Monday, August 22, 2011

The Impact Of The S&P U.S. Credit Downgrade On Small Businesses

Small Business Trends| Aug. 9, 2011, reprinted by permission

Standard & Poor’s downgrading the U.S. credit rating from AAA to AA+ is the first time since the credit rating business started that America’s credit rating has been downgraded. Since Washington reached a debt ceiling agreement and jobs numbers came in at a relatively healthy 117,000, this downgrade was unexpected to a certain extent. However, the major issue is that the debt ceiling deal is very ambiguous in nature.  The spending limits have been raised by $2.3 trillion by 2013, while cuts of $2.1 trillion are spread over 10 years.

What does all this mean for small business owners already concerned by slow or no growth in the economy?

They key effects of the credit downgrade for small businesses are:

1. The U.S. government’s leverage to pump up the economy has gone down even further.

That means that cuts in federal spending along with increases in taxation are going to come a lot sooner. This will lead to even more weakening of the growth in the U.S. economy in the short to medium term, and increasing business and personal tax rates for small business owners will not help. Cuts in government spending will affect innovation even more in the short to medium term and will cause a slowdown in innovation in the economy. Small business has led the U.S. out of every recession after the Great Depression until now. Coupled with increased globalization, job growth and overall demand in the economy will be anemic and will lead to stagnation in the economy.

2. Interest rates will go up in near future as the cost of borrowing money in the U.S. will rise.

Lack of credit access coupled with higher interest rates will raise the cost of capital for small businesses, both further hurting their bottom line and slowing job growth even more. The dollar will fall, thereby raising the costs of imports, including gasoline. Coupled with weak real estate prices, this means small businesses should be braced for tough times.

However, everything is not gloom and doom, as a weaker dollar and lower costs can make small businesses more competitive. Small businesses, when run efficiently, can become big export engines, as Germany has shown. The key issue is whether small businesses will get enough incentives and support, including seller financing from U.S. Exim Bank, to boost exports.

Also, small businesses will need to make cash flow more efficient, become more cost conscious, and learn to operate in an economic environment that will see very low growth over the next three to five years.

The S&P credit downgrade should be a wake up call for U.S. policymakers and business owners. It may indeed act as the best stimulant for the economy overall. Otherwise, America is set on a path of declining power, much like the U.K. in the post-World-War-II era.

NEGOTIATION – The Tool Everybody Should Use Every Day!

imageThis article was written by Barry McKinley, SCORE Orange County Management Counselor

Negotiation is the basis for survival, whether you are trying to get a better price on a car, discussing a lease with your landlord, or deciding who will take the kids to school in the morning.

Take this brief test to see how you stand –answer either True or False, no maybe’s or sometimes! The answers are at the end of the article.

1. Successful negotiation is when you win!

2. It is very important at the start of negotiations to let the opposition know exactly what you expect!

3. Successful negotiators intimidate the other side!

4. When entering negotiations always have written down what you expect and share with the other side!

5. If you don’t get your way – walk away!

6. At the end of negotiations always let the other side know if you got more then you expected!

7. In successful negotiations giving in shows weakness so you never want to do that, stand strong!

8. The best negotiators seldom review facts before the meeting for fear that they could confuse information or issues!

9. During negotiations remember your opposition will normally be telling the truth!

10. Never walk away from the negotiation table with the understanding you will meet again the next day.

Following are the key skills that top successful negotiators follow;

a. Know What is Going On- we cannot be effective if we don’t know goals or objectives of our own company. Without striving to attain that information we end up ‘the right hand not knowing what the left hand is doing’.

b. Prepare – Prepare – Prepare – good negotiators can only be effective when they are prepared. The better prepared you are, the more effective you will become. Learn about the other side!

c. Learn-Probe-Learn - the best negotiators are like detectives, constantly probing for more information about the opponent’s demands, concerns, and financial position to name a few.

d. See The Big Picture- the most effective negotiators are flexible. The negotiation process is like the waves in the ocean constantly changing. As we learn more we must be prepared to adjust to changing merits, influences, requirements and even egos.

e. Thick Skinned or Staying Coooooooool- learn to roll with the punches and not take what is said personally. You need to be able to separate the issues from your emotions. Don’t take yourself too seriously!

f. Can Break Down The Barriers- there are many forms of barriers that may get in the way which in turn slows down the process. Skilled negotiators learn to recognize quickly the “fly in the ointment” and understand the nature of the problem, separate it and then resolve.

g. Can Find Allies-we may not always find ourselves operating from a position of strength. Sometimes in the initial stages of our negotiations we need to find ways to enhance our position. This can be done many ways. One such way would be to try to create ‘strength in numbers’.

h. Have a Trusting Reputation - the old saying, ‘fool me once - shame on you, fool me twice - shame on me’ is applicable here. Everyone with whom we negotiate forms an impression of who we are as a negotiator and a person. If we create negative perception it will become much harder to be considered, believed or even listened to.

