Tough economy a catapult for small businesses
Richard Patterson shares his knowledge on how small business owners can actually grow their companies during challenging economic times. Accounting for 28% of New Zealand’s gross domestic product and employing over 600 000 people, small and medium sized enterprises (SMEs) contribute significantly to the economy. ¹ Commonly linked to highly economically sensitive industries such as […]
Richard Patterson shares his knowledge on how small business owners can actually grow their companies during challenging economic times.
Accounting for 28% of New Zealand’s gross domestic product and employing over 600 000 people, small and medium sized enterprises (SMEs) contribute significantly to the economy. ¹ Commonly linked to highly economically sensitive industries such as construction, real estate and retail, their chances of surviving and thriving in slowed economic times depends greatly on their ability to nurture their local customer bases, consolidate, maintain focus and contain costs.
Very often in slowed economic periods, SMEs can actually grow their businesses by honing customer service, controlling costs and staying focused on their areas of specialisation. Frenzied attempts to diversify and accrue more customers to generate more income are rarely successful.
Thanks to their size and locality, SMEs can be more adaptable to changing economic climates. Their customers are primarily locally based and prefer to spend their money in their own communities and support local businesses. It’s essential for small business owners to continually nurture the relationships they have with their local customers and community.
Many business operators who originate from an area have built relationships within their communities from the day they started. These relationships provide an important layer of business support which in many cases is bidirectional as they may be customers of one another. By establishing strong connections with local operators, small business owners can support each other.
Notably, when a business owner originates from an area, they already have a connection with that community which makes them more in tune with the issues that impact their customers’ spending habits.
It affords the opportunity to fine tune offerings and align their customer service to this, as well as create unique selling points that are not built on being the lowest cost producer or cheapest service provider. These unique selling points can help retain loyal customers, even when times are tough or there is growing competition.
Business owners should consider;
- What shifts are their customers experiencing in their operating environment and how are these shifts being reflected in their activity levels?
- Where are the areas that add the greatest value to strengthen the business relationship? Are these areas changing, or staying constant?
- Is price becoming a factor?
- How are invoice payments looking? Are the number of customers falling behind with payment rising or falling, and why?
This information combined will position a business owner to stay on top of what is happening in their business and make informed decisions with regards to increasing their value to customers as well as exploring new opportunities.
Careful business planning is critical, especially for SMEs operating in economically sensitive industries such as finance, construction, real estate and retail. These industries are driven by economic cycles which impact business. When the cycle has bottomed and is turning up, businesses then have the opportunity to expand and grow.
However, when the economy has peaked and is starting to slow, business cycles will turn down. It’s important for SMEs that are exposed to these industries to understand how the country’s economy is performing and what the outlook is for the economy in the next 12 months.
Observe the behaviour of the Reserve Bank of New Zealand. Are they raising interest rates to slow down the economy which is running too hot and in danger of overheating? Or are they lowering interest rates because the evidence shows the economy may be slowing too quickly? Are there issues emerging on the horizon such as trade wars, a geopolitical event like Brexit or a financial crisis that has them worried?
There are other economic indicators that can help SME business owners understand how the economy is behaving, and ultimately how consumer spending will be affected. These include amongst others quarterly business and consumer confidence surveys; monthly Real Estate sales data; quarterly employment data and monthly retail sales.
Even when economic forecasts are lacklustre, SMEs can achieve growth by considering these tips:
1. Define your mission and goals
Think about why you started your business in the first place. What is it that you want to offer? Who are your customers? What do you want to achieve? Are your business goals aligned with your personal goals? Have you lost sight of these?
2. Regain your focus
You should always have a focus. Your focus may shift from time to time, but you cannot lose focus. Too many businesses try to be all things to everyone by servicing too many customers or over diversifying their offerings. Define your core business, understand your core customers and focus on what you are good at.
3. Determine who your customers are
Getting the right customers is far more important than having the most customers. Determine who your customers are and focus on servicing them.
Too many businesses try to service as many customers as they can to generate revenue even if it means straying from their core business, over-extending their resources and putting in more effort than would be required if the customer was a good fit to begin with.
4. Remember no man is an island
You cannot do everything yourself. You need to build and nurture a strong team to build a strong and sustainable business. Surround yourself with the best people you can find to help you to implement your mission, keep the cogs turning, and deliver. Your people are your business’s most important asset – treat them that way.
5. Cashflow is king
At the end of the day, it is the bottom line that counts. What the books say doesn’t matter if there is no money in the bank. Find out where you are making or losing money. Identify the products and services that are costing you money rather than earning you money and cut loose customers that take their time to pay or don’t pay at all. They are not money in the bank! If financials are not your forte, hire someone to do it for you.
6. Service, service, service
Never let service slip. Great service differentiates one business from another that has the same offering. You want to create an exceptional customer experience because that is what will keep your customers returning to you instead of your competitor down the road. When the going gets tough, dig deep and find ways to improve service levels.
7. Get a business coach
When you are overwhelmed, unsure, have lost focus, and aren’t sure of your mission, find a mentor or advisor for objectivity and guidance. A business coach is there to bounce ideas off, offer objective advice and help you to regain focus.
Richard Patterson is a successful investor and business coach at ActionCOACH New Zealand.