Why confidence surveys can be bad for your business

Business confidence surveys are bad for business because they scare SME owners into inactivity, warns Auckland business coach and SME commentator, Chris Baker.

Baker says that reports like the ANZ Bank’s recent business outlook survey – while necessary – tend to make most small business owners want to hunker down.

“It’s easy to dismiss references to ‘talking the economy down’ as quackery, but in my experience with mentoring more than 100 business owners over the last ten years, headlines like: ‘Business confidence drops again’, can have a decidedly negative impact on activity – business owners stop acting pro-actively, and they stop spending.”

Qualified accountant and an award winning Action Business Coach, Baker was prompted to comment after observing the reaction of his clients to the ANZ Bank’s business outlook survey at the end of August.

ANZ Bank's business outlook survey for August found pessimists outnumber optimists in the month, with a net 29 percent of respondents expecting the economy to get worse over the coming year, compared with a net 15 percent expecting a deterioration in the previous month.

“Small and medium business owners, and the self-employed, are not usually pessimistic until they get that that kind of news and, in my experience, that’s not good because the future turns out to be the way we expect it to turn out – simply because we don’t try as hard if we’re not optimistic.

“The irony is that most SME’s (fewer than 15 employees) have only a tiny fraction of a share of their market – usually one per cent market share or less. When the economy is going along normally, that’s 1/100th market share. If the economy contracts 3 percent then they only have to get 1/97th of the market share to stay where they were. For a small business It doesn’t take a lot to maintain equilibrium,” he said.

Essentially this means the percentages are so miniscule an SME could get that much more business, and none of its competitors would even notice.

Positive thinking on its own, however, doesn't change anything, but it does motivate action.

Chris advises small businesses to take the following steps to maintain momentum:

1. Calculate the amount of additional business needed to maintain your current position. You will most probably find it’s not much, and set that (or more) as a target.

2. Revisit first principles. First principles include pro-active steps to identify:

* Identify your target market.

* Analyse what they really want.

* Understand what it is that you are really good at doing.

* Know who your best customers are, and if they know about everything you offer.

3. By all means consider costs, but put more effort into growing sales. Post the recession, most businesses have already cut costs to the bone so reducing expenses is probably not going to make much of an impact.

Core costs, such as rent, telephones and power, usually stay the same, whether sales go up or down. This means a sales increase of just ten per cent can have a tremendous impact on a business. Try to set ambitious targets.

4. Take it as good timing to re-evaluate your business. Understand where you are and where you want to go as a way of moving into proactive mode.

“The first danger of a declining economy is the psychological impact because it leads to a slow down in activity, or action. When people start talking things down, it’s time to step up the activity,” Baker said.

For more information visit www.actioncoach.com/chrisbaker