Friday, October 2, 2009

Surviving the Recovery

Each morning, more or less, I make myself the same breakfast. If I'm fortunate enough to be doing so in a house rendered silent by the departure of my kids for school, I'll put the TV on, turned up just loud enough for the drone of the talking heads on CNBC to be heard over the sizzle of tomatoes and onions in my pan.

This morning they were interviewing a guy who made an interesting point. He noted that, in a downturn, small businesses tend to let their employees go later than large businesses do. In my experience, that's true. In a small company, everybody is like family. It's hard (and you can take my word on this) to let go people you care about, people who have entrusted you with their livelihood. You have a shared history.  There's the time you had dinner at their house, or they at yours. And then there was that day they brought their kids to work when their nanny called in sick, or that time that you were down with the flu and everybody pitched in to get you flowers. These are not people you want to see suffer, and even more so, you do not want to be the cause of their misfortune.

And so, when the economy hits the skids, small ventures are the last to trim their staff. Because owners are so reluctant to make this move, by the time they do so, the company's finances may already be in crisis.  Ironically, as entrepreneurs tried to wait out the downturn, they may have actually made it almost all the way through to the other side: as a result, they find themselves short-handed and short of funds just as the economy is turning around. At a moment when they should be positioned for growth, they are instead running on empty, struggling to serve their existing customers, much less respond to an increase in demand. Having lived through the recession, they're in danger of being killed by the recovery.

At this critical point, it's vital for your small venture to be looking to establish strategic partnerships. These come in many forms: a partner may provide a channel to a vertical market (such as government) that is hard for your firm to reach on its own. It may license your company's product for rebranding as part of their own offering. It may take over a geographic region, such as Europe or the Far East, that you are not able to service on your own.

Whatever the specific arrangement, a strategic alliance generally provides some specific benefits your small business needs in order to take advantage of the economic upturn. Most crucially, it can supply a much-needed infusion of cash: licensing or distribution deals can (and should) be structured to include some amount of up-front payment, perhaps in return for a discounted license fee or guarantee of exclusivity in a certain vertical market or geographic region. Additionally, a partner can provide some credibility for your small firm as it tries to penetrate customers who might otherwise be spooked by your weak balance sheet.

But what about the additional demand created by the partnership? Even when a partner supplies up-front cash, it's tricky to turn those dollars into resources overnight. In fact, some of the money may go to servicing bloated debt balances accrued during the downturn, rather than directly into fueling growth. Demand rises, but spending is still constrained.

For software and service businesses, there has never been an easier time to grow in a controlled, demand-driven way. The advent of commodity cloud computing, in its many forms, enables smart companies to deploy exactly the resources they need, exactly when they are needed. For example, when you need to test a new release, you can engage the hardware, software and networking required to support the test, and then instantly decommission those resources when the test is complete. Or, for web-based businesses, you can deploy a dedicated production environment after the contract has been signed: no more buying expensive hardware based on forecasts that may, or may not, be correct.

Stay tuned for more on strategic partnerships, cloud computing, and other topics of important to small business leaders. For real-time updates, please follow me on Twitter.

If I haven't said so before: thanks for reading! I'd be doing this even if nobody else read it (which, actually, is sort of what I expected when I created People Centered Leadership last year), but I've found the nice comments I've received about this blog to be very meaningful for me, and they help push me to keep it going. Thank you!

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