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Strategies for small and medium businesses (SMB) to thrive in a tough economy

Updated on December 17, 2010
C.V.Rajan profile image

C.V.Rajan is a retired Engineer. Backed by 3 decades of industrial experience, he writes on several aspects of business, management and HR.

"When the going is tough, the tough gets going". But when the economy turns topsy-turvy, even the toughest finds it too difficult to weather the storm and march ahead. This being the reality, a small to mid-sized businessman has to ready his mindset to face the worst, but at the same time, put all his best efforts to come out of the trying situations.

The recession and the consequent tough economy have to be tackled from several angles. Following are some smart ideas for SMBs to thrive in a tough economy:

Rework Terms and Conditions with Customers

Your customers too would be the victims of economic down-turn and it is natural that they play tough with you in pricing, payment, taking deliveries etc. Depending on the customer-specific issues and the cash-flow crunch involved, there could be several strategies like:

  • Accepting part payment and delivering the consignments in full unlike full payment insisted earlier
  • Offering hefty discounts as a bargain for getting an advance payment to tide over your cash crunch
  • Not insisting on minimum economic order quantities; accepting smaller bulks and batch sizes for processing
  • Making the customer accept earlier-than-needed delivery period as a compensation for their non-payment of advance
  • Seeking customer's permission to permit diverting their order (or cash-rich, detachable accessories from their order) to another customer

and so on.

Review Make-Or-Buy Options

When going was good, you might have offloaded work outside even at higher cost so as to save time in deliveries. At times, getting things done outside might have proved to be more economical than in-house manufacture. Both strategies needs revision at a tough economic scenario.

Diversify into New Lines

Even at the time of recession, there will always be certain segments of economy comparatively less affected than others. Lee Iococca's father reportedly said to his son during the Great Depression: "Think of food business; whatever be the state of economy, people cannot stop eating".

By making some quick adjustments in the production line, will it be possible to for an auto ancillary to cater to the need of pump and valve industry? Can a machine tool builder take up building of footwear manufacturing machines or food packaging machines?

Take Up Cheaper, Simpler Jobs

A company formerly doing simple job-work or making sub-assemblies as a sub-contractor might have, over a period of time, grown bigger to make whole products themselves and might have shunned taking up simpler jobs having lower value addition. In a tough economic scenario, perhaps, going back to the roots may help, even though it may involve some loss of prestige.

Catch up With Forgotten Customers

This too may be an uncomfortable step backwards, but it might help. Sometimes we ease our way out of some customers for a variety of reasons like poor profitability, excessive demand of quality/deliveries, irregular order flow, poor payment terms etc. Under a tough economy, there is nothing wrong in going and meeting the old customer to revive the relationship. After all, everyone knows the compulsions of a tough economy and an empathetic response cannot be ruled out.

6) Downsize the Organization:

When economy was buoyant and orders were flowing-in unasked, your organization might have acquired some obesity, which would start showing its unhealthy side effects at the time of recession. It is now the right time to start "exercising" to lose the flab.

Draw your current Organization chart and question every supervisory and operating level person's contribution and the justification for one's existence now at that position. Which of the personnel you were quite unhappy about, but tolerating all along because "they had the experience"? Can you offer early retirement to them now? Who are the recent recruits having potential to contribute and who are potential idlers? Identify - move - promote - demote - remove. Whatever you do, do it with utmost dignity, respect and poise, citing the inevitability of the economic situation and never in haste.

Look into the possibility of reducing the office space by one floor and earn income by letting the space for rent.

Economize and Sacrifice

If you want to take tough economy measures and still keep the morale of the staff high, start the reforms from yourself and go downwards. Reduce your personal perks and comforts and make your top line executives too to follow suit; then start enforcing them further down.

Economizing must be done after doing a thorough ABC analysis of costs and expenses and NOT by random orders like "cut down stationery purchase by 30%". An ABC analysis alone can help in locating which are the top cost elements. Even by cutting a small percentage in them, a sizable saving can be made.

Levelheadedness, patience and innovativeness are clearly the need of the hour in tough economy.

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    • Hello, hello, profile image

      Hello, hello, 7 years ago from London, UK

      It is really hard doing business at the moment. Thank you for your generous and good advise. I will adopt some.

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