If GE can’t make a buck, who can?
Last week, General Electric, widely seen by investors as an economic bellwether because of its diverse operations, missed its numbers for the first quarter and signaled trouble ahead for other major U.S. corporations.
But what’s bad for GE may be a blessing in disguise for smaller companies scrambling to keep pace with larger competitors. Last week, I met with a client from the digital printing industry who came to me for help with his business plan. After 9/11, he told me, things were so bad that he ended up putting $1 million of his own money into his company. The good news: Five of his competitors went out of business. Last year, his company posted its best year ever, and now he’s looking for expansion capital.
Now don’t get me wrong. I’m not blind to what’s going on in the marketplace–especially the market for early-stage deals. In 2007, angel investors who specialize in investing in early-stage companies sank $26 billion into startups, according to The Center for Venture Research at the University of New Hampshire. While that’s a pretty impressive number, the figure was flat from the year before, a sharp contrast to the yearly increases that had been piling up since 2003 when the tech community began to bounce back from the dotcom bust. During the first three months of the year, only five VC-backed companies went public on Wall Street, the National Venture Capital Association reported, down from 31 in the fourth quarter of 2007.
But despite professional investors’ hesitance to place bets on companies that may not have an exit any time soon, entrepreneurs who believe in their own businesses are continuing to double down. And companies with great products and experienced management teams are continuing to get funded.
But even if you’re the kind of company that checks all the investors’ boxes, it’s important to maintain a healthy sense of paranoia in times like these. Here are five road-tested strategies to help you weather the the storm:
1. Liquidity: The all-important L-word. Make sure you’ve got enough cash and/or credit to survive a temporary downturn in your business. But don’t put all your eggs in one basket: Credit card companies such as American Express are scaling back credit lines to small businesses, and gun-shy mortgage lenders are freezing home equity lines in areas hardest hit by declines in housing prices.
2. Communication: Don’t hide the facts from your employees, no matter how painful those facts may be. By practicing “open book” management and giving your employees an opportunity to share in your company’s profits when the economy recovers, you’ll give your staff the incentive to work together to cut costs and make smarter decisions.
3. Cash Flow: Now’s the time to increase your cash flow in any way you can. Whether that means cutting costs, deferring trips or raising prices (if you can), boosting cash flow will show your bankers that you’re a rock-solid business whose credit line should be increased, not eliminated.
4. Suppliers: Pay your suppliers on time, every time. The last thing you need is to fall behind on your payments and have your suppliers start billing you COD. If you see your sales slowing, sell some inventory and place a smaller order next time.
5. Margins: Be sure to make a profit on every sale no matter how large or small that sale might be. Now is not the time to sell your products or services at a loss in the hope of landing a more profitable piece of business down the road.
The moral of the story: It takes a small tree to survive a mighty wind. Stay flexible, and you’ll stay in the game.
This entry was posted on Tuesday, April 15th, 2008 at 6:44 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.Leave a Reply
