Street Smarts: Surviving the Recession

Inc.com | by Norm Brodsky | March 2009

It requires conquering your fears and making the right choices. Many business owners won’t do either

Fear can be a motivator, but it can also lead you into bad decisions, particularly in times like these. I have no doubt that a lot of business owners have spent the past couple of months implementing cost-saving plans and survival strategies that will weaken their companies and damage their long-term prospects. They’ve done it because they’ve been afraid, and fear makes us shortsighted. With the economy falling apart around us, we forget that recessions always end. Yes, some businesses will go under, but some companies will emerge stronger. If you want yours to be among the latter, you need to be careful about which costs you cut and which deals you offer your customers.

These thoughts came to mind after my first meeting with another one of the entrepreneurs I’ll be following in the months to come. Her name is Lisa Kristine, and she is a fine-art photographer. I met her on a recent trip to San Francisco, where I was taping a video about my book, The Knack. The video producer mentioned that her partner, Lisa, had some questions she wanted to ask me about her photography business. I said I’d be happy to talk to her and asked where she was based. In Sonoma, the producer said, about an hour north of the city, but she also had a gallery in Sausalito, on the other side of the Golden Gate Bridge. As it happened, my wife, Elaine, and I were free the next day, and we arranged to meet Lisa the following afternoon.

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Finally, I said, “OK, let’s talk about what’s going on now.”

“My business is off 50 percent in the past two months, and I don’t know what to do,” Lisa said.

“Fifty percent,” I repeated. “That’s not surprising. In recessions, people stop buying luxuries, including art. You could be off 50 percent for the next year.” She turned white. “Don’t panic,” I said. “You just need to prepare. What have you done so far?”

“Well, I’m about to reduce the time we’re open by two hours a day,” she said.

That sent up a red flag. It’s one thing to close a store because it isn’t financially viable. (Indeed, Lisa eventually decided to shut down the Mendocino gallery for that reason.) But reducing selling time across the board is something else. I believe it’s a terrible idea to cut back your sales efforts in a recession. If anything, you should increase them. “Right now,” I said, “a store is open seven days a week for eight hours a day, right? That’s 56 hours of selling time per store. You’re going to reduce that to 42 hours? How much are you going to save? Two-fifty, $300 a week per store? Meanwhile, you’ve cut your selling time 25 percent. A couple of sales of the large, limited-edition pictures would have a bigger effect on your bottom line, and you might lose them because you’re not open when the customers come by.”

“I didn’t think of that.”

“There’s another consideration,” I said. “You say you have great people, and it took you a long time to find them. Why risk losing them? If you cut their hours, you cut their pay. If anything, I’d want to reassure them that their jobs are secure. Then I’d get them involved in finding ways to cut costs and increase sales.”

“OK, but I’m losing money.”

“Well, first, we need to know how much we’re talking about,” I said. “You have to figure out how you can keep paying all your bills, assuming your sales will be down 50 percent for the next year.” She winced. We took the financial information she had brought and did a rough calculation based on half the sales. The shortfall was $200,000. “OK,” I said. “That’s the amount of cash you have to come up with by either spending less or selling more.”

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