moving-forwardDaily now I am asked what the economy is doing as it seems that there are indicators pointing at a recovery. As an economist I’m trying to move forward and stay away from the spin doctors and otherwise motivated dream-weavers out there, predicting that soon we will all be back on track to a life of affluence and credit spending. Well it won’t be.

The economy has too many bubbles from the past to already claim victory and return to the high life. To explain this you will simply have to understand that the US economy in particular is based for 60-70% on consumer spending. And that is a big catch 22 for a true recovery in the next couple of years. Some pockets of industry may show better than expected results on occasion is they were less reliant in the past on credit structures, but to claim that as a sign that the recession is behind us, equals abuse of the ignorant. Far too many people have been hurt by the financial system and the unethical “bait and switch” behavior of financial institutions. There is no confidence among the majority of the people. For the first time in years Americans are not spending every dime they do and don’t have (credit). Americans are keeping money in reserve (they call this saving). Currently about 7% of their income, but expected to grow to about 10-12%. That means that the US economy will be forced to change course and build in some structural long term changes.

On the micro or regional level far too many business owners revert to a ‚Äúsafe mode‚Äù as panic spreads. A natural or “responsible” course of action typically is perceived as doing one (or more) of the following:

* Tightening purse strings
* Laying off key employees
* Putting growth plans on the backburner

Doing anything different may be seen as “risky” and irresponsible.

This misdirected “wisdom” has always proven to be wrong. Cutting out excess fat is OK, it should be done anyway. You should have done that in the good times, but never got around to it as growth opportunities unfolded, but when a recession hits, above reactions are wrong.

An old adage states, “Only dead fish swim with the current,” and that philosophy applies to your growing business as well. I hear people constantly complain about not getting loans from banks to keep their business up and running. Well, I got news for you. Loans are meant to finance expansion, not to finance your operation in the current state. Come with a plan on how you intend to grow market share and develop market territory and new products and services that are in demand and no bank will refuse you.

Following is my take on the three biggest business mistakes made in tough economic times, and the implications of each:

Mistake #1: Shrinking your sales and marketing budget

When there is less money to go around, budgets get cut. But it’s a bad idea to take too many of those dollars away from marketing initiatives. Actually, if you have or can secure the resources, now is the appropriate time to continue (or expand) your marketing. Why? Most of your competitors will cut their budgets, out of a ‚Äúknee-jerk‚Äù reaction to the economic downturn — leaving you a greater window of opportunity to get your message across to your market. Business owners who ‚Äústick it out‚Äù during tough times will likely enjoy increased market share once the economy rebounds.

Mistake #2: Laying off key employees

Another, often more challenging decision, is whether to cut staff. Whatever you do, don‚Äôt lay off your top talent. Great people are your most valuable resource — hold on to them. In fact, if you‚Äôre in a position to hire, now is a great time to hire, because so many other businesses will be shedding their top talent and the ability to negotiate salary structures are available.

Mistake #3: Putting growth plans on the backburner

Possibly the most damaging long-term effect of a troubled economic climate is when a business chooses to put its growth strategy on hold to “weather the storm.” If you cut back on new product development and innovation today, you will have fewer product offerings when the market bounces back.

Warren Buffet’s advice to investors is also great advice for entrepreneurs:
“Be fearful when others are greedy, and be greedy when others are fearful.”

In my opinion there is no better time to grow exponentially than today. But you can’t do that without spending money. Re-evaluate your marketing and advertising budgets, look for a better return, and give new media with a proven track record a nod, especially if the effect of your advertising dollar can be measured. This recession gives the opportunity to get way ahead of your competitors. Don’t waste the time or play dead in the water.

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