Steve

A: Recently, I was chatting with my friend Rieva Lesonsky about what a challenge it is to own and run a small business in this economy. The topic was especially salient because , as we are both small business owners as well as writers and speakers on the subject, the Great Recession is effecting us in numerous ways.

You may have heard of Rieva. She is one of the top small business experts out there, but even if you have not, you have no doubt seen her work – for many years she was the editorial director of Entrepreneur Magazine and she wrote the bestselling book Start Your Own Business. When I look at her resume – being on The Today Show, Oprah, etc. – I get jealous. These days she is the CEO of GrowBiz Media, a content and consulting company specializing in covering small businesses and entrepreneurship.

So Rieva is someone who really knows her stuff and that is why I was happy to hear that she is conducting an online chat at Bank of America’s online small business community on the subject Navigating Your Small Business Through the Great Recession. The chat will be on Friday, July 17th at 2:00 p.m. est.

Sensing an opportunity to share her insights with my readers, I asked Rieva what she is telling people these days with regard to staying afloat and even getting ahead.   (So you see, the question above . . . is mine!) She mentioned four things that she thinks can really make a difference right now:

1. Work smart: “Do not waste your time doing things you don’t have to do. Use your time wisely and concentrate your efforts on getting the biggest return on your investment of time,” Rieva counsels. “So, to the extent you can avoid it, avoid getting caught up in minutiae, especially minutiae that does nothing to help you grow your business.”
Rieva echoed the point made by Michael Gerber in his great book, The E- Myth. “Don’t spend your time working in your business,” she said, “work on your business.” As such, she thinks one of the smartest things you can do is to “use your time on things that make you money, and to the extent possible outsource or automate the other stuff.”

For example, she noted that something like doing payroll is probably not the best use of your time in times like these.

2. Remember, cash flow is king: In recessions, it becomes more and more commonplace for customers to pay later and later. “You have to try and avoid having that happen to you,” Rieva said. Yes we have to be cognizant that people are having a difficult time right now making ends meet, but it is equally important to keep “your cash flow flowing.”

So get those past-due invoices paid. Call up the tardy customers, be kind and firm, and keep the money coming in the door.

3. Surround yourself with people who can help: “So many small business owners consider themselves the ‘lone wolf.’ While admirable in many ways, that attitude can be problematic in tough economic times like these when we can all use some help,” notes Rieva.

Her solution? “Join an online community.” There are no shortage of excellent online communities that allow small business owners to meet up, share ideas, get feedback and the like. Finding and joining an online group is a free way to brainstorm, get advice, give advice, and get valuable feedback.  Right now, it does not behoove you to be a lone wolf.

4. Save money and shop for bargains. Keeping your overhead low is always excellent business advice, but is more pertinent now than ever. Says Rieva, “And there are lots of bargains to be had: Look for and use rewards, shop for great rates, use online shopping portals. The important things is to be extra smart about where you spend your money right now.”

Sage advice my friend, sage advice indeed.

Today’s tip: The Franchise Maid Brigade is offering veterans a very unique opportunity: The chance to win their own franchise. The Maid Brigade Veteran Franchise Giveaway is a contest that will give up to 100 qualified vets their own Maid Brigade franchise.

The Giveaway is open to all United States military veterans who are no longer on active or reserve duty. The criteria for entry are:

• Provide a “Certificate of Release or Discharge of Active Duty” (Form DD 214).
• Complete the Maid Brigade Veterans Franchise Questionnaire which includes an essay: “Describe in 100 words or more: What aspects of your military leadership, training, and experience would you apply to your own Maid Brigade operation?”

Good luck!

Amy

A: Advertising more right now makes intuitive sense to me, but does it make actual real business sense?  Maybe, but maybe not.

Intuitively, one thing that is clear right now is that people are looking for a bargain;  customer loyalty is a bit of any oxymoron as customers are generally more interested in saving money than patronizing their favorite businesses. As such,  advertising can put your business in front of these potential customers.  That is my intuitive take.

But a really interesting new book calls into question that very premise (which is actually also the premise of the question above) as well as other sacred cows of conventional business wisdom.  The book is called Duck and (Re)Cover by Steven S. Little (Note: Steve is an associate of mine as this book is published by John Wiley & Sons, who also publishes my Small Business Bible).

