A RECESSION does not necessarily spell doom and gloom for small businesses. History has shown that many small businesses not only survive, but thrive during a downturn.
This could be because small businesses are nimbler than their larger corporate counterparts and more flexible in changing their strategies.
Here are three key strategies for small businesses to do well during a recession:
1. Be very clear about which of your activities are profit-generating
No matter what business you are in or what products or services you sell, you are in a “profit-making” business if you spend less than what you earn.
Ask yourself questions like:
“What are my most profitable business activities right now that are likely to keep producing consistently in the current environment?”
Consider best-case and worst-case scenarios and find out if focusing only on the most profitable division of your business will be enough to support you.
“Are the activities in the other parts of your business producing enough profit to warrant a business to support them?” If an activity produces below average returns on your investment of time, money, energy or resources, drop it.
Be decisive. Being able to react fast is one of the advantages of running a small business, so use it!
“What are my exact costs each month and what can I do without?” Know your expenses, down to the last cent. Cut down on frills that you can do without.
2. Create profits in different ways, by leveraging on your existing assets
After pinpointing what your current profit-making activities and exact costs are, you can explore generating additional income streams from your existing assets.
If you provide a service, then convert your knowledge into products related to that service. If you currently sell products, then add a service component to your business. For example, if you sell inline skates (product), you may want to start a skate rental (service) as an additional income stream.
Diversify your business into other related areas. For example, if you are a financial planner, consider adding on an accounting and tax business, or a mortgage brokerage business.
This makes sense as you can cross-promote these different services to the same clients that require financial planning services.
Revisit the way you generate revenue from your products or services. Explore ways in which you can develop recurring income, such as putting clients on longer-term contracts, or asking clients to upgrade to a premium version of your product or service.
Telecom companies do this particularly well with their subscription plans and mobile phone upgrade options.
3. Generate more customers with effective marketing
Bring more customers to your business through effective marketing.
Here are some marketing tips:
Know the difference between drill bits and holes. Millions of people buy drill bits every year, but what they actually want is to make holes (for example, to install things or to hang a picture).
The point here is that people don’t always want a product (the drill bit), but a solution (the hole). Shift your marketing focus from talking about the features of your product to talking about the benefits your customers can get from your product.
Explore alternative low-cost marketing methods. In addition to traditional marketing media like newspapers, you can also explore low-cost marketing channels such as social media marketing.
Social media marketing involves engaging your potential customers through the Internet, by posting useful articles on your blog, creating interesting videos and sharing them on sites like YouTube, or networking with people of similar interests on social networking sites like Facebook.
When you build an audience that trusts you because you have delivered value, it is a simple task to market to this audience and get a great response at a very low cost.
Test, measure and improve your marketing efforts. Put in place a system to keep track of your marketing costs, the response rate and the net profit generated, for all your different marketing channels.
Keep the marketing efforts that are giving you a good return on investment and drop those that are not.
By implementing these strategies, small businesses will pull ahead of competitors. As an old Asian saying goes: “When fate throws a dagger at you, there are only two ways to catch it, either by the blade or by the handle.” Learn how to catch it by the handle so you can use the knife well.