Questions 1-10 were all false! How did you do? Got all 10 right? Stay close to your phone you may be called to be part of the negotiation team for General Motors and the Unions.

3 Rocks for Your Slingshot When You’re Up Against Goliath

By Tom Searcy | August 9, 2011, reprinted by permission

When you are selling against the Goliaths in your market, you need specific rocks for your slingshot. You need to break down the inherent misguided beliefs that “bigger is better” and that old idea that “no one got fired for buying from IBM” (it’s still out there).

Here are three ways to put these market myths in perspective and put you in a better position to crush the bigger player in the fight.

1. The 11th biggest customer dilemma

Ask your prospect, “Who is the 11th biggest customer for your company?” As they fumble through the list in their mind, drop in this second question, “What’s it like to be somebody’s 11th biggest customer?”

You’ve set up the conversation about size, trust, and promises. Be careful, it would be easy to swing on the point with an eight-pound sledgehammer when just a finishing hammer is necessary. Here’s how the rest of the conversation should go:

You: “Being out of the top 10 shows up in a lot of ways in a business relationship — not always up front, but over time, the bigger clients always get the first attention in any of our businesses. I would encourage you to ask anyone you are considering for this project/program/purchase/partnership where you will fall in their line of clients. Just for reference, you will be my _____ biggest customer.” (Fill in the blank with the correct number in the top 10 for your company or your personal book of business.)

It’s simple — we all know that being 11th sucks. Sometimes a prospect needs to be reminded of this fact. Then the prospect needs to be asked to make this reference real to his or her own business. In our own hearts, we all know — prospects included — that we don’t treat all customers equally. They enjoy that leverage when they have it and resent it when they don’t. This is our chance to drive that point home. Works like magic.

2. The behind-the-curtain tactic

When I buy a car, I have a sneaking suspicion that I don’t know the “real story” and may be taken advantage of. I think that this happens for prospect companies in their buying process. They are afraid of spending too much, making a risky selection or having to live with the fallout of a mistake. For these reasons, they hide behind RFP processes, procurement/purchasing departments and blind-bids. These approaches create a false sense of security that is dangerous. A good strategy is to show them the truth behind the curtain — the real story.

I like using the technique of telling the buyer up front the myths of the industry. Myths in this context are ideas that have been promoted by bigger competitors that obscure the truth. Examples of several types of myths you can describe include:

  • Bigger is better and safer
  • Price is the same as your true cost
  • RFP processes help companies make better decisions

None of these three ideas is true — as a matter of fact, as you know in your own business, these are all inherently false. Using this technique, you can call out these or other myths that have been promoted in your industry by your competitors and you can set out the facts for the prospect’s benefit. By doing so, you establish yourself as a straight-shooter and you frame your value proposition differently.

3. Make it a simple choice

I like courtroom dramas. Everything is boiled down into very tight, coherent arguments and usually one attorney or the other sums up with a choice for the jury, innocent or guilty, based upon just one idea. In the now infamous OJ Simpson trial, the statement that Johnny Cochrane said was, “If the glove doesn’t fit, you must acquit.”

When you are competing against a bigger company, you are better served if you can reduce the decision to a simple either/or question as you summarize the choice. Big companies, by creating lots of variables, create fear. Fear creates a climate where a decision is made based upon safety, not value, and that usually defaults to the bigger of the two companies. However, if you can derail that complexity and confusion and boil it down for your prospects, then you can make the choice easier for them. Some examples of your either/or strategy can include:

  • This decision comes down to service vs. scale
  • This choice comes down to fast and good, or slow and perfect
  • Your selection comes down to answering the market pressures of today or the market leadership opportunities of tomorrow

This approach is the bow with which you tie up the rest of your good strong arguments. This becomes the punch line that simplifies the choice for your supporters at the company who must answer to the fear-mongers.

