Survival of the Fittest

Another gloom and doom story about small businesses in this economy has somehow managed to make its way into the mainstream media. I found this Associated Press (AP) article on the homepage of MSNBC.com before heading to work this morning. The title, Small Businesses Struggle to Survive Downturn obviously caught my eye.

First and foremost, the struggle to survive is a daily consideration for most small businesses. At any time, in any economy, there are factors that threaten every businesses' very survival. Natural disasters, new entry of competition, the health of the leadership team; there are so many other possible factors that could extinguish the livelihood of a small business, it is a wonder that so many people still consider it the American Dream to pursue business ownership.

Like in nature, business mortality is an unfortunate reality. Survival is reserved for those businesses that are poised to grow and adapt. The businesses that can evolve and meet the changing demands of the marketplace will ultimately succeed and those that can't will not survive.

If you could indulge me, I would like to address some specific claims in this article. The following bullet points are contained in just one paragraph of this article:

* Financing is hard, if not impossible, to come by
* Vendors are being skittish about extending credit for inventory
* Rents are rising
* And profits are falling — or vanishing altogether as sales slip

First of all, I know a number of lenders in my area who are trying to fight this misconception that financing is impossible to come by. The credit markets are not frozen and credit is quite available. Of course banks are learning their lessons from some of the looser underwriting practices that allowed defaults to increase. They are paying closer attention to the borrower's capacity to service any new financing. Yet banks can't succeed without lending out money. Lending money is still an income source for them and I know of a number of financial institutions that are still quite eager to extend credit.

And banks are not the sole source of financing. For ventures that require a little bit more risk than what banks may be comfortable in underwriting, now is a perfect time to consider private equity. There are investors out there who have money sitting on the sidelines waiting for that right deal to come along. The prospect of having a more intimate review of a business model may be enticing in these days of corporate greed and mismanagement. The key is to craft an investment deal that provides a win/win situation. More flexibility to the business owner and a good prospect for return on investment to the investor.

To address the comment about vendors being skittish about extending credit for inventory, I would like to know when have vendors not been skittish about extending credit? Nothing has changed here. Vendors are always enticing their customers to pay quicker, but if they don't want to experience their own drop in sales, they are going to make some deals and extend credit terms. Maybe not for those businesses that have abused credit terms in the past, but again, that is another form of business Darwinism. Vendors are looking for the right partners to bring their products to the marketplace and they are going to pair up with the stronger businesses who have show a commitment to making timely payments.

The comment that rents are rising baffles me to a certain extent and contradicts so much that I have been hearing with all the gloom and doom economic data on the fall of property values. Yes, I know there have been some property tax issues in various communities, but with the fall of property values, the increased tax rates will eventually be offset by the decrease in property values. Now is a great time to consider negotiating lease terms. Many landlords that I know have been rewarding their long term tenants with discounted lease extensions and it is up to each individual business owner to negotiate the best terms to meet their needs. Of course, it has to be reasonable and beneficial to the landlord, as well. But just because the MSNBC article says rents are rising, don't believe it until you get the bill. And if rents are indeed rising, decide what you are going to do to adapt to this change.

The final claim from the MSNBC article that I will address in this post is that profits are falling or vanishing altogether as sales dip. I am absolutely astounded by this astute financial observation. If I may be as bold, I offer my own prognostication that if you jump into Lake Champlain, you are bound to get wet.

I apologize for being so flip, but sometimes stating the obvious just isn't the answer. Survival in operating a small business is definitely a challenging prospect, no matter what state of our economy. Yet there are plenty of resources for those who wish to find solutions. Our NYSSBDC Research Network has published some good articles on their blog. Here is a link to one:

http://sbdcrn.blogspot.com/2008/12/recession-survival-guide.html

While searching for other resoources to help business owners, I came upon this excellent article by Christine Corelli:

http://www.creativeimpactgroup.com/PDF/Generatingbizchallengingeconomy.pdf

I am also a big fan of these two retail blogs:

http://www.ricksegel.com/blog/

http://bobphibbs.wordpress.com/

As I noted in other posts, your business can also contact a local Small Business Development Center counselor to help you develop specific strategies to deal with challenges or to explore new opportunities to grow your business.

W. Edwards Deming is known for developing the management training that was shunned by many American companies and often attributed with leading the revolutionary improvement of Japanese manufacturing practices. The author of the great management book, Out of Crisis, Mr. Deming once said, “Learning is not compulsory... neither is survival.”