Entrepreneurship Q&A: Growing your small business in the new economy
Editor’s note: As part of an occasional series checking in with small-business experts in the region, the Business Times asked Ray Bowman, the director of the Small Business Development Center at the Economic Development Collaborative — Ventura County, to take part in a written Q&A about entrepreneurial finance. Bowman is also an international trade expert and an instructor at EDC-VC’s G.E.T. Trade Program. He has been a consultant to thousands of businesses in the Tri-Counties.
• Pacific Coast Business Times: With the economy stabilizing in the region, new opportunities are popping up here and there. How do you balance paying off debt incurred during the recession, keeping a reserve handy in case of another dip, and spending to pursue new markets or customers?
Bowman: All of these things are important and therefore have to be a part of a business’ strategic plan. At the Small Business Development Center, we work with hundreds of businesses a year. The businesses that have proven to be the most successful are those that can be strategic in both the way they manage their money and the amount of time and effort they invest in new products and innovation. Those who simply hunker down and stay conservative often are not prepared once things start to get busy again.
• PCBT: One side effect of the Great Recession is that it revived the age-old arts of thriftiness and cost-consciousness. What are the best ways you’ve found to reduce financial overhead?
Bowman: No matter what business you’re in, domestic and foreign competition has gotten more intense than ever. Running your business efficiently with less resources has become an essential survival skill. However, efficiency processes, cannot sacrifice customer service, value or innovation. For this reason, many of the companies we work with have embraced various kinds of process improvement systems such as lean manufacturing, lean office or Six Sigma. They also use technologies such as social media and cloud computing to make their work more efficient, eliminating waste, while at the same time creating added value for their customers. It is also essential for a business to fully understand its costing, and how that relates to its financials. It’s very important for business owners to use the profit and loss statements, aging statements and forecast to manage their businesses. You can’t reduce financial overhead if you can’t measure and monitor your costs and profits.
• PCBT: It’s often the case that it only takes a few quarters of losses to force a business to cut positions, but it takes many quarters of profitability before that same company is willing to staff up again, especially with California’s high administrative and legal costs for adding an employee. How do you know when the time is right to hire new staff, and how does casting your net in the high-cost tri-county area influence the candidate pool?
Bowman: This is a tough question. I always say that hiring staff is like marrying them. When your hire someone you get the whole person. You’re getting their strengths weaknesses and personality. Many of the companies we work with have decided to get more efficient instead of increasing staff more than I have seen in previous years. The catch is that its also very hard for many of the companies we work with to find the right talent to hire when they need it. The bottom line is that you always have to make a strong case both financially and operationally before hiring anybody. Having said that, when you have the opportunity to hire talent that can advance your business, you sometimes have to think of that as an investment in opportunity.
• PCBT: What’s the secret to retention?
Bowman: At the end of the day, a small business is about the culture and values of the owner of that businesses. Employees stay long-term with businesses that have a sense of mission and purpose, respect their employees and give them opportunities to advance and learn. Lifestyle is becoming more and more important to employees because they are working harder and harder.
• PCBT: During the recession, owners and managers may have skipped paychecks or even loaned money to the company, and loyal employees may have foregone raises, happy to keep a steady job. When profits start to trickle back in, how do you know when it’s time to increase compensation, and who gets rewarded first?
Bowman: When managers and employees make sacrifices for the business they are investing actively in the company’s, as well as their own, future.
We invest in things we feel have value and will reward us for the investment we have made. It’s very important to set reasonable expectation on those sacrifices. In other words, if employees are volunteering to receive less wages, then they should know when that investment or sacrifice will pay off.
I was involved years ago in a company where I asked a large staff to work over and above what they were being compensated for. I was very clear about where the organization needed to go, and when it got there what the reward would be for them. In the end it paid off 10-fold for me and my employees. Whether it’s venture capitalists, banks or employees taking pay reductions, you have to treat them all as investors who are looking for a return on their investment in you.