Surviving the recession — A guide for SMBs

BANGALORE, INDIA: In the past the slightest hint of a financial crisis has sent businesses into a panic, with owners looking around to see what could be cast aside to recession-proof the business.



For many nervous managers the first step is the introduction of wholesale cuts across the board in a bid to remain profitable. It should come as no surprise in this scenario the first casualties were often staffing and investment in new technology. The aim of the cost-cutting exercise was to weather the downturn in the economy until growth returned.

Yet there is no need for rash actions or to ignore the economic reality. Small to medium businesses (SMBs) can continue to grow in a recession. The key is to avoid panicking and implement strategies to improve business processes. SMBs who react quickly and in a strategic manner can gain a competitive advantage over larger enterprises in tough times.

When the economy picks up, smart SMBs that have refined their internal processes and controlled costs are in an excellent position to take advantage of the upturn. The opportunities available in a slowdown can help to boost market share when the recession turns.

Here is a survival guide for SMBs looking to capitalise on opportunities during a recession.

Will the examination of a SMBs business processes save the company in tough times?

Forewarned is forearmed. Conducting a review of your business processes -- internal and external -- will alert you to problems and enable you to plan your response. It means you’re less likely to scurry off making ineffective changes willy-nilly.

Owners who are alert to the issues are more able to adapt quickly to the changes in economic conditions and keep their doors open as a result.

Look for internal problems, such as inadequate internal systems, key staff that are not up to scratch or a poor business plan. Pay particular attention to revenue, cost structure, the quality of your business plan and your capital structure.

SMBs who don’t conduct a review of their business processes are potential targets for acquisition or to be overtaken as growth returns.

In business it’s often the complex processes and sign-offs that require committee decisions, for example, that slow down the simplest of tasks and will leave you scrambling for market share as the economy turns.

Is it wrong to focus on cost cutting during a recession?

Cost cutting in a slowing economy is a necessary evil and a means of returning to profitability. In tough times owners become obsessive about cost. Where can we cut expenses? What staff can we get rid of?

Cutting costs, if done properly, can have a positive effect on your business in a depressed economy.  Properly is not running around blindly slashing costs across the organization. This has as much impact on the profitability of a business as burying your head in the sand and hoping everything will go away.

Businesses need to be careful to only cut expenditures that won’t hurt the company when growth returns.

SMBs should target costs that tend to creep in during good times. ‘Extra’ expenditures that can be trimmed include staff benefits such as corporate entertainment, travel, conferences and non-essential club memberships. When good times return staff can be rewarded accordingly.

Owners need to examine all systems to find inherent efficiencies such as savings on ink and paper by only printing necessary documents and using both sides of paper for copying.

Should SMBs invest in new products or services in an economic slowdown?

Innovation is the driver of performance, growth and stock market valuation in good times and bad. The question as to whether an SMB survives a recession comes down to a business’s perspective on the economic reality.

Businesses which thrive in a downturn continue to innovate, knowing that a hot product or essential service will be in great demand whether in a recession or not.

The difference, however, is in a recession consumers and partners generally look for a product which is better and more cost effective.

What drives a sale is saving money rather than value add. A focus on innovation ensures an SMB is capable of meeting market needs.

History has shown that winners always emerge out of a recession and they almost always beat their competition because they continued to focus on innovation in the downturn.

Savings made on non-essential expenditures can be re-invested in the development of new products and services or to reach new markets.

Savvy owners will discover many opportunities to exploit existing processes that have the potential to deliver high returns.

How can SMBs control the costs of its IT infrastructure?

There is no doubt that IT is essential to the daily operation of businesses of all sizes. Yet, it is often viewed by owners as a money pit and not a driver of profit within an organisation.

SMBs which emerge from a recession with a competitive advantage realise that IT helps businesses to control costs, maintain production schedules and deliver essential services and applications.

Tough times require tough measures and in a depressed economy SMBs have to do more with less. In this environment, IT provides the perfect opportunity for owners to regain control of their costs and makes a compelling case for strategic spending that can help weather the economic storm.

A recession is the ideal time for businesses to consider alternatives to buying expensive hardware and operating equipment or paying pricey license fees for software. There are a number of alternative IT solutions which firms can deploy to reign in costs on hardware and software, effectively doing more with less.

Virtualization, for example, allows an owner to cut expenditure on hardware and associated costs such as power and cooling. A business which deploys a virtualisation solution is still able to meet its current and future demands, despite a reduction in physical hardware.

The advantage of the technology caters to the needs of owners who want to increase the efficiencies and cost effectiveness of their IT operations.

Software is another cost cutting target for firms looking to refine their business processes in a slowing economy.

Instead of paying expensive perpetual license fees SMBs should look for Software-as-a-Service (SaaS) offerings. SaaS providers own the licenses and have acquired the hardware infrastructure needed to run the applications. They are able to spread out the costs over a larger user base, with businesses paying on a per-use basis.

Why is IT support important?

All SMBs are exposed to the possibility of experiencing issues with their IT systems. The level of risk that businesses are prepared to accept determines the winners and the losers during a recession.

No SMB can afford to have IT issues persist for any length of time, as IT problems have the ability to cripple your business. Imagine not being able to take orders through your website, or send and receive emails for any length of time.

To compound this problem, in an effort to save money many SMBs forgo any kind of retained IT support, meaning they are paying a premium when they need to call in a specialist to resolve whatever issues they are experiencing.

The author is president and corporate VP for Dell’s Small and Medium Business organization in the Asia Pacific and Japan (APJ) region