Asher Epstein is the managing director of the Dingman Center for Entrepreneurship at the Robert H. Smith School of Business at the University of Maryland. He has been its managing director for five years and has worked with about 1,000 start-up companies. Prior to this, he was with American Management Systems in Fairfax, Virginia, serving as a consultant to Fortune 500 companies.
Bruce Johnson is president of Accelerated Growth Consulting in Germantown. A graduate of the University of Wisconsin in Madison with a degree in accounting, Johnson works with small and medium-size businesses.
According to Epstein, the major problems confronting businesses during this recession are the credit crunch, consumer discretionary spending, and consumer and business confidence.
He says that the best thing a business can do during these times is to make itself cash-flow positive on a month-to-month basis. Businesses achieve this by taking another look at their spending. He adds that businesses work on the premise that there are two types of expenses: fixed (like the rent for office space) and variable (the cost of marketing and labor, etc).
As far as Epstein is concerned, however, all expenses are variable during a downturn such as this.
“Shifting expenses from fixed to variable is a great way to reduce your monthly burden,” he says. “What that allows you to do is create an environment where you can scale up rather rapidly through increasing variable costs. As the business climate improves, you keep the maintenance of the business operating on a lean structure with lower fixed costs.”
To overcome the credit crunch, Epstein says that entrepreneurs can look for alternative credit sources. If a business owner has good personal credit but is having difficulty getting credit for his business, for example, he may opt to use his personal credit for the business.
“You may have access to equity in your home, you may have access to friends’ and family finances,” explains Epstein.
He also notes that business owners should expand their sources of credit. If your bank is not willing to work with you on flexible terms, suggests Epstein, then go out and shop for another bank that will.
Generating consumer confidence and thus consumer demand can be tricky during a recession. Epstein says that you can offer your services or products for a reduced cost, but do it in such a way so that its value is not adversely affected. Illustrating what he means, Epstein uses the example of a spa.
“A typical spa may offer a package that costs from $200 to $300. That might be excessive,” he says. “But to entice consumers, the spa owner could create a mini package which offers only some of what the full package does. And offer it for, say, $100 to $175. Consumers can have a nice experience for 30 percent to 40 percent less.”
Businesses that offer a product, he continues, can also offer “buy one, get one free” deals. This type of sales strategy is better than offering 50 percent off because you maintain the pricing structure, and the value of your goods remains intact.
In offering his own advice to recession-affected businesses, Johnson identifies three problems endemic to this downturn: mindset, marketing, and differentiation.
The big problem now, he says, is that everyone has a negative mindset about their business because of the dire economic news, so it’s critical to change that mindset.
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