Dan Steppe, director of the nations top-ranked entrepreneur program at the University of Houstons C. T. Bauer College of Business, and Ron Wuensch, an instructor at the Cyvia and Melvyn Wolff Center for Entrepreneurship at Bauer, have decades of experience in guiding businesses through good times and bad. The two have been busy advising current students about how to weather the current financial upheaval, and recently sat down to compile 10 things small business owners can do to emerge from this down cycle unscathed:
1. Face facts - but don't get drawn into what Steppe calls "the media melodrama." The political maneuvering that prefaced the eventual signing of a $700 billion financial rescue bill threatens to detract from a more important reality, he says. "We got into this problem because we have too much debt and not enough collateral. These problems have not been solved. We are going to be or are already in a recession."
2. Look for places to reduce debt and only invest in necessities. "Cut back on everything," Steppe says. "Be cruel and heartless about what you need to be in business. Get rid of everything you don't need. Know exactly why you borrow what you do." Wuensch adds: "With a change in economics you have an opportunity to really look at your business, and adjust it to the next economic reality."
3. Remember the basics of sound business. Never borrow money on a short-term loan if you aren't really able to repay it until long-term. "Forget that you're a financial genius," Steppe says. "If you're borrowing money, it needs to be paid back over the life of the asset you're buying. Don't take out a 12-month loan assuming you'll be able to borrow at 5 percent or borrow at all when it comes due."
4. Really get to know your customer. Rip out your answering machine, step up your service and ask what they need. Understand how your target customer has evolved. In general, "It's best to target high-end or budget buyers, the middle is gone," Steppe says. "Do something fast or you're about to go out of business. People will be buying what they need and cutting back on their wishes and wants."
5. Embrace the current economic reality, Part I. "The bottom of the cycle is a really good place to start a business," says Wuensch, "because when you start off on an up cycle, your assumption is that this (level of profitability) is going to go on forever." Those who have studied the history of business will be comforted by the knowledge that downturns always eventually go up.
6. Embrace the current economic reality, Part II. Competitors' failed businesses present an opportunity. "If the fundamental need of their business didn't go away, people who understand this can exploit it (often by buying the failed company or hiring top employees left without a job)," Steppe says.
7. Postpone a new business launch, and consider the intervening months or years a gift. "Those who have experience are better off. Go work for someone else for a few years, fill in the holes of your education and keep working on your business plan," Steppe says.
8. Network and join together with other business owners. Vote, and act as a group to wield influence on local and national levels in order to create a better business environment.
9. Narrow your focus. Energy and technology-based businesses, for instance, are two fields that will continue to have needs even as the economy falters.
10. Remember that the most successful business people are highly adaptable. "That's the heart and soul of being an entrepreneur," Wuensch says. "Reading the environment and reacting to it is what an entrepreneur does." He adds: "Figure out your position of strength, make good solid decisions based on your position of strength and the odds really are in your favor.
