Would-be entrepreneurs will sometimes ask me for advice about starting a business. The only advice I offer are my "three truths about starting your own business":
1. Determine how much it will cost to start the business – double it
2. Determine how much time you’ll spend running the business - double it.
3. Estimate how much profit you’ll make from the business – half it.
As an entrepreneur/business owner, my income is tied to the success of my company - in my case, HRmarketer.com. I don't have the luxury, which most CEOs of publicly traded companies enjoy, of collecting a big pay check for poor performance. Simply put, if my business does not make a profit, I don't take a pay check. Don't get me wrong - I'm not complaining. I love what I do. And while the risks of starting/running a business are significant, the rewards can be plentiful.
When times get tough, like they are for many HR suppliers at the moment, management is put to the test. As my favorite business guru Warren Buffet says, "When the tide goes out, we find out who’s been swimming without a bathing suit".
How you manage your business in a slow economy will reveal a lot about the kind of person (and executive) you are. Are you a risk taker? Do you have a short term or long term perspective? Do you share the pain of a business slow down with your employees? Have you managed cash flow responsibly?
A slow economy will also reveal a lot about your company's business model and any mistakes you have made will be glaring. When I look at our business, one mistake I made in the last several years was not investing more in marketing. We do spend a lot on marketing - more than most companies - but we should have spent more. While our business is doing well and we've enjoyed year-to-year revenue growth since our founding in 2001, we could have grown more with a greater marketing budget.
I won't make this mistake again. But in a slow economy, the first part of the budget to get cut is often marketing. While some cuts may be justified, deep cuts are a mistake. Now is the perfect time to make potential customers aware of your company. History shows that companies who market aggressively during a slow economy are the first to emerge when the economy improves. And when customers are ready to buy they will usually buy from those companies that they have heard from regularly.
We will increase our marketing budget this year quite significantly. And I recommend other HR suppliers do the same. But I realize that me telling companies to increase their marketing budget is like your barber telling you that you need a haircut :-)
So, I did some research to see what others feel about the subject. Most of what I found supports the decision to maintain or increase marketing budgets during a slow economy. Here are a few opinions on the subject:
- Marketing in a Slow Economy: "As a business owner, it’s important to keep your eye on the prize. This is the WORST time to cut back on marketing. Studies show that businesses who continue their marketing campaigns through difficult economic times are the ones that come out ahead when the economy starts to turn around. And the reality is that it WILL turn around, it just may take another 12 to 18 months."
- A Slow Economy may be just the Time to Increase Marketing Efforts: "Textbooks tout the three rules of marketing: Advertise! Advertise! Advertise! But in a slow economy or times of international crisis, the gut instinct is to slash the marketing budget and wait out the storm. Sometimes perceived as fluff, the marketing department experiences the first layoffs and the first budget cuts. But many savvy business owners are actually increasing their [marketing budgets].
- Should you Axe your Marketing Spending in this Slow Economy? "There’s a huge difference between investments and expenses. Marketing and sales are definitely not expenses and should not be put in this category. They are investments toward growth and shouldn’t have to be justified any more than paying your employees or serving your customers should be. Good marketing is about meeting customer needs and providing value and are the lifeblood of an organization…neither an afterthought nor an expense."
My advice about managing a business in a slow economy?
1. Don't Panic: If you believe in your business and the long-term health of your industry then don't panic. If you have doubts about your business model or the long term health of your industry, you need to spend considerable time working through these doubts, determine if they are legitimate concerns and if so, make some tough decisions.
2. Share the Pain: Are you laying off staff, cutting salaries but taking no personal sacrifices? Share the pain. In my experience, employees will respect this behavior and be more productive, understanding and loyal to the business.
3. Analyze your Costs: This is a great time to carefully review your financials and get a good understanding of your costs and where you may make changes to improve cash flow without sacrificing your business. But again, be careful what you cut.
4. Invest in your Business: I've always believed that a slow economy presents an opportune time to invest in your business. I once read an article about how Steve Jobs found a slow economy to be a great time to invest in new products and features, saying it better positioned his company (Apple) for growth when a more favorable economy returned. His instincts have proven correct as many of his competitors did not do follow this philosophy.
5. Don't cut marketing.
Posted by Mark WillamanLabels: marketing budget, slow economy