Tips on how to weather the recession by focusing on growth

The United States debt ceiling crisis and the European sovereign debt crisis both have ramifications for small businesses globally, and we are being warned to brace ourselves for another downturn in the economy.

Indeed, on 23 August 2011, Gill Marcus, governor of the South African Reserve Bank, in a speech to the American Chamber of Commerce, said that South Africa’s future growth prospects will be significantly affected by global developments. “The world is not in a normal recession”, she said, “but in a financial crisis that typically takes a long time to work through.”

Small wonder that, for the past four years, small business owners have been besieged by the travails of the global economy. How are we to survive these difficult times?

Allon Raiz, chief executive officer of Raizcorp, advocates a back-to-basics approach. As one of South Africa’s leading experts in enterprise development, he points out that while he is neither an economist nor a ‘recessionista’, he does know that the first principle of business survival is to ensure one applies sound business practices.

“I have always asserted that when it comes to how you run your business, there should be no difference between the good and the bad times,” says Raiz. “However, it is human nature to become less disciplined during the fat years, so we usually need to reinstate certain disciplines when there are lean times ahead.”

And for him, survival requires a focus on growth. Here, in his own words, are his pithy recommendations for dealing with the recessionary weather:

How to lose weight

When you have to lose the excess weight of the fat years, will you go on a diet, or cut off your arm?

Entrepreneurs need to distinguish clearly between productive and unproductive expenses, and choose the solution that will deliver the right result.

Beware of reactionary tactics that cut back on the means of production. When the recession turns, you will find yourself in a vulnerable position without the resources in place to take advantage of the upswing.

Do not cut back on productive expenses. This is when you need to be more aggressive in your sales and marketing and drive to acquire new
profitable business.

Do not retrench staff who are important for production. Hire more sales people and, as tempting as it is, do not cut your marketing budget. This is probably rule number one in entrepreneurship for dummies: in a recession, increase your marketing.

Do cut back on unproductive expenses – keeping your overheads to a minimum. Trim whatever you can off your fixed costs such as insurance or rental, and reduce these to the bare bones. That unfortunately could mean laying off non-essential staff.

Invest in your productive costs

This is critical. Invest the savings that you make on your unproductive costs into your productive costs. The nett effect of the cost savings should be zero – but change the balance of your spending in your business.

Do not use the cost savings to pay off debt! Rather invest in making more sales, then the income you need to keep your staff and repay the bank will be generated.

Renew your vows

Renew and consolidate your commitment to growing the business. Spend at least 25% of your time on prospecting for business, selling, driving your sales team and building your resources.

Focus on growth. It may feel that you are running on the spot and not moving ahead; but when the alternative is to be moving backward, on the spot is a good place to be. You will then have a head start when the economy picks up.

Avoid ego-based decisions

This is not the time to spend on stuff that will make you feel good about yourself. Yes, luxuries do make us feel better when times are tough, but spending on frills is never a sound business decision.

If it is not going to boost sales, do not spend the money. That goes for everything – from signage or the gloss on your business cards to the car you drive and the entertainment of clients. No one cares what kind of car you drive, and clients do not expect to be wined and dined. They simply want you to do the job well and give them value for their money.

Apply basic common sense when making budget decisions. Establish a lean and efficient operation, and build on that.

Focus on your differentiators

Relook what makes your business special and then spend a disproportionate amount of time on building up your unique value proposition. Leverage the distinctive value that you have to offer and invest in it, market it, sell it, grow it. Do it all the time!

Allon Raiz is the founder and CEO of Raizcorp, the only privately held, unfunded, profitable business incubator on the African continent, supporting more than 200 businesses.

He is an author, a radio show host, and has written and hosted a prime-time reality television show, all in the field of entrepreneurship.

Raiz is the co-founder of the Entrepreneur Organisation South Africa and Rural Roots, and sits on the advisory and judging boards of numerous local and international non-governmental organisations and entrepreneurial awards.

He is an accomplished international speaker, and is completing a doctorate in Entrepreneurial Studies and Innovation.

Raiz has been appointed by the South African Cabinet to the board of the National Empowerment Fund South Africa.

His passion and focus on the development of entrepreneurs attracted the attention of the World Economic Forum which, on 11 March 2008, awarded him as a Young Global Leader.

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