Five Mistakes to Avoid During a Downturn

Our finance columnist offers a what-not-to-do list for small business owners facing tough times

by Christine Comaford

Companies make mistakes all the time. However, in an economic downturn, avoiding the big ones is crucial. Small business owners tend to react to bad news impulsively, but they should take the long view and pace themselves. To get funded, stay funded, or just simply stretch your cash, you'll need to avoid the following common mistakes. If you've made them already, it's time to course-correct (BusinessWeek.com, 5/7/07), meaning spot mistakes and take action to fix them. Right away.

1. Hasty Hiring. Result? Bad hires who are costly and time-consuming. It's better to try out new people as contractors first (BusinessWeek SmallBiz, October/November, 2007). Then after you've ensured they fit within your organization, bring them on as permanent hires.

When you're overwhelmed and overworked, it's easy to make hiring mistakes. This is why relying on contractors is the best policy. Check out Web sites like AskSunday.com for administrative help—one of my friends raves about it, and she pays $12 per hour! For marketing, bookkeeping, and other help, see Workaholics4Hire.com or similar online marketplaces. Don't make the mistake of staffing up just to find out your business operates in waves. Have a lean team and occasional help for the busier times.

2. Expenses Before Revenue. Result? Financial pressure and being forced to fund your business with your own money. Better to live below your means and grow more slowly.

Consider the example of the clothing retailer who recently contacted me, desperate for a quick $200,000 loan. She'd never built the credit of her 15-year-old business, because she'd been too busy spotting the latest fashion trends and buying inventory on her personal credit cards. Sure, she had racked up zillions of frequent-flier miles, but her company wasn't the least bit creditworthy. So when she hit some tough economic times, she had to scramble for a personal loan. Her credit score had been dinged significantly, since she'd missed a few payments on her six-digit credit-card balance. Yowch. Even my most forgiving online lending source (BusinessWeek.com, 12/21/07) wouldn't front her the $200,000.

3. Skipping the Six-Month Plan. Result? Getting very little accomplished. It's better to map out the next six months, and if a new project comes up, swap it out with one of equal complexity that is already on your plan.

Entrepreneurs can be excessive idea generators. I know I am. With a six-month plan, you have mapped out what the projects are for the foreseeable future. Consider the perils of the company that had what I call the "strategy of the second," because each time its mercurial CEO returned from a conference, he'd have a new idea. Were they good ones? Often. But his already stretched staff had no spare energy. And since they hadn't learned to communicate clearly with him, they'd take on the project, all sorts of key tasks would get dropped, and no one was happy. You need a gatekeeper for the six-month plan if you want your company to run efficiently. This is someone who will ensure the new project is either postponed or replaced with an existing project of equal size. Once this CEO put a six-month plan in place, his staff was happier, fewer tasks were dropped, and the revenue came rolling in.

4. Pointless Partnerships. Result? Time-consuming meetings and planning that don't result in revenue. Better to only add partners for a specific purpose that can be monetized within the next 90 days.

Partnerships are not about press releases; they are about massive marketing benefit that will lead to revenue or direct revenue generation now—I can't emphasize the "now" part enough. You can waste a tremendous amount of time on irrelevant partnerships that may have a long-term glorious future, but in the near term, they are simply not worth it. In difficult times, stay focused. Partner for benefits you can count on within 90 days or less, and push the longer-term deals off your plate. You'll get to them later, in more stable times.

5. Chase All Sales Leads. Result? Wasting time on prospects that have no hope of becoming clients.

A CEO complained to me recently that she'd been chasing a key account for four months. Four months! And she had finally lost hope they would ever actually sign an order with her. When asked if she had a disqualification process, she clearly was confused. Here's the net-net: You only want to spend time with prospects who are just that—prospective clients. Create a disqualification process so you can quickly remove people who will likely never buy. You must focus on high-probability selling, which I'll talk about more in future columns.

Hang in there and stay hopeful! I've made all the above mistakes, and numerous times at that. But I've gotten better at rebounding and reducing the amount of time before a lucrative exit. The point is to course-correct constantly. I'd like to hear about mistakes you're grappling with or biggies I didn't mention—let me know.

Christine Comaford, CEO of business accelerator Mighty Ventures is the author of the best-selling book Rules for Renegades. She invites you to participate in her next Q&A call by registering at www.AskChristineNow.com. She writes her column on small business growth strategies every other week.