How gloomy are entrepreneurs?
Check out the latest results of a survey of 805 small-business owners by the National Federation of Independent Businesses, a Washington, D.C.-based lobbying group. In the last 420 months that the NFIB has taken that monthly pulse of small-business owners--on everything from profits and inventories to hiring and capital spending--last December marked the second-worst in terms of overall optimism. (The most pessimistic month was recorded during another recession--back in 1980.)
Few think the pain will subside anytime soon. There comes a point, though, when it's time to stop worrying and get down to the business of, well, staying in business.
While every small company has its own specific challenges, there are plenty that span all industries. We canvassed the entrepreneurial landscape looking for common problems--and tapped top business minds for their cures (or at least palliatives).
How can I plan when I can't project?
With all the turmoil in the job market, John Younger, chief executive of Accolo, an online employee recruiting company in Larkspur, Calif., can't get a bead on where revenues are headed--mainly because his customers, also fearful of the future, won't commit to long-term contracts.
Short answer to this problem: Face the uncomfortable fact that not all customers are created equal, says Doug Tatum, founder of his eponymous consulting firm and author of No Man's Land: What to Do When Your Company is Too Big to Be Small But Too Small to Be Big. Focus hard on profitable customers, even if that means restructuring your business a bit. Affirms Tatum: "You need to get rid of your bad customers now."
Should you chase lower-margin business just to keep the doors open?
Demand for laser-eye surgery has plummeted 30% in six months, says Dr. Michael Furlong, owner of a San Jose, Calif., ophthalmology practice. That slump really hurts, considering those $5,000 elective procedures traditionally pull in 90% of revenues. Doing more cataract surgeries would keep the lights on, but those operations carry significantly lower margins.
Do them anyway, says James Nolen, professor of finance at the University of Texas at Austin. Meanwhile, don't lower prices for laser surgery--that may tarnish the practice's reputation--but do offer incentives and friendlier financing, such as monthly installment payments. "He'll get some bad debts, but he'll keep his volume up," says Nolen. Worse case, sell some of the non-performing loans to a medical receivables shop at a discount to keep cash flowing.
How can I get my customers to pay me?
Robert Devivo says his clients have been slow to pay their bills, leaving his company, Sutton Florists in New Rochelle, N.Y., short on cash. Too bad small claims courts eat up time and money, and even if a judge orders a deadbeat to pay, local laws may not give the order any teeth.
To fend off problems before they start, try drafting contracts that tack on interest for debts 30 days past due, says Nolen. As for the present, the best recourse now is being relentless. "When you're aggressive, you move up on the priority list of who gets paid," adds Nolen. "They might pay you just to get you out of their hair."
If I have to cut staff, how do I do it?
Cutting payroll is a common pain point for nearly every entrepreneur we spoke with--and it really stings at small shops that feel like a family. If you need to shrink salaries, try to shrink them across the board--that includes yours. Four-day work weeks may stave off job cuts, as might renegotiating your lease.
If you must let people go, slice with a scalpel. If yours is a consumer-product company, don't hack off the entire marketing staff and keep all engineers. Instead, figure out where you have excess capacity, and even what functions you can outsource to shrink overhead.
How do I raise money and run my business at the same time?
In 2007, Larry Hatch raised $1.5 million in six weeks for his Influent, maker of microprocessor-powered electric motors. He is still having trouble closing the round, though he has raised additional funds. "There's a huge opportunity cost to fund-raising," he says. "It takes time away from all my other hats, whether it's sales or recruiting."
The lesson here: Raise as much money as you can, when you can. Young companies should also compel investors to kick in more capital upon hitting certain milestones. If you must, syncing up with strategic partners who can speed up product development and lend credibility with other investors.
"Entrepreneurs often don't want to raise more money than they need early on because it's dilutive," says Philippe Sommer, director of entrepreneurship programs at the Batten Institute within the University of Virginia's Darden School of Business. "But do you want to own 10% of a really big company or 70% of a company that might never see the light of day?"