Being Brave in a Brave New World

In the first three posts in this series I’ve outlined a number of reasons why the American economy is unlikely to grow in the next few years. All of my reasons are factual. The numbers don’t lie, and these numbers can’t be fixed by looser monetary policy, or stimulus bills, or consumer confidence. They will only be cured with time.

One client accused me of trying to “scare” him out of expanding. Nothing could be further from the truth. There is an old trader’s axiom: “When there is blood in the streets, buy real estate.” A moribund economy, weakened competitors, frightened employees, frozen financial markets and demanding customers all offer differing and substantial opportunities.

The SWOT process (Strengths, Weaknesses, Opportunities, Threats) is so effective because it breaks your world into two distinct parts, inside and outside. Then you just have to look at the good and bad parts of each. Strengths and Weaknesses are internal, opportunities and threats are external.

Similarly, we will look at the internal issues, those over which you presumably have some degree of control, in this column. Next week we will finish up with the external opportunities. Your internal challenges are to shore up strengths and reduce weaknesses. They fall into a few key areas: productivity, finance, and employee relationships.

The Productivity Challenge

It sounds trite, but now is a time to be doing more with less. That means using technology instead of man hours. You need to free yourself from day-to-day management duties, and at the same time not create a reporting structure that ties down your employees.

A small business can’t afford staff that doesn’t contribute to revenue. Everyone should be focusing 80% of their time of revenue producing activities. I watched “Gosford Park” the other night. It’s about the contrast between the wealthy British and their servants in the early 20th century. The number of servants in a single household seems astonishing to us today. Cooks, maids, valets, butlers, servers, gardeners, game keepers, and so forth. Just for a few of the nobility.

Fast forward 50 years, when letters were sent down to the typing pool for multiple copies. Scores of your women typing all day long at rooms full of side by side desks. Those days are gone, and it isn’t because of political equality, or gender equality, or mere technology. It’s because no one can afford to pay minimally productive staff any longer.

It is the same in your business. One contracting company I work with has gone from 14 support staff to 6. They still get the work done, but it required an investment in new systems to do it.

Technology doesn’t have to be fancy. For many businesses, simple excel spreadsheets are fine. Since the dawn of the industrial revolution, technology has been about automating repetition. If you perform an activity every day, it is a candidate for automation.

How do you maintain regular contact with customers when you’ve reduced sales staff? Technology. How do you trace who has purchased, who hasn’t, and how much time passed in between? Technology. How do you predict what you need to purchase, or identify when your customer’s buying habits have changed? Technology.

Technology, especially information technology, is what allows your human assets to work more effectively.  Teach your staff to look at those electronic things on their desk creatively. They are fast enough to adopt the latest social media, but at work most limit themselves to what the computer is “supposed” to do. If you are going to be as productive as possible, you’ll have to harness their creativity.

Simply let your employees know that additional bodies to share the work aren’t in the plan. Most workers have been indoctrinated to believe that when the work becomes more than they can do in a day, it is time to add more people. In my business, the staff understands that they will never be “caught up.” There is always more work than we can handle. How they manage it and how much of it they process decides their reviews and compensation.

Many small business owners still blanch at the idea of buying a new computer. Do you realize that the average new computer now costs less that ONE WEEK of salary and benefits for the person who operates it? Adding new software, additional monitors and faster systems are usually the cheapest productivity enhancer you can find.

The Cash Challenge

Finance challenges are going to be pretty simple to describe. If you don’t need money, there will be plenty. If you need a loan, you won’t qualify for one.

“So what else is new?” you may be saying. True enough, but expect it to be worse than just the typical conservative banking policies. Defaulting real estate, both residential and commercial is combining with strengthened equity ratio requirements to keep lending difficult. Just as the credit markets were ridiculously overheated though the 20-aughts, so they will be in the deep freeze for most of the 20-teens.

When credit is tight, cash isn’t king; it’s a demigod. The ability to pay quickly is a great negotiating tool, and for product based businesses there will be bargains galore. Closeouts and bankruptcies are happy hunting grounds for those with a fat wallet.

In service businesses, acquisitions both due to financial distress as well as due to retiring Boomers will be widely available. We’ll talk more about these in external opportunities.

Suffice to say that cash is a good thing. More cash is  better thing. Tons of cash is a great thing. Too much cash is a nonexistent thing. Point made.

The Employee Challenge

Technology and global competition are eroding American society’s economic middle class. A faltering education system and shifting generational values are eroding the “middle class” of workers in your business. The dichotomy between the talented employees you want and those you don’t is growing, and everyone else wants the talented ones as well.

The unemployed workers without a college education outnumber those who have a degree by almost four to one, as a proportion of their numbers. As firms focus on getting and keeping employees who can be more productive (and more dependable) in a technological environment, their availability will decrease. At the same time, the number of applicants for every opening should increase.

Your first employee challenge will be hiring the right players. If you aren’t currently testing for both skills and behaviors, it is time to start. Business owners seem to have an innate belief that they can judge character and ability by talking to someone. Nothing is further from the truth. Develop a comprehensive, step-by-step screening and hiring process. With a larger percentage of underqualified people pursuing positions, your odds of  taking on someone who is more glib than talented increase dramatically.

The second employee challenge is training. Going strictly with OTJ just doesn’t cut it anymore. Employees have to be ramped up to productivity faster, and any investment you make in training is insignificant when compared to the benefits it returns. Training is perceived by most workers as a benefit. They understand that you are investing in them, and appreciate it. If they don’t, you made the wrong hire.

With fewer employees, requiring greater skills and doing more work, retention becomes critical. You will compete with both other business owners and large corporations for the best, and you can’t afford the luxury of second best. Keeping employees as a top priority may seem counter-intuitive in a time of high unemployment, but it will be critical. Don’t fall into the trap of thinking that just because there are a lot of folks looking for work, there will be a commensurate proportion of good ones to select from.

All these internal challenges lead to the single inescapable strategy. In a flat market, the only way to grow your revenue is to take it from someone else. That will be the focus of our next discussion.

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