Six Ways to Emerge Victorious from the Recession

Companies offer lessons in how to do more than just make it through hard times, but also how to thrive in them.

By Jon Frandsen, Senior Editor, Kiplinger.com

May 27, 2009

Editor's Note: This is the second part of an article looking at the shape of the economy and how businesses are coping with it.

It's a brutal reality in today's tough times: A business' first obligation during a recession is survival. But a company also must make choices that won't leave it crippled and unable to respond to pent-up demand when the economy starts to recover. Cutting costs is essential, but making the wrong cuts can be fatal.

Make cuts that will affect customer service the least, advises Bill Dunkelberg, the chief economist for the National Federation of Independent Businesses (NFIB). Labor accounts for about 80% of a business' costs, so staff reductions are inevitable for many companies, he notes. But look for those which preserve positive customer relations or those that can be made up through productivity gains and automation.

Take aim at fixed costs -- or what seem like fixed costs. Everyone is in the same boat, so your suppliers and landlords may be willing to reduce their charges and rents. Less income is better than no income from lost sales or leaving property vacant. Shake the expense tree hard, and remember that a "no" is not always a "no." Contracts can be very difficult to change, but not impossible. "Our PR firm wouldn't negotiate, so we decided to do the job in-house and gave them the required 30-day notice. They came back to us two months later with a plan that costs a third less than what we had been paying," says Robert Haaverson, CEO of Imanami, a business software firm in Livermore, Calif.

Scour every monthly expense -- telephones, utilities, cars, Internet access, even office cleaning fees -- and look for ways to renegotiate or change vendors. And do without or do with less. Focus on your core business and be creative.

Bobby Fitzgerald, who owns five restaurants in Nevada, Arizona, Colorado and Illinois, decided that a business generating its revenue from serving food to customers should spend as little as possible on support functions. Fitzgerald slashed office space and saved 75% on its cost. He also trimmed expenses by using Skype video conferencing to conduct job interviews instead of flying in out-of-town prospects.

Keep a tight rein on accounts receivable. A business that falls behind on collections may never catch up. Some companies are offering discounts to customers who pay upon order or delivery. They figure the discount is easily offset by savings on billing and collections.

Look aggressively for openings and opportunities that the downturn has created, once mere survival is assured. "One thing that happens in a recession is that businesses go out of business. That means their customers are freed up. Companies in a position to do so should be looking for them," says NFIB's Dunkelberg.

The New York IT consulting and support firm Syzygy 3 has taken that strategy to heart. Battered by the recession earlier in the decade, the company made a point of setting money aside as it recovered -- for a rainy day. That fund is enabling the company to act aggressively now, "although this is more like a monsoon," Sean O'Rourke, one of the company's three co-owners, notes. Instead of cutting staff, the company has hired its first salesman.

Fitzgerald's three White Chocolate Grills are capitalizing on the woes of more expensive white-tablecloth restaurants. "We created a Date Night Special to compete with the prix fixe menus of high-end steakhouses. It's a way to expand our clientele."

In addition, Dunkelberg says, for companies in a position to expand, it's a great time to do so. "You don't want to buy a fleet of new trucks right now, but there are things you ought to be doing. Space is cheap. Equipment is cheap. Labor is cheap." Syzygy 3 is taking his advice. "We're tapping into our cash reserves and established lines of credit to move the firm forward," O'Rourke says. "We expect our new offerings to save clients money on their overall IT spending while preparing us for the eventual upturn."

Finally, emphasize value. It's the key to attracting business in an era in which the economy is making a fundamental shift -- away from free spending consumers to people carefully guarding each dollar. Dan Hoffman, CEO of M5 Networks in New York, is addressing the issue by training the staff that sells M5's business VoIP telephone systems "to focus on quantifying our benefits for clients. …We must either make people money or save them money."

In much the same way, Imanami's Haaverson says his firm is simply telling its story better -- relating to customers how it can ease the management of computer users, their accounts, their email accounts and, in large companies, their access, freeing up IT staff from minor but time-consuming chores. "We used to sell saying we could solve a problem," he says. "Now we lead with how we can save you money."

As for Fitzgerald's restaurants, they're turning value into a competitive edge. With demand dropping for crabmeat, the White Chocolate Grills sought out vendors that would cut prices. But rather than pocket the saved cash, it cut $3 off the menu price of crab cakes.

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