SMEs Who Made it Through the 90s Recession
A focus on rigorous business planning combined with the ability to adapt and the determination to succeed has been identified as the most successful approach for small businesses to survive the current economic downturn, according to research by O2.
With reports suggesting up to 30,000 small businesses will go bust in 2009,* O2 questioned a cross-section of its small business customers who successfully steered their businesses through the early 1990s recession to find out what they did to get them through it.
Ten top tips emerge from O2’s research to help small business customers faced with a challenging year in 2009, especially those who have not previously experienced a recession.
Simon Devonshire, Head of small business marketing at O2 said:
"We know how much small businesses value the advice of their peers and we are in an ideal position to share the experiences of customers that not only survived the last major recession, but thrived during it too. We are committed to providing practical and informative advice to our small business customers to help them through these challenging times."
Ten top tips from O2 customers that survived the early 90s recession
1) Get the basics right
Having a 2009 business plan in place early and an accurate set of financial forecasts will allow small businesses to prepare in advance for the effects the downturn is having on business. Getting accurate financial reporting and stringent account management processes set up will be crucial to secure business loans.
2) Cut costs
Scrutinising expenditure to identify non-essential costs was recommended as amongst the first measures small businesses should take in order to save money and control costs. Streamlining costs and looking for easy ways to cut-back such as on expensive office furniture and staff car schemes were the most common non-essential business costs cited by respondents. Giving up office space altogether was also something to consider to reduce monthly overheads especially with developments in affordable mobile technology enabling more flexible working.
3) Careful cash flow management
Ensuring that the business has enough cash to take it forward was identified as a crucial factor for survival. Whilst a business can be fundamentally good, it doesn’t mean it won’t run out of cash especially if all incoming and outgoing costs have not been accurately recorded. The tightening of bank lending criteria makes cash flow management especially important.
4) Spend on marketing
Despite recommending cost-cutting across most areas of the business, a need to remain competitive and visible is important. Marketing was one area referenced by O2’s small businesses as crucial to generating business during a period of downturn. Take advantage of the recession by negotiating better deals in areas such as advertising where cost of space has dropped or allocate spend to setting up or improving a website which is another cost-effective way of marketing your company. In an increasingly competitive arena, customers need to hear about your product so maintaining marketing spend is a must.
A determination to do whatever it takes to succeed and stay in business was identified as a common trait amongst respondents. Those questioned identified that without question there was not only a need to work harder, but also smarter. As one respondent said ‘If small business was easy then everyone would be doing it.’
6) Hold onto existing customers
As spending power diminishes existing customers were highlighted as the most common source of revenue growth during the last recession. Rather than putting all efforts behind winning new business, which is more cost and time heavy, identifying new business opportunities amongst existing customers led to successful organic growth and new revenue.
7) Diversify your product and customer base
Looking at ways to adapt or broaden the appeal of a product may be a way of maintaining and growing your business. This may be through opportunities arising as a direct result of the economic climate or it could be re-looking at your business and adapting it for a different market. Small businesses should be alert and on the lookout for new ways to market their product in order to grow their customer base. O2 X Awards Entrepreneur of the Year 2008, Tony Fraser, MD of Cornish Sea Salt said: ‘The food and hospitality industry was the primary target when we launched our sea salt product last year. However we are now looking at ways to make the product work as hard as it can and in 2009 we’ll be looking to diversify into new channels for example within the beauty and spa market.’
8) Delivering excellent customer service
With existing customers recognised as the lifeblood for small businesses during a period of downturn, delivering excellent customer service was identified as essential by 9 out of 10 of the small businesses questioned. Being flexible and reliable to meet their requirements were cited as common methods to help keep current customers loyal as they tighten belts.
9) Credit check customers
As the recession bites and customers go under, running credit checks and ensuring they don’t owe large sums of money is key to the financial health and longevity of a business. Keeping a close eye on overdue payments and asking for payment within shorter payment terms or even in advance were frequent measures taken to enable tight control over incoming payments.
10) Invest in the right technology
Technology has become essential to business since the last recession but looking at overall spend on technology and how this could be made more effective will not only reduce costs but enable staff to work more efficiently. In November 2008, O2 saw nine out of ten London based small business customers switch to converged devices such as iPhones and Blackberrys compared to a year previously when only two in ten small businesses across the UK were using data devices. The main reason cited by businesses for the change was in order to increase efficiency and flexibility by giving staff the ability to work on the move.
Simon Devonshire added:
‘The top ten tips although borne out of experiences of small businesses surviving the past recession are not only relevant to the current economic climate, but also cover sound business basics for running an efficient small business.’
Ashley Rubin, a O2 small business customer, runs Shield Homes Ltd, a property development company:
"Being able to react to the economic climate is something my company was able to successfully do during the early 90s recession as we were able to diversify into property sales dealing with repossessions which were on the rise due to the recession. We were also able to capitalize on the housing market and buy up properties quickly as the market started to rise. The challenge facing all businesses both big and small is fundamentally the same. Its all about keeping your product appealing to your customer base and motivating your workforce even through the difficult times."
*Statistics from The Federation of Small Business