There has been so much negative attention heaped on the bad economy and the suffering of families and small businesses that yesterday I found myself advising a small business owner to turn off the television so her stress level would go down a little. But, though this business owner’s anxiety remains high, her business is an example of one that is set up better than many to face the challenges of this bad market.
In my experience, the businesses that are suffering the most are those that serve consumers: retail businesses (especially selling non-essentials), as well as service vendors like pest control, security alarm, carpet cleaning, and lawn service. Consumers all over are simply cutting down on expenses in these areas, choosing instead to clean their home carpets less often, cut their lawns themselves, and do without the services that they now consider non-essential luxuries.
In the case of the business owner I chatted with yesterday, her business is an 18-year-old service business that primarily has offered consumers non-essential (but valuable) services. Almost exactly a year ago, this business owner recognized that for her business to survive, she had to make changes so she would be less reliant on the consumer. The business, which has been serving the carpet cleaning and residential fire restoration sectors, began diversifying its service offerings to include industrial plant cleaning, painting, and maintenance. This business owner recognized the opportunity and, with a small amount of additional capital and new employees, has grown 20 percent during the last year while other businesses in the residential carpet cleaning business have suffered.
Another example I know is a well-known and respected restaurant in a community where there was a motion picture being shot. Although the film industry usually uses specialty commercial catering companies to feed actors, staff, and crew, the restaurant convinced the film company to allow it to cater the four-week shooting. Revenues for the restaurant were down somewhat because patrons in the community were dining out less. But the four weeks of catering for the film crew was profitable and earned three times more revenue for the month compared to what the restaurant would have normally had in a good year. The restaurant has now decided to begin doing event catering permanently in their community, which should drastically increase revenues.
My last example is a retail business whose sales are down about 15 pecent for 2008. Fixed costs are high because they are located in an upscale urban mall. Their two stores need to raise revenues and profits about 5 percent to get back to break even. The business decided to start an Internet store and sell both their popular and discontinued products on an online store and eBay. Since rent alone in the malls accounts for about 20 percent of sales, the retailer can sell online merchandise as much as 30 percent cheaper than in their brick-and-mortar stores and still make the same gross margin. Because shelf and display space is so valuable in the small stores, liquidating slow-moving merchandise on eBay and replacing it with faster-selling goods that are likely to sell better to today’s price conscious shoppers makes a great deal of sense. In time, the Internet store could generate as much profit as the brick and mortar stores but with much less overhead costs.
If you are a small business owner, use this time to think creatively outside the box on ways to grow, rather than shrink, your business.