<Reuters><June 4, 2008>Are we heading into a recession? Are we in a recession? If a recession is coming, when will it be here? How long will the recession last? Isn’t there something the government can do to stop the recession? Will the Fed keep cutting interest rates to avoid a recession?

Just pick up any newspaper, or read your morning online news feeds, and you will see a continuously raging debate amongst economists, Wall Street analysts, and business experts about the state of the economy…and our risk of recession.

“R” also stands for Reality…
The “R” word…recession…can be scary for some. But much like death is part of life, or illness is part of heath, recessions are part of business life. It is hard not to get wrapped up in the debate…and many in our industry spend much time doing so.

But it is time to stop debating…and start embracing…the recession. Why? Because it doesn’t matter if we ARE or are NOT in a recession…the consumer is acting like we ARE! And for those of us in the consumer electronics industry…consumer is our first name! Being a consumer business, the time to take action and deal with a recession…real or imagined…is NOW.

Reuters, in an article titled “No recession? For consumers, it feels like one,” said “This may be the worst non-recession in years.” It went on to say, “consumers are behaving as if the country is in the throes of the deepest downturn in decades.”

The report went on to quote Harvard University Professor of Economics Kenneth Rogoff who says, “it will take years to rebuild the household wealth lost to the housing downturn. If we take declining employment, falling housing prices, rising prices for necessities like food and oil, and a distinct collapse in credit markets, no wonder consumers are feeling strapped.”

Take steps now to avert the recession brick wall at which you are hurtling…
So I am suggesting that you stop fighting it and embrace recession. The sooner you stop debating and start taking action…the better you and your business will be.

So what are the prudent steps for a business to take when facing a recession? See below for some ideas:

• Cut Costs Now – Whether you have already been severely impacted by the industry slowdown…or only feel it modestly…take aggressive action now to cut your overhead. As a friend of mine likes to say, a little ugly now saves a lot of ugly later.

Don’t make blanket cuts…be strategic in your focus. Find those items or areas that are less important with a lower level of business activity…and focus on them.

Consider cutting back on staff and making do with less. If you can cut back through attrition (not replacing employees who leave on their own) and bring in significant savings for your business in the process, fine. As an alternative, steal a play from the big companies playbook and consider offering a bonus to “buy out” employees. For example, add a number of weeks to your standard severance plan or extend medical benefits after employees leave for ninety days or until they find new employment.

But if these ideas don’t work, you may need to “get a little ugly” and lay off or permanently let people go. Also, consider cutting hours or benefits…even modest savings on an hourly basis add up when multiplied by the number of hours and number of employees you have working for you.

Find those discretionary expenses that really aren’t necessary. At one company I am familiar with, they discovered that they had six managers with subscriptions to a popular business newspaper. This was quickly cut to one pass-around subscription.

• Maintain or even increase your marketing – Most companies cut marketing as part of their “cost” cutting activities. However, marketing is NOT a cost…it is an investment that provides your business with a return by generating profitable sales.

Your competitors marketing cut backs give you a real opportunity to expand your market share by either maintaining or increasing your marketing investments. This will increase your visibility and sales opportunities with those customers still in the market for your goods or services. Even if there are fewer customers, you can sell more of them and drive your volume.

• Consider logical diversification – It is time to revisit your annual business plan and consider diversifying into logically related business areas. For example, if your integration business has been oriented exclusively at the residential new construction market, consider a push into the existing home (retrofit) market.

Or perhaps now is the time to expand your business into the light commercial business, which is a parallel channel that has a need for the same type of goods and services.

Consider product categories you have not yet addressed such as lighting, home automation, or security. Your customers have a need for these products and you should supply them for the added revenues they’ll bring your business.

However, take heed of this warning…the diversification must make sense or you will alienate your existing customer base before you attract your new clientele. Don’t decide, for example, that now is the time to learn the plumbing trade as an adjunct to your electronics distribution business!

• Watch your inventory – If your business holds inventory, reduce your target holdings. Most companies have target inventory levels…whatever yours is, reduce it now.

Also, go through your product sales reports with a fine tooth comb and reduce the number of SKUs you carry by eliminating non-performing or under-performing products. At first, it will seem painful to do so…after all, these seem to be lost sales…but you will be amazed at how much this will help your inventory turns, overhead, cash flow, and profits.

• Brush up on your negotiating skills – Now is the time to re-approach all those suppliers of goods and services that do business with you and renegotiate your arrangement. For example, media outlets competing for your advertising dollars are very aggressive at working out mutually beneficial terms. Don’t be afraid to ask for lower costs or longer terms.

Get creative, have your local newspaper where you are a consistent advertiser print your next product catalog. Or see if they can increase your advertising impact by including your advertisement on their website for little or no additional charge.

• Get closer to customers – As your competitors cut back on their businesses, customer service often falters. Seize this opportunity by having your customer service reps bend over backwards to take care of customers.

But you also need to get closer to YOUR customers. Realize that good customers are a premium and don’t assume that they are satisfied with your service. Set aside 15-20 minutes a day to call one or two customers just to check in with them and see if they are happy with the service they receive from your company.

• Fire your unprofitable customers – Review your business looking specifically at profitability by customer. You may be surprised to find out that you have demanding customers that you’ve built up your organization to serve who are actually unprofitable. Bring those relationships (respectfully) to a close and redouble your efforts with those customers who generate the bulk of your profits.

• Do not…I repeat, do not…cut your prices – It seems to be human nature with many business owners and managers to assume that with times tough, they should cut prices to capture more customers. In fact, this is almost never necessary. Trying to attract a new discount-oriented customer who is not your normal customer profile can change the image of your company in the market and create long term erosion away from a profitable business base.

Focus instead on investing in more marketing to find the “right” customer that fits your typical profile but was previously unaware of your business. They’ll be happy they found you and you’ll be happy that the increased sales base you’re building is a profitable one.

• Cash is king – In recessionary times, cash is king so find ways to free up cash. Ask suppliers to accept longer terms on your payments. If people owe you money, try to accelerate their payments to get the cash in. Make sure you are getting all proper rebates and credits from your suppliers. Have your bookkeeper audit these trailing credits and make sure all are properly reconciled.

• Keep the oaks…lose the deadwood – Make sure your better employees are happy and productive. These employees are the mighty oak trees supporting your business. Find new projects for them…increase their authority…find inexpensive ways to increase their compensation.

For example, if an oak hits a certain target, they get a gift card for dinner at a local restaurant for two. Or perhaps, offer them a four day weekend…on the company, of course. For many “oak” type employees, the recognition is more important than the compensation. Make sure you show them you feel that they are important.

As far as the deadwood, nudge them towards the door. In a good economy, their modest efforts may have been acceptable…but in a down economy, this is not the case.

Whatever steps you decide to take in your company to address the situation, the most important step is the first one…admitting you have to proactively address these recessionary times. Once you’ve taken that step...devising your overall strategy, creating the specific tactics, and successfully implementing your plan…all flows naturally.

As the old saying goes, “that which doesn’t kill us makes us stronger.” With effective management during a business downturn, your business comes out of the other side of the recession stronger than when it entered it.

And so I say, embrace recession!