Is Your Business Ready for “The New Normal”?
This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.
As the economy begins to rebound, are you wondering when things will get back to normal for your business? If you believe the prognosticators and pundits, there will be no “back to normal” — we’re looking at a “new normal” that we haven’t seen in a long time, if ever. A recent study from the Pew Research Center says that “of the 13 recessions that the American public has endured since the Great Depression of 1929-33, none has presented a more punishing combination of length, breadth and depth than this one.” It has led to lowered expectations about their children’s futures and their own retirement; a new frugality in spending and borrowing habits; and an expectation that it will take several years for the value of their home values and other investments to recover.
One thing is for sure: nothing’s for sure.
The future is uncertain, and uncertainty is the playing field of the entrepreneur. As my friend Howard Woolston says, “The status quo doesn't remain the status quo for very long anymore...so get used to it.” As entrepreneurs, we have to be constantly adapting to whatever “the new normal” is this year. Or quarter. Or week. Agility is one of your greatest advantages over larger competitors. You have the ability to anticipate and adjust to major trends much more quickly than large corporations that are heavily vested in their current markets, models and practices. You can transform potential threats into opportunity.
Let’s do half of a SWOT analysis of The New Normal — we’ll call it a “TO analysis.” What are the threats, and how do they become an opportunity for your business?
Threat #1 — Unemployment
Long-term unemployment is the worst it has been since the end of the Great Depression. The current median duration of unemployment is over 23 weeks, nearly double what it was during the previous worst modern recession in the early 80s. Almost half of all unemployed workers have been out of work over six months.
Opportunity #1 — Entrepreneurial Golden Age
2009 was a record year for starting new businesses, according to the Kauffman Index of Entrepreneurial Activity. One way to look at it is that it means more competition. Another way to look at it is that it means more potential clients for B2B businesses — all those startups need web sites, merchant accounts, bookkeeping, office equipment, and so on. What product or service can you market to these new businesses?
They’re also potential partners. A trend that’s been talked about for nearly thirty years that’s finally coming into the mainstream is the growth of freelancer networks — small businesses that can band together to take on larger projects typically reserved for larger organizations. Get to know your competitors — they may be potential collaborators at some point.
Threat #2 — Tightened Credit
If anything’s reasonably sure in all of this, it’s that it will be a long time before we see credit flowing like it was a few years ago…if ever. Excessive national debt and consumer debt have proven disastrously unsustainable. Lenders will be, rightfully, much stricter in their lending requirements.
Opportunity #2 — Bootstrapping Is Better
Getting a loan (or worse, running up your credit cards) whenever your business is short on cash may be easier, but bootstrapping is better. Learn to think like a bootstrapper, and you’ll build a more solid foundation for your business. Focus first and foremost on cash flow, not sales — that will sustain your business. It will also be far more attractive to potential investors if you’re debt-free.
Threat #3 — Weak Capital and Financial Markets
Many experts are predicting that investors may well be looking at capital market returns on the order of a mere 3-5% for several years to come. If that’s the rate the stock market grows, you can expect interest rates on bonds and treasury bills to be similarly low.
Opportunity #3 — Investing in Entrepreneurship
Investors don’t want to just sit on their money. It has to be invested for them to make their living. With traditional capital market and money market returns dropping so low, the entrepreneurial sector is one of the few places investors will be able to realize double-digit returns. Combined with proposed government incentives, this may very well spur increased investment in early-stage companies by a wide range of investors. Develop a solid business plan and you may be able to take advantage of that.
Threat #4 — The New Frugality
62% of Americans have cut back on their spending since the recession began. And with all those new entrepreneurs, that means more businesses vying for fewer dollars.
Opportunity #4 — Shifting Spending Habits
During tough economic times, most needs don’t simply disappear entirely — they shift. Vacation travel abroad becomes domestic travel. Women dye their hair and do their nails at home instead of going to the salon. Golfers spend more time on the driving range and less on the course. People mend and repair items of all kinds rather than buying new ones. A threat to one business model is often an opportunity for another. What can you offer your existing customers that fits their “new normal”?
Threat #5 — Globalization
An increasingly skilled and cheap labor force in China, India, and other countries is taking jobs away from Americans. The U.S. and many European economies are struggling, if not outright collapsing, while the emerging economies of Asia are booming.
Opportunity #5 — Emerging Markets and Outsourcing
Is your business being threatened by offshore outsourcing? Get over it. If you can’t do something better than someone in China or India, you need to up your game. Figure out what it is you can do that they can’t. And maybe it’s as simple as knowing how to deal with American customers. And if so, can you adapt your business model to use some of that offshore talent to your advantage? Manage the sales and the client relationships and add your unique value on top of services that have become commoditized in the global economy? Or is there some other way you can use that cheap labor to increase your operational capacity?
And are you ready to sell into those markets? You can communicate and collaborate across the globe using free tools. You can reliably transfer money globally with minimal cost. There are other small businesses around the world that specialize in helping businesses like you enter local markets. The emerging middle class around the world is looking for a wide variety of goods and services that may not be readily available from local sources.
Threat #6 — Consumer Mistrust Corporations
As if the corporate scandals of Enron, Tyco, and WorldCom weren’t enough, the corporate mismanagement and fraud that has come to light as a result of the economic bailouts, Bernie Madoff, and the gulf oil spill have consumer trust of corporate America at an all-time low. Market research has also shown that consumers have a growing mistrust of advertising and salespeople.
Opportunity #6 — Consumers Trust People
But consumers do trust each other…and not just their friends, but reviews and ratings in social commerce and social media sites. This is a great opportunity for small businesses, because while it typically takes big dollars to get exposure in traditional media, social media exposure is far less expensive, even free sometimes. And a small group of vocal customers who are passionate about your product or service can have a big impact. Consumers also trust the voice of real people who work at companies — human beings speaking in a human voice, not the filtered “marketese” that’s produced and vetted by a series of managers, copywriters, editors and lawyers. Employees of large corporations typically have strict guidelines about what they can say and do when engaging the public in social media — you don’t. Take advantage of that. Be human. Be real. And help people solve their problems quickly.
Threat #7 — New Regulatory Requirements
The current administration has clearly established a precedent that there are going to be new regulatory requirements for business — stricter controls on publicly traded companies, offshore drilling, even testimonials, advertising and social media. Compliance is going to cost you money and limit your options.
Opportunity #7 — Compliance as a Differentiator, Compliance Services
There is perhaps no better entrepreneurial opportunity than a new government regulation. Most companies aren’t going to try (or even be able) to figure it all out on their own. Think about how many businesses have flourished providing products to help facilities meet the ADA (Americans with Disabilities Act) requirements. Or HIPAA. Sarbanes-Oxley (SOX). CAN-SPAM. Every major new regulatory act creates an entirely new, previously non-existent cottage industry. Do you have expertise in one of the new regulatory areas? You may have a whole new potential service offering.
Even if you don’t want to offer those services or products yourself, being one of the first businesses to be in compliance can be a differentiator until your competition catches up. Don’t just display it inconspicuously — make a whole marketing campaign about it. Prepare a press release announcing your business as the first one in your market to meet the new regulatory requirement.
The New Normal may look scary at first glance. It’s not going to be easy, but, then, you weren’t really expecting “easy” when you started your business, were you? Change always means opportunity, and that as a small business leader, you will be in a better position to take advantage of some of those opportunities than your larger competitors. Your flexibility is your strength.
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