How to survive and thrive in the current rocky economy
Scott Caseria started his mattress business this May in Fairhaven with a hopeful, positive attitude and 20 years of experience in mattress sales.
“I thought about it for years,” Caseria said. “I always heard complaints about how people thought mattress buying was confusing, expensive and stressful, and I always thought that it didn’t have to be that way.”
Five months after opening Northwest Sleep Solutions, Caseria’s family-run business took a hit from the current economy. The impact occurred immediately after business had seemed to have great growth potential in September, he said. Once the market crashed, customers began to buckle down and put off purchases such as mattresses, and now his business is down by 50 percent.
“We reached a goal of making profit within three months, and then it was like someone cut the faucet off,” Caseria said. “We were cruising before, and we were going to pinch ourselves because it seemed too good to be true.”
Being successful in an economic downturn
Caseria is one of countless small-business owners across the country who are now being forced to take a hard look at their business and evaluate what to do in a down economy. According to Kevin Hoult, certified business advisor for the Small Business Development Center of Western Washington University, there are five steps businesses can take in order to survive an economic crisis — and even thrive.
Number one: The type of thinking that worked for a business last year is not the same that will work this year.
“Last year customers broke the door down demanding that you sell them your products,” Hoult said. “Now you have to be proactive.”
This means no longer ignoring the small things a business didn’t have time to worry about before when business was booming. Businesses need to take advantage of the extra time they have now to rethink their business needs, Hoult said.
Number two: Get reaquainted with the market.
The needs of customers have changed because different needs begin to have different priorities with the current economy. Hoult said businesses should take this change as an opportunity to meet those priorities and find out what customers are looking for. This may cause businesses to add a particular service or product they haven’t offered, or prioritize certain services that might not have been a priority before.
Number three: Look at who touches the customers.
When business begins to go downhill, owners often look at staff costs as the greatest cost and the first thing to go, Hoult said. He recommends that before businesses make those cuts, they should look at the staff value rather than the staff expense. To make those decisions easier, business owners can consider what staff members they can either re-train or potentially use to keep customers interested.
Hoult refers to the quick, sometimes unnecessary cuts as the beginning of a death spiral, as business reduce important expenses such as advertising, causing the number of clients to reduce, which then reduces sales, etc.
He doesn’t discourage expense cuts entirely, though he feels the need to reassess those cuts is crucial to the businesses’ survival.
Number four: Look at the business from a higher level of abstraction.
“Look at your company not as what it does, but what it can do,” Hoult said.
In other words, Hoult encourages owners to look beyond the services or products their business offers and at what they could change that they never would have considered before. This step will be influenced by re-evaluating the market of a business and determining the needs of the public.
Number five: No excuses. Take action.
As the economic situation continues to bring challenges for businesses, hard decisions and changes have to be made, Hoult said. Once a business re-evaluates its market and steps to be made, it needs to follow through with those decisions. Wasting time to put off a hard decision will only worsen the situation, Hoult said.
“Be straightfoward with yourself and everyone you are working with,” Hoult said. “My biggest fear as an adviser is that people aren’t going to pay enough attention to their own business soon enough before going into a death spiral.”
To follow up with step five, businesses should be keeping up with accurate financial information about their business and be active in every aspect rather than focusing on one. If businesses are keeping close attention to those aspects, nothing should come as a surprise and owners will less likely act on impulse, Hoult said.
“Take a holistic view of your business,” he said. “There’s so much more to running your business than just doing what you like.”
Despite the steps a business can take to stay active and successful, there is a point where a failing business needs to assess the situation before it’s too late.
Business owners should re-evaluate their plans if they are putting money into the business to keep it alive after more than a couple of weeks, Hoult said. He recommends owners ask themselves what can be done to change that, and if it’s not possible, it’s time to stop.
Hoult suggests they can take a break and come up with a new business plan in the meantime. If the market exists at a level that is not possible for the business, it’s also time to stop.
Hoult believes businesses that have not taken these steps and refuse to will most likely fail in a down economy, or the changes of the economy will hurt them. However, those who do take the time to evaluate the market and needs of their business will thrive in the current economy. He especially believes this with new businesses that are already taking advantage of the changing market.
“Business is down, but there still is business,” he said. “There is a lot of opportunity where there is change, and some businesses will take advantage of that and never do better. If you do your homework and you’ve got your numbers, you will be very successful.”
The five steps in practice
One business that is thriving is Shuttle Systems, a company that designs and manufactures exercise and physical therapy equipment, established in 1988.
“We’re having the best year we’ve ever had,” said Todd Packard, general manager. “Last month we were up by 20 percent.”
He claims the success is due to having and marketing recession-proof products that are a staple need of the public, such as machines that enhance performance for athletes and NFL teams, or physical therapy equipment for patients.
Packard said one step the company is taking to adapt to the economy is redesigning one of their machines so that it is more affordable and marketable to the public.
Packard also asks three questions for each business idea before execution. The first is whether he is executing the fundamentals, the second is whether he has a clear plan, and third, whether he is going to make a profit. If he can’t answer those three questions sufficiently enough, he will drop the idea, Packard said.
