Tuesday, December 29, 2009

Bucking the Trend- how SMEs can beat the recession.

An often ignored fact is that small businesses are the largest group of employers in Ireland.These small businesses or SMEs, defined as companies with 50 or less employees,comprise the largest numerical group of tax payers in the state. The real question for our economy,given the current preoccupation with tax revenue, is how does a small to medium sized business grow during a downturn?

The advice from Harvard Business school on this subject is to "plan strategically to be primed for growth" when the upturn comes. Large corporations strategise for growth by investment in R and D. Translating to small business, this means figuring out what you are best at and then continuing to do it- but figure out how to do it better and cheaper.

Competition is still the name of the game.Recession is an opportune time to look at what your weakest and strongest competitors are doing. Learn from both.
If you have a strong market size, then scour the market place and learn about the customers of your weakest competitors.What are these customers seeking that you do NOT provide? Look also at your largest competitors. Are they managing to hold market share in recession? Can you emulate any aspect of their service to become a real alternative for THEIR customers?Your competitors may be working all out to save their big accounts but that means there are smaller accounts you can go after.

In this climate customers' criteria have altered.Many now only shop for low price.But many also want quality AND value. In a sense your business challenge will be to help customers have their cake AND eat it. To do that you will need to manage the trick of cutting your costs without compromising service to customers.
You might call this challenge the "not throwing the baby out with the bath water" challenge. But DO throw out your prior assumptions and embrace new business practices, products, habits as well as those new customers.

If you are a small player you CAN gain ground.Bigger firms tend to have higher costs.They may also have clients disillusioned with a customised service. Perhaps you can work closely with that client and provide the personalised service they need. If you are a smaller player you should have less overheads and for that reason competing on price may be an option.

One vital point is this: don't forget to focus on your own existing clients, if you want to buck the trend you have to increase your client base, but if you do this at the expense of your existing clients then you will have only filled a void rather than gained ground. If you find that you want to gain more clients ensure that you don't do so to the detriment of what you have already worked so hard for.

Cut costs and look at your suppliers. Do you have any critical suppliers? If so get binding contracts in place so that they don't pass on any woes to their client base.
Many Irish subsidiaries of global players have passed the burden of shouldering stock equity losses down the line to you and I. I had two large global suppliers try to pass on four percent increases in early 09.By the end of 09 both were offering two for one on the same stock.

Oil prices are going to affect logistics and if you are in that business having set contracts in place would make a huge difference.Having a contract doesn't mean much if people refuse to honour it, but at least you are starting from a position of strength. If any of your suppliers are in danger of collapse, then you need to look for alternative suppliers should they be required or find ways to work with the present ones given different scenarios.Do not become over-dependent on any one source or product line.

Look out for talent!This may be an opportunity to get great talent at a great price. If you can access the labour market right now you may be pleasantly surprised by just how much 'bang for your buck' you get. If cashflow is an issue think about ways of keeping your own talent on board. A downturn will often make people re-think their tenure; last years demotivated employee may have a changed attitude today. Remember also that your hungriest and best performer is open to poaching by a market rival in survival mode. The last thing you want to see is your best employee leave because they are disenchanted or insecure.

You may have let some staff go. You need those who are left to work harder and assume new skills or responsibilities. Perhaps you need to promote by stealth, with salespeople or general operatives sharing management duties. You cant expect them to see the light at the end of the tunnel which only you have the belief in your business to see.Therefore even your best people will become jittery unless you communicate your vision, your destination; the where and the when it will all end. Leadership is about that vision, but mostly about communication.NOW more than ever, strong leadership is the asset you must bring to your business.

Get into the public eye. Nothing gives greater return on investment than some publicity. If you can talk about your business topic, then pass some information or public interest stories on to radio or paper correspondents. The media have a difficult job to do. They have to take any amount of information and turn that into digestible stories that are of public interest.'Newsworthy' is probably more important than 'news'.

Smart spending is key. Finding ways to really control your outgoings is vital. In terms of some online presence, a blog is a great tool for attracting web traffic that is interested in your area of specialty. Other sites may link to you on that basis and when they do that will help drive more traffic towards your site.

Look at sites you like then learn from their good features. Ensure that your phone number is clearly visible on every page and that contacting you is very simple. Clear easily found contact details are a must. As well, if your product or service can be bought over the web ensure that the process is easy. Paypal are great for the SME adding a web sale dimension.

Perhaps the single most important message in all of this is to keep marketing. Try new things.It's never too late to change your business model or to find a new angle. This doesn't mean being the cheapest. In fact that race to the bottom is expensive and creates more losers than winners.Locally focussed advertising yields strong dividends over time. You may not be able to gauge the results. What is important is for your business to become part of the local fabric of your town or community by your constant low grade public presence. Name recognition is your aim which is, after all,the essence of branding

Examine your business closely and try to find out what it is about you that makes clients come to you. Then do that again and again. Who isn't in the service industry to some degree? Imagine you got a carpenter to do a small job in your house. He shows up on time, does the job, accepts credit card, cleans up after himself and even uses a hoover to make sure all the dust is gone. Would he/she go on your phone for future reference? You bet they would!

Downturns mean people are looking for bargains. If you have stock that hasn't moved, then sell it as low as cash flow allows and use this to generate traffic to your business.Cash flow is the name of the game. Choose a " pay on demand" client over a credit client every time. Unless you feel you must do a job on credit ias a loyal favour to a good old customer. But dont be too loyal.

ISME's quarterly surveys pinpoint delays in payment as a critical problem for SMEs. Banks have stripped away overdrafts from those who werent using them. If you were using your overdraft, even depending on it, you have probably had your core debt put on term loan. We all give each other too much credit.Consider inviting your client to use a credit card to pay you; MBNA are in the credit card business, you are not.
Its a peculiarly Irish problem as credit is not expected, taken for granted or abused in many other countries to the extent that it is here.

The global recession has thrown up a new paradigm of marketing for customer expectation.Marketing gurus have commented for a decade or so on the phenomenon of the customer jaded by mass production.The demand for personalisation of service should have given the smaller businesses a larger niche but instead the large multinationals expanded choice and personalised their marketing strategies to keep ahead.The internet also empowered some customers by giving both knowledge and control over price and choice. What the internet lacks is the thrill and immediacy of a personal purchase. Big business has kept ahead because the honeypot of convenience and perceived value has allowed them to influence consumers to purchase high value goods or services with the bait of marketed loss leaders.

The good news for SMEs is that a new paradigm of consumer power is now emerging to add to the other five forces of business.Research shows that consumers will now pick and choose what and where to buy by new discerning ctiteria:whatever your niche is, IF you shout from the rooftops about it you have a better chance than ever of YOUR customer bypassing that aisle in the supermarket to selectively purchase from YOU. Shoppers will choose Tesco for some things, LIDL for others and now more than ever the farmers market for others. The principle of consumer power works for every sector. If I dont answer that nuisance ten pm call, a competitor will; my customer is now less likely to wait for me to suit myself. The SME which chooses to embrace the pros and cons of consumer power, to grasp the new paradigm, can use its own strengths of service and attention to detail to thrive through and grow out of recession.

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