Managing a Small Business in a Difficult Economic Environment — by Dan Lynn
By Dan Lynn
Well, the good news is that we finally started a business. The bad news is that we picked the absolute worst time to start a business. March of 2000 wasn't exactly the perfect time to get started. In fact, that was exactly when everyone fully realized that the bubble had burst. Try raising money for a Web Services company in March of 2000. It figures, a day late and a dollar short.
However, in retrospect, it was the best thing that ever happened to us. Hell, we had no idea what we were doing so we probably would have wasted a lot of money. Instead we had to build the business the old-fashion way. Here are some of our key learnings to building a business in a difficult economy:
Overall: - You must be even more aggressive and work longer hours. - It's so easy to spend money. You've got to watch every single dollar you spend. - You MUST practice right-to-left thinking. In other words, start with a plan and then figure out how to get there. Most people don't have a plan. As a result, they don't know where they are going and don't know when they get there. - You've got to frantically work to create leverage. - With adversity comes opportunity - so work hard, stay energized, and focus on getting strong so that when the economy turns you are ready to take off.
Funding: - Funding options become very limited - so you may need to go it alone.
Cash Flow: - Cash really is king- Collections become increasingly difficult and increasingly important - You may need to use incentives like prepayment discounts to accelerate cash flow
People: - Great people are the difference between success and failure - Don't hire until you definitely have to - Make the tough choices quickly - No hamburger helpers - people who make the hamburger taste better but aren't really needed.
Service: - Service, service, service. New customers are hard to get so don't lose the ones you have.
Services: - You must balance Focus and Flexibility - Listen to the market and follow the need - Deepen relationships and broaden services
Questions this Key Learning answers
How do I manage a small business in a bad economy?
The author emphasizes working harder, watching every dollar and planning backward from a clear goal. Limited funding may mean going it alone, delaying hires and making difficult choices quickly. The central lesson is to use adversity to build a stronger business, so it is prepared to accelerate when economic conditions improve.
What can I do when customers are slow to pay?
The author says cash is king because collections become both harder and more important in a difficult economy. Prepayment discounts may help accelerate cash flow. Our analysis extends that principle: shorten the path between completing work and collecting payment, while protecting existing customer relationships through consistently strong service.
Should I hire more people when my business is struggling?
The author advises waiting to hire until the need is definite. Great people can determine success or failure, but every role must be genuinely necessary rather than merely helpful. Our analysis frames each hire as a claim on scarce runway, meaning it should clearly support customer delivery or revenue.