“What it really boils down to is you have to work harder, and you have to work smarter,” he said.
Dan Robbins, SCORE Chapter 591 counselor, also believes businesses have to re-evaluate their practices, but he has his own steps for businesses to follow that have a slightly different approach from Hoult’s.
First, he recommends that business owners try not to participate in the downturn and keep a positive attitude. Keeping a positive outlook on the situation can have surprising effects with not only customers’ interest in the business but the performance of employees, Robbins said.
If businesses do participate, they need to make the tough decisions to survive as quickly as possible, even if that means laying off a loyal employee of several years. Waiting too long will only increase the debt and the difficulty of making the cut, he said.
After those steps have been made, Robbins encourages businesses to rethink and retool their business plan. If owners take the downtime to refocus and evaluate their businesses, they will figure out what needs to be changed.
Business owners should then talk to their colleagues in the industry to find out how they are handling the situation. This might give them ideas on what changes to make themselves. Then they can read periodicals and research on what can be done and have a clear understanding of what is going on with the economy.
Lastly, Robbins suggests that businesses take the time to do things that were not possible before, as Hoult mentions. Robbins recommends that businesses try focus groups in order to figure out pricing methods, which can have a crucial impact on customer interest in the product.
Robbins encourages businesses to create a straightforward and well-researched business plan before starting up and shop for an insurance plan. More than 50 percent of businesses go broke within the first year and 80 percent don’t make it within five years, he said. Robbins believes the lack of business planning among entrepreneurs is the main cause of these statistics.
How to get help
Robbins strongly recommends that entrepreneurs see a SCORE counselor before starting a business, especially without experience in the industry.
“When companies come to me saying they lost all of their money, it’s like putting all of the toothpaste back in the tube,” Robbins said. “We have to go back to square one and it takes a lot of time. If they would just come to us first they could save a lot of money and a lot of heartache.”
To improve sales and overall business, Caseria is assessing his advertising methods and keeping track of his inventory, he said. He has paid off most of his expenses and aims to keep advertising, as it is his key to clientele for being a relatively new business.
Caseria and his family have also emphasized using extra effort to build rapport with customers, he said.
Caseria is not sure what will happen to most businesses with the current economy but still has a positive attitude for his business.
“It’s hard when you’re the guy who’s holding the purse strings and everything you have is in this store,” he said. “But I’m confident in what we have here. We are going to stay in the game, no doubt about it.”
Grow your business through investors
It may seem like a scary time to think about growing your business, with the stock market bouncing around and the economy facing a recession. But to Derek Johnson, CEO and founder of Tatango, this is a perfect time to raise capital.
Many investors are not seeing the level of returns they want from the stock market and may be looking to invest in other areas, Johnson said.
“They’re looking to diversify, take some high risks and hopefully get some high pay-outs,” he said. “Now could be a great time for a startup or an Internet business.”
Raising venture capital
Johnson launched his group-texting business last year out of his parent’s basement with funds raised from family and friends. The business grew quickly and Johnson wanted to keep it that way. After receiving a sizable investment from an investor in the Bellingham Angels Group, Johnson was able to take his business downtown and keep that growth rate going.
Tatango wouldn’t be where it is now without its investors, Johnson said. But finding the right investors can be a long process.
“If you’re a startup company, you need to get out there and meet everyone,” he said. “Shake a lot of hands and make sure people know what you’re doing.”
While networking, be prepared to show potential investors statistics about the company.
“Have all your financial statements and growth charts,” Johnson said. “Investors have to make a decision in 30 minutes or so. They have to get as much info as possible. We’re constantly updating our financials and putting together projections for the future. Our projections change weekly it seems.”
And once you do get investors, keep them updated on the company’s status. This will help keep investors from becoming concerned about their investment, Johnson said.
“If you don’t talk to them for six months, they’re going to be curious,” Johnson said. “I send weekly e-mails to our investors and it takes me five minutes. I never get a concerned investor.”
Applying for business loans
For those businesses that may not want to take on investors but still need extra cash to continue growing, bank loans are always an option, said Doug Dostal, senior vice president of Peoples Bank. Even with the news of tightening credit markets, many businesses can still qualify for a loan.
But do your research before applying for a loan, Dostal said.
“Staying in tune with what a bank would see as high, moderate or low risk is a good idea,” he said. “Keep in contact with the banks and make acquaintances with business bankers.”
Once you decide to get a loan, be prepared to present the bank with a sound business plan that is supported by market research, Dostal said. Set goals and budgets for the first year and even as far out as ten years.
“These are the types of questions banks are going to ask,” Dostal said. “Some of the problems we see a lot are lack of initial capital or too brief of a financial perspective or business plan.”
It may seem like a lot of work, but investing in your business pays off, Johnson said, whether it be moving to a better location or investing in better equipment.
And the reality is that “it takes money to grow your business,” Johnson said.
Where to get help
Small Business Development Center
This agency works with businesses to improve their health by providing them with unlimited, free one-on-one advising on various aspects of their business.
The SCORE chapter in Bellingham offers free one-on-one counseling for businesses for multiple occasions as well as numerous workshops such as how to buy or sell a business and create a business plan.