Running a small business is a tough living. There is no reliable paycheck, no one pays your benefits, and the buck always stops with you. Not only are the rewards uncertain, but the work is challenging. A few people must fill all the same functions as large businesses: planning, sales, product, finance/accounting, collections, management, IT, painting. Given the challenges, it's amazing that anybody runs a small business versus just taking a job at a big employer. But for some of us, it's an irresistible drive and provides joy and satisfaction despite the hardships.
The toughest times are, of course, when the economy is pinched and spending goes down. Firms with thin margins, small cash reserves and a limited ability to borrow or float bonds find themselves with cash flow problems and are a hard time paying suppliers, staff, themselves and their bills. Smart financial planning can mitigate this. This includes having cash savings on hand, reducing spending early in a downturn, renegotiating rents, etc.
Of course, your business problems are, ironically, caused precisely because others are conserving cash, too, instead of buying your goods! Isn't irony delicious? No, it's not?
What if you could structure your business to actually get easier during an economic downturn? If you don't know what I mean, there are some examples of counter-cycle businesses that can make it obvious:
- Bankruptcy liquidators
- Bankruptcy law offices
- Job skills trainers, career counselors
The above businesses clearly benefit from tough times, are 100% counter-cycle, and although often maligned, I credit them for the useful roles they fill when needed. But these businesses suffer because they are 100% counter to a good business cycle. When the economy is doing well (most of the time) these businesses run lean. You don't need to be a profiteer, and you don't need to fail during the good times to be counter-cycle. The goal should be a lot like good asset management: put just a little 'counter-cycle' in your business portfolio. Can you add some product or service to your business which would do better during an economic downturn?
Some examples could be:
- Be an eBay consignment seller, or a retail consignment seller? Unemployed people need cash, and may be selling some stuff from their attic. Shoppers looking for deals to save money may be more willing to buy used. Your retail storefront could help other people get cash for their goods, and you a commission.
- Many bookkeepers and accountants operate in small businesses. Why not add a "Closure avoidance" consulting service that helps SMB clients manage cash flow better and stay afloat. Train yourself on bankruptcy, avoidance, etc.
- If you're a writer or a web designer, you could help out of work people create great cover letters, resumes, or personal marketing websites. Other web-savvy people could offer services of managing the various online job-search tools for less technical people.
To be clear, the suggestion is not to launch into the above businesses, but to add business lines to your existing business, which can add new revenue streams. These revenue streams (R) are complementary to your other R, such that when your original R is down, these R will be up. It's called hedging, and it's the best way to manage risk. The odds that the scant three bullets above actually nailed anything that your business can do are slim, but the point was to illustrate the notion of adding an R that hedges against tough times. You'll have to figure out what works for you.
By luck or planning, my two small businesses have counter-cycle elements, and so far there is no sign of the economic hard times. One business is a telecommunications consulting firm, and the other is a regional industry organization. The consulting firm survives because we help firms make deals, which they want now more than ever. We also do projects around product development and marketing, and in a downturn, it is often cheaper to lay-off staff, and hire a consulting firm to fill in for indispensable projects. We definitely have counter-cycle elements in our business, and the only thing I have noticed is that I have more clients, who negotiate harder to pay less. We can live with that. We launched this consulting business in 2001, into the headwind of a global telecommunications industry downturn, and we've been growing ever since. Today, more established, we have a reputation and a pipeline that seems steady in good times and bad. If the economy goes from bad to terrible, then we'll feel it.
The regional association is less established, but so far is still growing. Our mission is to help businesses in Silicon Valley accelerate their businesses by facilitating networking, collaboration, and connections. So long as we deliver on that mission, our association actually lowers their costs and accelerates their business cycles. Thus, we won't be the first costs that are cut. Any small business that delivers cost savings or operational efficiencies is definitely counter-cycle, and if you can articulate those benefits to your customers, you should survive the downturn.
By the way, good as this may sound for me, I'm no Midas. These are both small businesses and I don't earn a killing in good times or bad. I earn nothing more than a respectable living - but I think I've managed to hedge against the bad times, and have taken a lot of the sleepless nights and worry out of the equation. Good luck to you in these tough times, and I hope to see you on the other side!