news website, was acquired by Conde Nast for $10-19 Million.  Loopt, a cell phone software developer, received $13 Million in follow on venture funds.

Ø       Graham Keys:

ü       Take risk out of start up with experienced mentoring.

ü       Spend energies on product development, forget investor relations and PR and produce a finished “version” in 3 months.

ü       Let customers and users help you work out product kinks and relate niche data back.

ü       Live frugally and spend concentrated energies on your business, not going out on sales calls but rather getting cash-flow positive with the develop – test – rework pattern on a short cycle biz model.

ü       Capitalize on cheap band width, open source software and cloud computing to start and grow your company.

ü       Biz today is all about software – use it, develop it, and leverage it.

Well, does any of these Grahamisms sound familiar?  These strategies are important during a Recession start up but really, these are Start-Up Biz 101 Tactics & Strategies for success in any economy.  Start small, work smart, leverage technology, niche market, ally strategically, be customer – centric,  seek mentorship and key on Cash Flow, Profitability and Debt Burden….you are well on the road to being not just Business Successful but Recession Successful.

My next Blog is on Technology to make your Business more successful…..come back soon!

I greatly appreciate your Feedback and Comments!  Let us know how you are doing in this Recession and Strategy / Tactics that are working for you.

Please Refer the ABC Biz Success Blog to your fellow entrepreneurs!  Thanks!

Date:  Nov. 30, 2009

Author:  ABC Business Consulting, Chief Business Consultant

Subject:  Smart Start up Strategies in a Recession – Part 2

Posted in Business Recession Tactics. Comment

Smart Start Up Strategies in a Recession – Part One

November 21, 2009 by Frank Goley, Business Consultant

Blog Sponsored by: ABC Business Consulting 

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Starting up or growing a young company during a Recession is certainly not impossibility, and in many ways it can be advantageous.  Also, whether or not the economy is doing well or not is no excuse for not conducting good business practices.  We could call this Blog, “Good Business Strategies in any Economy”.  The point is, if your company adopts solid Business Strategy, you can certainly weather and even profit in a recession while being positioned to grow exponentially during better economic times.

In this multi-part blog, I will discuss Success Factors and Strategies that will certainly help young or struggling companies, TODAY, in this “seemingly” tough economic environment.  I say “seemingly” because if you figure out how to survive or even profit a bit in this recession, you know you have a solid business model in place.  But isn’t that the case with every start up, young company or turnaround company, whether or not you are in recession?  My point?  Develop sound Business Strategies today, which may be a tough selling and growth environment, will be the mark of your success, not whether you are in an easy or hard selling situation.  Smart business is Smart Business and all boils down to sound Business Strategy which is well Planned, Marketed and Strategically Implemented.

Ok, enough of the soapbox, here’s some strategy you can use today!

Focus on Cash Flows, Sales & Profitability and Debt Burden:

Like I said, this is Business 101 stuff.  The basics.  But I bet many of you reading this Blog have fallen away from this Business Canon.  As I mentioned in the previous Blog on Budgeting & Cash Flows, planning your Budgets and clearly understanding, while realistically projecting, Cash Flows is the most important business management tool there is, when used in combination with a Solid Business Plan that puts a well developed Business Model (and processes and systems) into play with a Strategy.   

Manage Cash Flow and not run out of money.  Sounds easy, right?  Understanding how to use Budgets and Cash Flow Financials as a tool to manage your business on a daily, weekly, monthly and quarterly basis isn’t that tough, especially with today’s Financial Software – anyone can do it, with or without a Financial background and is completely necessary as an Entrepreneurial Tool.  A simple Flow Chart on why Cash Flow Management is so critical:

Product / Service Development => Marketing Plan => Strategic Plan => Company Budget => Sales Forecast =. Cash Flow Forecast =. Profitability => Debt Management

Inversely, the Profitability is managed by 1) Budget Process and 2) Cash Flow Management Process.  The above Flow Chart Process is very simplistic but the thing to remember is the relationship Cash Flow has to the Product / Service Development, Marketing, Budgeting, Sales Forecasting and Strategy before you can register Profitability as a Business.  This is why as a Business Consultant I constantly harp about a solid Business Plan Process which entails the above, plus a lot more.  If you are using Budgeting and Cash Flow Management as a tool, then you are incorporating all the important components of planning and executing solid Business Strategy, which when in a Recession, becomes all the more important.

Resource:  To understand more about Cash Flow, Budgets and Business Financials, please visit:  Cash Flow Management Strategy, ABC Comprehensive Business Planning Guide. 

Sales & Profitability:

Note, I did not say profits.  “Rather, focus on profitability of your product and service lines.  Profitability Analysis forces you to concentrate on the relationship between Sales and Expenses, as well as, Sales and Marketing.  What is the payoff for product “x” sales in terms of Company Expenses to make that happen, as well as, Marketing Expenses to make it happen – and not forgetting, the relationship of ancillary services to product “x”.  If you understand this Profitability relationship, then you understand Cash Flow Management, don’t you?  See where I am going with this?  Cash Flow relates to the Income Statement in a fundamental way.  Good Business Management / Good Business Strategy is a building block, relationship type of process.  A Good Business Plan Process instills this into a business.  Without Good Cash Flow Management, Sales & Profitability become increasingly esoteric and difficult to plan, manage and successfully obtain.

Resource:  Check out the ABC Article on Profit Maximization to more effectively manage your Company’s Profits.

Debt Burden:

Remember, this is a Building Block process, so Debt Burden can be effectively managed through A) Cash Flow & Budget Management and B) Sales & Profitability.  No Cash Flow, then no debt payment.  Not good!  Lack of Sales, and worse yet, lack of Profitability, will prevent securing any future debt.  There are a variety of Profitability financial ratios which are important to compute in relation to your Company Debt.  And guess what, they revolve around the Cash Flow and Income Statements, as well as, the Balance sheet.  I am not going to go into great detail about Financial Ratios, what they mean and how to use them because it is too boring for this blog.  Ok, humor folks!  For a comprehensive explanation of Financial Ratios please refer to the Financial Section of ABC’s Business Plan Guide.  Financial Ratios tell you how effectively you are managing your Cash Flow components and Profit (Income) Components, so that, you can service Debt Burden.  They also indicate how leveraged your Assets are currently.

Cash Flow Management (Budgeting) + Sales & Profitability Management = Effective Debt Burden Management.

For in depth information on Debt Management and Business Finance, please see ABC’s Biz Finance Section.

With this foundation built on Cash Flow, Sales & Profitability, and Debt Burden Management, the next Blog will explore some strategies which can work today toward a Successful Start Up in a Recession…..

We have a detailed Article on Recessionary Business Tactics that I recommend your reading as a follow up and continuation of this blog.  And while we are talking about Sound Business Strategies, you will find a multitude of ABC Business Success Articles in various areas of business that can be quite helpful for your company’s success.  Better yet, request our FREE (For a Limited Time) Business Success Guide for a comprehensive compendium of Business Success Strategies.

Need more help?  Please visit our Services Section for details on ABC’s Value Based, Business Success Packages.

Date:  Nov. 21, 2009

Sponsor Company:  ABC Business Consulting

Author:  ABC Chief Business Consultant

Subject:  Smart Start Up Strategies in a Recession – Part One

Posted in Business Recession Tactics. Comment