Late in 2011, the U.S. economy began crackling with signs of increasing confidence, putting American entrepreneurs in a better position than they’ve been in for years, says Karl Schamotta, a senior market strategist for Western Union Business Solutions (WU) in Calgary. “The U.S. economy took its licks very hard during the financial crisis and its aftermath, but it’s still one of the world’s most flexible economies—and that gives it a huge advantage in recovery,” Schamotta says.
The upbeat forecasts could get lost in the doom-and-gloom pronouncements that typically accompany a Presidential election year, says John Krubski, a futurist and research adviser for the Guardian Life Small Business Research Institute. He suggests that small companies use the uptick as an excuse to adjust their business models and seek new markets.
In this Smart Answers column, Schamotta and Krubski pinpoint four challenges they foresee facing entrepreneurs in 2012 and offer advice to business owners on how to meet these obstacles to growth, head-on.
Negative focus. “Politicians don’t get elected unless they can convince people that things are going badly,” Krubski says, explaining why research shows that election years tend to be unfavorable for business. To avoid getting sucked into the rhetoric, small business owners should “inoculate themselves” against the prevailing wisdom and accentuate the positive: Financial-analysis-software maker Sageworks tracked U.S. companies with sales under $7 million and found a 3 percent average revenue increase in 2011. That’s up from a 2 percent increase in 2010 and a 6 percent drop in 2009.
Worry about slumping sales. The Guardian Life’s October 2011 survey of 1,100 business owners showed that 14 percent would shut their doors if revenues were to drop drastically in 2012; the figure rose to just over 23 percent for sole proprietors. Nevertheless, entrepreneurs are unrelenting optimists, even in tough times. Insurance firm Hiscox released its year-end “DNA of an Entrepreneur” survey of 3,000 respondents, showing that despite increased stress, almost half of U.S. entrepreneurs are optimistic about 2012; fewer than half expected layoffs. The McGladrey Manufacturing & Distribution Monitor, a quarterly survey of just over 500 executives who run mostly small and midsize businesses, showed economic outlook increasing from 38 percent positive in the spring to 60 percent positive in the summer—and 78 percent by the fall, says Karen Kurek, national manufacturing and distribution practice leader in McGladrey’s Chicago office.
World economic turmoil. From currency troubles in the euro zone to decelerating growth in emerging economies, the fallout contains repercussions for the U.S. economy. However, such difficulties also provide opportunities for small U.S. businesses to expand into markets where their competition has been weakened, particularly if they retool business plans and increase productivity.
“This year is a good one to be looking for coins in the sofa, to work on little improvements that can make a big difference to your long-term success,” Schamotta says. “Reduce costs, reduce cash flow volatility, and maximize foreign trading relationships.” Don’t forget the surplus of talented people looking for jobs, Krubski says. “If you have 10 employees and one isn’t pulling his weight, the other nine are penalized. It’s a hard decision, but think about what’s working for your company, what’s not, and what you can do to rebalance.”
Uncertainty. Service providers are craving the certainty of long-term contracts and may be willing to trade some profitability in exchange. “People are going to be looking to renegotiate everything and you should be doing the same. A friend [who runs a small business] had a copier salesman approach her about locking in her account for 10 years. She agreed, at a much lower rate, and got him to buy her out of her previous contract,” Krubski says. Do a start-from-scratch review of all your expenses and cut deals with everyone from your accountant to your customers and employees. Give people your commitment to buy from them and you can renegotiate many fixed expenses to your long-term benefit.