Managing a small firm is as much about the thrilling risks as it is about the satisfying gains. Just make sure you hang on tight when the ride gets rocky
Running a small business is a bit like riding a rollercoaster: you edge slowly but surely up the side of a mini peak to a near stop—only to find the panoramic view coloured by the imminent prospect of the adrenalin-soaked descent into the unknown. My guess is that many of us now face such a point, as housing market jitters, oil and gas price inflation, violent currency fluctuations and vice-like credit conditions combine to reverse consumer confidence and business investment.
The question we face is how to react to these heightened business risks. Will you take a deep breath and hold on for dear life? Or are you prepared to throw back your shoulders with confidence, believing that the next upturn isn't too far around the corner?
Having been here before, the first thing to avoid is panic. Panic is most often indicated by ill-thought cuts to discretionary spending. Last time around, we stopped our advertising and cancelled the water cooler, in a classic knee-jerk reaction. But it's far better to take a moment to properly identify and assess the big risks, prepare for them, and then proceed with caution. No director wants to go into reverse gear, especially if he or she is the owner of the business. So, while ignorance may be bliss elsewhere, accurate on-time data and intelligence is a business essential. We can all fly by the seats of our pants sometimes, but studying the numbers stops us from bumbling about like amateurs.
The really big risk is a cash implosion: this should be the first thing you check. You need the bank on your side. You also need unbloated stock bins and a supply chain that knows which side of its bread is buttered. In my experience, we all avoid talking early enough to our partners. In the past week we've negotiated longer payment terms, better Euro prices, saved about £15k on our merchant services charges and cut the print bill for our invoice paper. If you don't ask, you won't get.
As retail performance stumbles, any additional fixed overhead costs need to be stopped. A tough, uncertain business climate calls for flexible cost structures, just in case the moment for reverse gear arrives suddenly. In practice, this means doing less work in-house and employing more expensive outsourcing, which usually dents profit projections. But you never know, the experts might just do a better job than you.
The next silly mistake to avoid is lowering prices without careful thought. Price is the biggest single determinant of profit, so why chase the market lower when most customers are willing to pay you a little more? How about increasing your prices and making more money selling fewer items? Of course, you need to keep an eye on your competitive position, but rushing into a "me-too" sale hardly differentiates you from everyone else.
We should all target waste as if tomorrow is unsustainable. Lights left on, unnecessary packaging and standby electricity bills stack up by stealth and are all wasted pennies that turn into wished-for pounds on the bottom line. If you are not continually bearing down on wasteful behaviour, you don't deserve to hold the position of responsibility that you do.
As far as your team itself goes, we all need to remember that our people are usually the means of production that contributes most to the profits we make. So, it doesn't really make sense to demotivate the best performers with a one-size-fits-all income policy. Far better to get rid of persistent under-performers, and to tie stronger rewards for the rest of the team to the upside. Finally, when the going gets tough, it is madness to stop contacting and looking after your customers.
As a rule, the best response to tightening market conditions is to focus on motivating your team, treating your suppliers like partners and reminding your customers why they shop with you. If you're scared rigid of the small-business rollercoaster, my advice is to try the more sedate, big corporate wheel. Being an entrepreneur is more about the thrill of the descent than it is the slow climb. As you peer over the front bar into the abyss this month, remember Franklin D Roosevelt: "The only thing we have to fear is fear itself."
Alex Pratt OBE is founder of seriousreaders.com and an adviser to the government on innovation and skills.
