Smart Small Business Strategies for Surviving the Economic Slump
Survival strategies that small businesses need to manage an economic slump differ from those that large companies can put in place because small businesses have limited resources in terms of human capital, money, and time. Large companies usually focus on macro-level strategic actions such as economic indicator trends and downturns. Small business strategic choices should focus on micro-level indicators that take into account small low-cost incremental strategic actions guaranteed to yield high results, impact and return on investments.
There are five strategy categories or perspectives from which a business can choose to develop their strategic actions: Management oriented strategies; Resources oriented strategies; Knowledge oriented strategies; Business Operational/Internal Systems oriented strategies; or External Environmental oriented strategies. Small businesses need to be aware of their strategic choice orientation in order to be clear about the intentions and significance of your strategic action objective, impact and outcomes or results. Focus on implementing integrated, low touch solutions. Below are some of the micro strategies to take into consideration:
1 Revenue/Cash Inflow Strategies i.e. focus on cash flow statement as an indicator for what’s currently happening to the company’s cash inflow. This allows the business to primarily focus on strategies that are cash inflow oriented because this is what’s likely to keep them in business during the course of the economic slump.
2 Revenue Diversification Strategies i.e. focused on revenue generation strategies, not revenue reallocation strategies. Revenue retrenchment works to a point, but it’s not the only way for small businesses to save their companies in an economic slump. Cutting cost is a “maintenance” strategy – a measure for recycling the same money already in the business so that you can direct it to priority areas or appropriate budgets so that you can stay in business.
3 Market/Service/Product Mix Objectives: Reassess the business objectives (maybe goals) – that would help the business adjust to the prevailing economic conditions. An example would be focusing on Market/services or product MIX strategies. There are many alternatives a business can pursue in this strategy such as:
a) Old services/products to new market;
b) New services/products to old market;
c) New services/products to new market base.
4 Strategic Alignment: Because of their small size, small businesses/companies are quick to shift and have the ability to respond to external changes like an economic slump. This is an advantage. Therefore it is very important to align the business structures, processes, performance measures and/or incentives with internal changes as well as external economic forces.
5 Structures: Internal & External Business structures: Focus on the internal and external operating structures and how they impede or enhance efficiency and effectiveness; how can the business structure be modified to align with ongoing changes without necessarily “compromising” the core business model.
6 Processes: Focus on costly processes in place that increase your cost of doing business; modify and streamline to reduce expenses. For example, what aspects of the doing business processes can be outsourced rather than be maintained in-house? Eliminate “bureaucratic” or “red tape” business processes i.e., technology mediocrity to non-value adding operational routines.
7 Performance Measurement: Measuring performance is huge in eliminating redundant processes. Focus on time management, employee rate of productivity and efficiency, and the impact of business processes and procedures. Performance analytic information should always inform decision making.
8 Human Capital Incentives: Negotiate with your employees for incentives like flex-time if you cannot afford financial compensation; focus on greater role clarification; review employee resumes to identify former training, skills and experiences you can leverage and cross training of employees. Negotiate with suppliers and clients. Communication is key in human capital management.
Dr. Tendai Ndoro is the Director of the NJSBDC at Rutgers University-Newark campus.
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