In the book, Little points out that this piece of conventional wisdom – that advertising more in a recession leads to increased sales growth – is essentially an urban myth.

The book explains that if you Google the terms “recession” “advertising” “study” and “sales growth” – you end up with millions of pages that essentially say something like “The results of a study indicate that businesses that maintained or increased their advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth.”

The book notes that the study is then cited ad-nauseum by anyone who wants to get you to advertise more right now, for example:

• The radio station that cites the report to explain why people need to advertise on its station now more than ever
• The PR firm, saying that marketing with them in a downturn is critical
• The freelance copywriter who is looking for clients

So Little decided to find out what this study actually says. It turns out that all of these sites are talking about the “McGraw Hill Research Laboratory of Advertising Performance Report #5262.” Little discovered that what report #5262 actually says and what the millions of sites citing it think it says are not nearly the same thing.

In fact, Little found that report #5262 expressly states that there is no “causality” between advertising in a recession and sales growth, that the study only looked at public companies, that these companies had sales more than $1 billion a year, and that the study took place in 1985.

So, as Little concludes, the McGraw-Hill study and its ‘advertise more’ conclusion only tangentially relates to you if you own “a relatively large industrial company with a business-to-business advertising bent” and you think a study that is more than 20 years old can help you in the 21st century (P.11).

Little’s point, and the point of the book, is that you need to examine closely your business beliefs, especially those relating to how to deal with “the choppy waters of a recession.” Yes, advertising more may make sense for you, but if it does, it is not because of some old study that is oft misquoted, it is because that is what your business today, properly analyzed, requires.

And that is what this book does. It helps business owners analyze the state of their business accurately and then it prescribes various ways to see and seize the opportunities that are out there. It is, as the subtitle suggests, “the embattled business owner’s guide to survival and growth.”

As Little told me last week, “in a time like this, opportunities will become available – but you have to get yourself ready for them. That is what the book is designed do” The trick, he says, is not to over-compensate, or do nothing, or to do what you have always done (because the market has changed now) but to use logic to make smart choices.
This is a really good book. I say check it out.

Today’s tip: Another piece of conventional wisdom given to small business owners is to ‘get a board of advisors.’ But where do you find them? Where do you find business mentors, other business owners, entrepreneurs to commiserate with, etc.?

Here’s a resource you may not know about: PartnerUp.com is a great site that offers entrepreneurs the chance to meet and partner up with other entrepreneurs, find mentors, network, and more.

The Kauffman Foundation cross-examined data from the U.S. Census Bureau, Fortune 500, and Inc. magazine to figure out how recessions affected new firm formations.

The study found that in general, bad economic times for the nation may not always impact entrepreneurship in the same way. After all, an individual may feel more apt to start a business once laid off, while entrepreneurs could target the newly unemployed as potential new hires.

Around 51 percent of Fortune 500 companies formed during such times, by comparing their founding years to expansion and contraction dates recorded by the National Bureau of Economic Research (NBER). That percentage jumps to 57 percent when excluding companies founded before 1855 – when NBER started tracking economic cycles.

A good portion of the most famous examples – Sears, 3M, Ford, General Electric – all rose during the Second Industrial Revolution, though this time was surprisingly riddled with economic contractions, the study said.

Current times, however, also may not be no more or less favorable for entrepreneurship than the past. Whether they are born in 1977 or 2001, the rate that new firms survive from age one to age five has remained remarkably similar, despite changing economic conditions.

More information about The Kauffman Foundation’s findings can be found in the study, “The Economic Future Just Happened.”

TJ

A: I love this quote from the late, great Paul Harvey: “In times like these, it is good to know . . . that there have always been times like these!”

Sure, we have all heard that this Great Recession is the worst economy in 50 years, and it is, but that does not mean that there have not been equally bad times to be in business, because there have.

And what works in times like these? You bet, discounting.

Consider 1974 if you will. That year, new president Gerald Ford had to deal with an ongoing, expensive conflict in Vietnam, a quadrupling of oil prices, a huge drop in the stock market, and 11% inflation combined with stagnant growth – or “stagflation”. 