These three approaches give you an edge over the bigger competitors and allow your values to shine. Use them to elevate your position and knock out the giant’s knees.

Feet On The Street Marketing

imageThis article was written by John Pietro, SCORE Orange County Management Counselor

As we counsel small business owners, we are often asked this question, how do we promote our business on a very limited budget?  The small business owner contemplates various forms of media, usually print or on-line media as a means of getting more customers. This is a tactic driven approach that seldom works.

What the small business owner needs to think about is a more fundamental long term approach to getting customers. This process can start with a “feet on the street” approach to building your marketing plan. Specifically, I am referring to your feet on the street. This process begins with you, the business owner, visiting all the competition in your trading area. For most retail businesses, 80% of your sales come from a three mile radius around your store. For the on-line marketer, who are the competitors that occupy the same space as you on Google and Facebook? Your feet on the street are actually your fingers. What can you learn from this exercise? First and foremost, who is the target audience for your product or service? The target audience is defined as those people who buy the most of your products and services and they buy these products and services most often. Your competitor’s customers will look quite a bit like yours. Be observant and record what you see. How old are they? Are they married or single? Do they bring their families shopping? What are they buying? What products does your competitor offer? Which doesn’t he offer? What does the competitor price his products? What does the retail location or website look like? How was the service you received?

I always recommend making a purchase, so you can get a sense of their approach to customer service. By visiting as many customers as you can, you build a very useful arsenal of information and insights to use to attract customers to your business. What can you learn from feet on the street marketing?

1. Insights and information on who the target audience is for your products and services.

2. Insights into pricing and merchandising.

3. Insights into customer service.

4. Insights into consumer buying patterns.

The goal of marketing is to develop products and services that are different and better than the competition. Products that achieve this outperform those that don’t because these products provide more benefits and solutions for the customer. What is the cost of feet on the street marketing? A much greater investment of time than money. With this information in hand, you are much better prepared to market your business.

A long time friend and client of mine has invested in this approach for years. He operates a small chain of fast food restaurants. He and his Operations and Marketing Directors visit as many competitors as they can once a month. They want to understand who is doing what. They really want to identify the specific competitors they need to outperform on quality, price, service and cleanliness. With this information in hand, they tailor their food offerings to do just that. Their average store volume is about the same as McDonald’s. They spend about 10% of the money that McDonald’s does in marketing. However, they compete well at the moment of truth, when the customer tastes their product. That’s the power of feet on the street marketing.

Does Your Business Have the “Economic Flu?” The Cause and the Cure may already be in your hands!

imageThis article was written by Carl Woodard,
SCORE Orange County Chairman

With so many predictions of pending economic sickness, it may be tempting to believe that every business, yours included, must eventually suffer the symptoms. How many small business owners will “protect” their businesses against a predicted downturn by cutting back employees, reducing advertising expenses, canceling promotions and turning off the “Open for Business” sign a little early each day?

Do not follow this temptation!

Those that do may blame the “poor economy” for their pain and suffering, and overlook the fact that their business suffers from their own actions….or inaction.

Now is the time to find preventative medicine so you can come through without as much as a sniffle. So, where do you find all of the Vitamin C and medications to inject into your daily operation? The good news is that remedies are close at hand. But, they will require some effort on your part.

Start by strengthening the business that you have. Cling to your good customers. It is always easier to keep a good customer than to get a new one. Call them and see how their business is performing. Sympathize if they have a glitch. Ask yourself if you can provide a new service that they may need.

If a segment of your business base is in need of help, see if you can temporarily reorganize to meet the need. Be flexible in unusually demanding times. Your customers will remember your effort.

Ask your customers for referrals in order to build your business. Referrals lead to future referrals.

Control your variable costs, but not to the point that it leads to more pain. Low inventory may be good business, but an out-of-stock condition is a lost sale. And keeping your sales volume high is a sure way to minimize headaches.

If, after doing all that you can do to keep your business healthy, you find that you are in need of a fresh perspective about getting back on a healthier track, remember that you can call on the more than 100 business counselors at SCORE Orange County for an office visit. No medical plan is required; however, an appointment is necessary, and easily obtained.

Call Orange County SCORE at 714-550-7369. We will set a convenient time for you. Remember to call us before those first signs of a cough or fever. Perhaps, together we can prevent problems from becoming serious.

Oh, yes….our office visits are always free!