Time flies. Thirteen months ago I posted Economic Dark Clouds here in September of 2007. Back then I said “the economic news is clustering now,” but my point was essentially sticking to the fundamentals …
With some notable exceptions, your business moves up and down far more because of very-micro specifics of what you and your team and your customers do. Your specific marketing programs, your new product release, your email campaign, your pay-per-click keyword decisions, your product development, your word of mouth it’s what you do with your business that moves it up and down, not what happens in the headlines.
… but at that point I really had no idea how bad this whole thing was going to get. And that’s with apologies to Anita’s post on small business optimism yesterday.
Today, 13 months later, this one now looks to me like the worst of my lifetime. I’m 60 years old, and I’ve seen some recessions. I was looking for my first real job during the recession of 1971. I started my first business during the recession of the early 1980s. I moved that company from California to Oregon during the recession of 1992. I laid off five people in a single day during the recession of 2001. This looks worse.
Fine. So what do we do about it? Specifically, what do we as business owners, managers, and entrepreneurs, do about it? I see this question and good and bad answers everywhere, so for this post I’ll stick to my expertise, which is business planning.
Let’s review how we go back to the fundamentals of business planning. What exactly are the fundamentals?
- It’s the planning, not just the plan. That’s critical and we all see it now as sudden unexpected changes — the black swan — blow our plans up. No worry, business plans are always wrong, so it’s always been the planning process that makes them worthwhile. Planning means plan and review, revise, and correct, and review and revise and correct again. Watch how the assumptions change. This is absolutely fundamental to planning.
- Shorten the cycle. You’re using planning to steer your business now, and the road is curvy and bumpy and unpredictable, so you pay closer attention and concentrate more carefully. Review your numbers frequently. Watch for changes, surprises, and the unexpected. It’s about early warnings. Watch the short-term closely. Use your planning as an early warning system.
- Sharpen the focus. Narrow it down. Make sure you’re close to your best customers. Sharpen the marketing message, and review where it’s going and how. Avoid wasted resources.
- Watch the cash flow. As the kids would say, “no duh.” But even if it’s obvious, I can’t leave it out of the fundamentals. Please remember that profits aren’t cash, and watch for changes in the cash cycle, like your business customers waiting longer to pay their bills. A business-to-business company needs extra financing worth a month of sales for every 30 days longer that customers hold off their payments.
- Watch the metrics. Remember, you’re looking for early warning systems. Obviously sales, costs, and expenses are metrics, but measure wherever you can, and watch for changes. Phone calls in and out? Time per call? Presentations? Inquiries? Metrics work for early warning.
- Your business plan is always wrong, but vital. See point number 1.
- Your business plan is never done. See point number 1.
My conclusion? Now, as 13 months ago. This is from that economic dark clouds post (sorry to quote myself, but hey, at least I’m consistent), but I think it holds up now more than ever. Stick to fundamentals, and get back to work:
Thoughtful economic analysis is readily available, fascinating, and scary. I don’t know about you, but for me some measure of future fear is a good thing. As president of a small company, being fearful is part of my job. Then I finish my coffee, go to my email, and get back to work.
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About the Author: Tim Berry is president and founder of Palo Alto Software, founder of bplans.com, and co-founder of Borland International. He is also the author of books and software on business planning including Business Plan Pro and The Plan-as-You-Go Business Plan; and a Stanford MBA. His blog hub is at timberry.com.