With the economy in such bad shape, it hardly seemed like a time to start a new business, but that is exactly what Dennis Brown did, and he succeeded because he tapped into the economics and mood of the time and created a business that offered low, low prices.

Specifically, Brown opened a new motel in Aberdeen, South Dakota and set prices at a mere $8.88 a night. By 1979, he had more than 70 hotels in his chain, and today, Super 8 Motels is one of the world’s largest discount motel chains with more than 2,000 locations.

So yes, low prices can work, and work big time. Many businesses in fact tie their brand to low prices and succeed as a result:

• Wal-Mart
• McDonald’s
• Amazon.com

So the question is not whether lowering your prices can work, sure it can, instead, the question is whether lowering prices can work for your business.

Lowering prices does not work for every business, and the one time that cutting your fees usually does not help much is when you have a high-end brand. BMW could gain little by suddenly selling their cars for a lot less because its brand is based, at least in part, on expensive luxury. Discounting would cannibalize its brand.

That said, the low price strategy often works for plenty of small businesses, especially in this type of economy. People are shopping right now. They want a bargain. If you are not willing to give them one, then they just might take their business elsewhere.

I have often said that one key to business is to ask people what they want and then give them what they want. I bet if you asked your customers what they want, today, many would say lower prices. So you better consider giving them that.

And as you do, you do have to be careful how you do it, and how much you do it. Lowering prices will bring in more people, yes, but it will also eat into your margins. Crunch some numbers before diving in.

One good way to start is to choose a loss leader. That is, pick a product or service that you think would be more popular if you put it on sale, and then put it on sale. The idea is to attract attention and entice customers and clients to your business with a great deal. The loss of profit on that item should hopefully lead to more sales of other things, hence ‘loss leader.’

Aside from the loss leader, discounting prices can take many other forms:

• It might be a regular sale
• It can mean bidding on projects lower than you normally would
• You might even start offering discount coupons

Whatever tack you take, be sure that you let your actual and potential customers know that you are in fact giving them a deal. Mention it in your advertising or when you are chatting them up.

Low prices are a big selling point today, and if you do it, take full advantage of it.

Today’s Tip: On Wednesday, May 20, at 11:00 a.m. eastern, Capital One is hosting a free webinar on how to survive and thrive in this economy. I spoke last week with Todd Kennedy, the  Vice President of Capital One Small Business, and he told me that the one-hour webinar is intended to help small business with information on getting credit, tips for motivating employees, and also ideas for succeeding online and with social media.

Says Kennedy: “We want to give small business owners practical tips on how to succeed in a tough economy.” It’s a great service of which any small business should take advantage. You can watch it live, or a recording of it later. Steve says check it out, here.

Ladies and gentlemen, it’s true. The recession-proof shopper is here and she’s here to stay. A new study commissioned and soon to be published by Elle magazine concludes that 8% of U.S. women are still shopping up a storm and show no signs of slowing down. (for full stats check out this article)

So what do you think? Do you think these ladies have what it takes to keep the economy (and businesses) afloat this year? I for one think that it certainly won’t hurt…but it’s not going to come anywhere close to how well those stimulus checks worked-wait….

If nothing else I suppose retail businesses can cater their advertising to focus more heavily on this demographic.

Eve Tahmincioglu who writes the Your Biz Blog over at MSNBC.com had a great post today where she enlisted the help of business coach Dan Murphy, president and founder of The Growth Coach , to help cast some rays of hope down upon businesses that are suffering recession doldrums. I thought I might help spread the word a bit.

His tips are sure to help you regain a sense of perspective and lead you to taking active steps in maintaining your business. His advice comes in the tried and true form of the acronym: M.A.S.T.E.R. (as in MASTER your business)

M is for Marketing. In good times and bad, marketing should be the highest priority for the owner and the business. Marketing is about attracting, serving and retaining customers. Work smart to keep what you have. Sell more to your current customers. Attract new customers. Marketing is simply on-going education to your customers, prospects and referral sources of why it’s in their best interest to do business with you.

