It's a tough time to be an entrepreneur. The economy is not making our jobs any easier to bring exciting businesses to life. Are we at the beginning of the end of the recession or the end of the beginning, with a whole lot of pain to still come?
This is when the risk in the business cycle is most potent and businesses are under their most pressure. This is also when you will hear people say that the market uses recessions to clear out the poor business models and ideas and reallocate those resources (that could be you) for companies with better ideas and models. It's a harsh world and this is when it can be its harshest.
So, what's the upside?
The real question is do you think this is a hard but normal recessionary cycle that will have a recovery in the short term or do you think we are really in a cycle that could be as bad as the Great Depression? Or is it somewhere in between?
As an entrepreneur, I have a natural tendency to be optimistic, though it is tempered by pragmatism. I believe, based on what I see from our business and the data I've read recently, that things are on the mend (U.S. stimulus or not). But all of that can change if both consumers and businesses don't start spending and investing more and a lot of that has to do with the credit markets clearing up further. You are invited to make your own determinations.
How does thinking about those questions help start-ups, young businesses and technology companies have a greater chance of survival and hopefully a strong landing when the economy does recover. That's the upside of downturns - if you survive and you plan for the recovery, you can end up ahead of those that didn't make it or were too worried about the recession to make smart investments. And luckily for you (and unfortunately for them), that is going to be a lot of the companies out there. There are a couple of clear activities businesses can do that are affected by the downturn but want to come out ahead and thrive:
1. Shorten your payment cycles, or for start-ups, make sure you have enough funding.
If you are a young business or small business, this is the time to try to shorten your payment cycle on your account receivables and provide either incentives or new terms on business accounts. For example, one of the companies we use for check printing is now asking for 15 day payment terms instead of 30 as it did before for new orders. Thus, pushing customers to pay sooner or hit interest payments. At the same time, it also is doing deep discounts of its inventory, trying to move products more quickly while having decreased margins.
On the other hand, if you are a pure play start-up, and you are venture funded, there is some sound advice you can parse from my interview with August Capital. Go back to those who funded you already and see if they believe in you enough to add additional funding to make sure you survive through the recession (or at least until you hopefully can convince another venture capital firm to do so).
2. Invest every dollar wisely - spend it like it was your last as it may be for a while.
This is the time to conserve resources. While it could be debatable if envelopes and pens shouldn't be available from the utility cabinets (people do need to have the equipment to do their jobs), it probably isn't the right time to spend on items that don't have clear and direct business value. The key is to spend wisely.
3. Invest in your business.
What is it you do and what do you need to do it? Invest in those areas that will add value not only today but when the recovery is here. Don't invest in areas that have a dubious return on investment or low chances for success. When things are a little easier you can experiment more safely in parallel streams of research that may not have a direct obvious payback. Google made changes in their invests (as has been written about elsewhere) including shutting down services like lively.com that weren't in its core business area and you should too.
4. Continue marketing your business.
The last thing you want to do is stop letting customers know you are alive and kicking and looking to help them. Make sure you use your dollars wisely (the creative agency for the Pets.com commercials need not apply) but make sure you keep dollars in your marketing budget, however small it may have to be right now.
5. Try to have access to some form of reasonable credit.
Based on your businesses' maturity, your access to credit may have been limited before this financial crisis, but make sure you look for access to loans and credit that aren't made by loan sharks. Our experience is that our banks are still around and they still like providing money to companies that have a good business. This is the time to try to get credit with low interest rates based on the current Federal Reserve federal funds rate (if you are in the U.S.).
6. Continue to focus on your core competencies.
The number one thing you want to be careful about is stretching yourself too thin - focus on what you are successful at, and where you can invest in research and development areas that look like they will have a good chance of returning on your investment, do so. However, don't try to be all things to all people. Your customers need to know what you stand for and why they should trust you during this difficult time. Actually, that's probably good advice in any economic climate.
