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Small business gets lean

By   /   Saturday, January 3rd, 2009  /   Comments Off on Small business gets lean

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Small-business owners already know things aren’t looking bright for the coming year. But in such dire times, experts have some advice to help entrepreneurs weather the storm: streamline operations, find a niche, and get the most out of employees.

“Focusing on the fundamentals of sound business practice is the best way to minimize the problems companies may face – just get through the period as best people can,” said Steven Kinney, president of the Economic Development Corp. of Oxnard, or EDCO. “I think the whole strategy in 2009 is going to be to minimize losses and minimize the downside.”

To come out stronger on the other end, Kinney said business owners should focus on “polishing their business model,” which includes “defining and refining” their business plans and understanding the fundamentals of marketing and financial controls.

“Belt tightening will probably be the phrase of the year,” Kinney said.

Just as Kinney said he doesn’t expect any sector to escape the recession, he added he couldn’t predict whether any industries would be hurt more than others in the coming economic turmoil.

“Certainly these days, the focus is on the auto industry and anything connected with the auto industry, but I think with the ripple effect from the credit market tightening and just the broad cutback of jobs in so many sectors, I really can’t pick out any one place that’s going to be hurt the most,” Kinney said.

Though he was confident a company with a strong business model could emerge stronger after the recession, he wouldn’t necessarily recommend starting a new business amidst it.

“I think you have to be brave to start a business in 2009, which is not to say it can’t be done, but it really would require a very tightly defined niche business.”

Find a Niche

Marsha Bailey, chief executive officer and founder of Women’s Economic Ventures, or WEV, in Santa Barbara, said there are some niche businesses that are thriving in the current state of the economy.

“I’ve heard some businesses say they’re doing great, like the shoe repair guy – people aren’t buying new shoes, they’re having old shoes fixed,” Bailey said. “Instead of hiring a contractor, people are doing home repairs themselves, but they need some help, some guidance, so handymen and people like that are doing quite well.”

Companies that offer products and services that can save people money, Bailey said, might launch successfully at first, while entrepreneurs peddling luxury goods might find it best to wait.

“You don’t want to discourage people from starting a business or staying in business … so I think the best piece of advice I can give people is to use all the resources available to help them stay in business. And in the long run, the key to staying in business is being in business and weathering the ups and downs,” Bailey said.

Those resources include work training and business counseling, using organizations such as WEV, EDCO, the Topa Business Resource Center in Oxnard and an area chapter of SCORE, a national organization for business counseling and mentoring.

In addition, Bailey said networking with peers is an invaluable business tool.

“I think there are always opportunities in any kind of economy, and so I think it’s very important that business people be talking to their customers,” Bailey said, adding that owners also need to look at their numbers and “know what is generating profit and what is not.”

Bailey, like EDCO’s Kinney, said that it’s time for companies to tune up their business plans but warned that marketing is not the place to cut costs.

“When small businesses start to look for what to cut, they often cut their marketing budget first, and that is not a good plan,” Bailey said, adding that businesses that don’t maximize their exposure to potential customers are putting themselves at greater risk.

While many large companies are laying off employees, Bailey said micro-enterprises continue to create new jobs. In fact, she said workers that have been laid off often come to her organization for advice on starting their own companies.

Use Employees

For small businesses struggling to maintain their employees during the recession, Santa Barbara-based HRxpress said it’s important to be positive but honest with staff as well as to ask for their help.

HRxpress President Kerry McCoy said a manager or owner should use real data to express the financial position of the company to employees. Not only will this likely help a manager to earn the trust of his or her employees, but it will also avoid the possibility of employees drawing their own false conclusions.

“There is always an information vacuum in an organization, which employees will fill with their own assumptions when facts are not forthcoming,” McCoy said.

To prevent staff from leaving during tough times, the human resources expert said to engage and praise employees to encourage loyalty. In addition, use input from fellow management when making certain decisions about the company and offer employees options when considering cutbacks, such as whether they would support cutting an office party in exchange for small gift certificates during the holidays.

When a layoff is necessary, McCoy said it’s important to get professional advice.

“If performance and the need for the positions are equal, I’d say the best criteria for deciding layoffs would be tenure, last in first out, which is neutral,” McCoy said. “But performance and need for positions is normally not equal, so business owners usually try to keep their best performers.”

If that becomes necessary, McCoy said an employer should have records of job performance so that an employee who is laid off for sub-par performance is not caught by surprise and led to suspect there is another, unlawful reason for the dismissal, such as age or gender.

“I would advise not laying off anyone without consulting [the company’s] employment attorneys to make sure that there is neither an appearance of discrimination nor evidence of actual discrimination,” McCoy said.

Despite the troubles ahead, it is still possible for a small business to start and succeed in the coming months. WEV’s Bailey said there is still plenty of capital available in her organization’s loan fund. And Wells Fargo reported that despite lowered optimism, four out of five business owners said they did not perceive credit as difficult to obtain.

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