A is for Ask Others for Help. Now is not the time to be the strong, lone-ranger. Be strong and smart enough to ask for help. There is strength in numbers and better ideas. Ask your customers — "How can we better serve your needs. What additional needs could we serve?" Ask your franchisor support team for strategies. Ask your CPA for some expense control strategies. Ask your internal team for ideas on how to grow revenues, decrease costs, better serve customers, etc. Ask other entrepreneurs what they are doing in tough times — adopt and adapt their strategies to your business.

S is for Slow Down & Plan. Stop being busy about nothing. Get strategic. Slow down, face reality, think about your situation and do some planning. They need to create a one-year game plan but break it into 90-day action plans and keep everyone accountable for implementing the plan.

T is for Tough Decisions. Wake up! Now is not the time to be everyone’s friend or to maintain the status quo. You are the head coach and have to make some bold calls and even change up the roster. Your first goal is to survive and be in a position to thrive. Cut expenses and reallocate for marketing — dare to invest in sales and marketing. Cut loose non-performing employees. Redeploy more people to the front lines — sales and marketing. Fire customers that cost you money. Ask others who benefit from your business & success to share in the tough times with you and reduce their costs — CPAs, printers, vendors, suppliers, advertising channels, etc.

E is for End Excuses. Everyone needs to be held accountable for results. As owner and head coach, do not accept excuses, only results. You must provide accountability for everyone, including yourself. Lead by example. Just because the economy is tough, that is no excuse to lay down, to give up, and to allow things to happen. Now is the time to dig deeper, hustle, and out maneuver others. Get more creative. Do not play the role of the victim. Accept the truth that things are a bit rough. So what? The rough economy is not the real problem, your not confronting the problem and taking new actions is the problem.

R is for getting Re-Focused. Like a champion sports team, every one of your team members should have absolute clarity about their role, responsibilities and goals. They should not confuse being busy with accomplishment. Get them focused. Be honest and frank with your team — if sales are down, give them the facts. Everyone, from receptionists to managers, needs to face reality and positively go about improving on that situation.

The following is a great excerpt from an article on Forbes.com . It highlights some strategies retailers can use to help get themselves and their customers through the economic storm:

"In the short-term, retailers need to continue providing sales incentives, discounts and promotions that demonstrate value to the consumer. Incentive packages can be offered for cost-saving items such as fuel-efficient cars or energy-saving light bulbs. Innovative ideas to help consumers spend "extra" money will be critical. We have seen this happen already in the travel industry where some resorts are providing gas cards for guests driving to the destination.

Retailers with a strong, customer-oriented Internet presence are well positioned to take advantage of the momentum in Internet sales carried over from the 2007 holiday season. Retailers should explore new payment options for customers for online sales, including prepaid gift cards, which would have the added benefit of capitalizing on the increase of customers buying gift cards. Ultimately, e-commerce will help consumers save gas money while having the associated benefit of lower operating costs for the retailer.

Looking ahead to long-term positioning, retailers can improve return on investment for their stores by taking advantage of lower retail space costs for new store openings. With companies halting store expansion and announcing store closings, certain regions have experienced an excess of retail space. The industry should capitalize on better lease terms than we have seen in recent periods.

As mid-range and long-term strategies, retailers will need to focus on properly managing the mix and quantity of inventory held in their stores and distribution centers. In conjunction with maintaining inventory, retailers should seek alternative channels, such as the use of distributors or value-added resellers in lieu of a retailers’ clearance center approach.

Retailers will also be forced to reassess their suppliers and transportation, as well as storage and handling costs, as product costs from overseas, particularly China, continue to increase.

In the end, the U.S. economy is built on both consumer spending power and retail success. If retailers remain determined to help consumers weather this difficult time while bracing themselves accordingly, we can all hope to emerge strong in 2009."

Happy Memorial Day Weekend!

If you are like many companies, you’re already looking for ways to trim off a little fat. That could come in the form of not ordering as much inventory, looking for employees to lay off or any other cost-cutting measures.

As a matter of fact, many small business owners are already in a panic, with doomsday visions in their heads.

It’s time to stop and take a deep breath.

Fact Check

Look at the facts. Yes, we are in an economic downturn. Because of this, sales are down across most industries as people prepare for a recession.

In many respects, this could be making matters worse. By hoarding finances out of fear of a depression, we may well be speeding up its arrival. An economic downturn, whether or not it turns into a recession, can’t be predicted.

There is no way to know when it will end and everything will bounce back to normal. However, the one thing history does tell us is that it WILL bounce back. That means you can put those doomsday visions out of your head. The end has not come – rather, this is just a bump in the road.

An intelligent businessperson will prepare for the economic downturn and possible recession – but won’t panic.

Manage Debt

Part one of making it through an economic downturn is to manage your debt. Many companies live off a plan of leveraging their debt, counting on being able to roll current loans into new ones when they come to term.

This may not be an option the next time around. Instead, you need to build up your cash reserves so you have a comfortable nest egg in place the sit on during the economic ride.

Broaden Your Customer Base

While the U.S. Dollar may be having a tough time and the U.S. economy may be reeling, that does not mean the rest of the world is having the same problems. While U.S. buyers may be a little more reluctant right now, there are plenty of other countries around the globe ready and willing to find new suppliers.

Try to broaden your base of customers, and add new international clients into the mix.

Investing

If you have managed your debt well and built up a cash fund for your company, this may be a great time to invest in new items for your business. While everyone else is clamming up and afraid to buy, you can use this time (and your extra cash!) to expand your offerings, pick up new customers who want those items – and possibly take the lead in the race against your competition.

Changes in the economic tide are nothing new. Financial markets go up and down as they have for generations. The key to weathering the down times is to keep your wits about you and plan well while taking advantage of any new opportunities.

It’s begun. The Great Consumer Schism is effectively working its way through America-an event last experienced in this country in the ’70s. Economic disparity in America is nothing new. But in times of recession the division is inflated and even more apparent as seen through shifts in spending habits. It makes perfect sense of course that middle to lower income households are switching from brand name items to generic in order to save a few bucks.

So what does this mean for retailers? Well, if you sell cheaper products, this is great news! If you sell brand name (and therefore more expensive) products you may want to reconsider your strategy. Here are a few suggestions:

• Consider including cheaper items in your inventory as an alternative for customers with tighter budgets.
• Revamp your advertising to appeal strictly to wealthier customers.
• Revamp your advertising to enforce the value of brand name products over generic.
• Offer "freebies" along with the purchase of certain brand name items.
• Have a sale! Who doesn’t love a sale?

These are just a few ideas to get you started thinking in the right direction. For more tips check out Don’t Let a Slow Economy Slow Down Your Business

Some would say that hoarding your money during a recession, and waiting until the economic upturn to make any business moves would be a sound financial decision. However, those are very shortsighted views of the world.

A recession is as good a time as any to start a new business. For some, this may even be a better time than during years of smooth economic sailing.

The key to making smart entrepreneurial decisions is to know what is happening in the economic world around you, finding the trends and then moving on those trends to start a business that will flourish during this time.

Take the Leap

Many an entrepreneur is jumping into the struggling housing market, using plummeting housing prices, record high foreclosures and wavering real estate issues to their advantage.

While the housing market may not be your bailiwick, there are changes happening in nearly every industry as the economy shifts and adjusts. You need to take a close look at your market and see what is happening.

Try to predict the next steps, and see if there is a way to create a business venture that will profit on the way things are going.

Many people believe this means taking risks and chances. This is not necessarily the case. While there are plenty of people that will jump into a risky venture, most entrepreneurs who are willing to put a little time and research into their plans are able to make intelligent business decisions that are not at a higher risk.

Small Businesses are Better

One of the benefits of being an entrepreneur is that you can easily create a new business to profit off the rapidly changing times. This is one of the few cases where it is much better to be a small-time entrepreneur than a large company.

A large company has to have a number of wheels in motion to move in a collective direction. As the economic situation changes, the company may have to implement some changes themselves; but those changes will happen slowly because of their massive structure and the time it will take to turn the collective ship around.

As an entrepreneur, you can quickly shift with the winds and be the first one to catch a new economic wave. If you study the trends and catch the right wave, you can ride it throughout the economic downturn and sail away with major profits.