March/April 2009

Are you ready for yet one more editorial about the economy? I'm not, but for lack of a better topic, that's what this is about…with a twist.

We have long known that, as small business owners, our borrowing capacity is limited. Furthermore, the interest rate for which we qualify is much higher than that offered to major corporations with greater assets. As a result, we have been careful, prudent, and onservative. At least I have. But all that is changing.

The cost of capital is significantly higher, and the cost of doing business keeps escalating.

As we try to balance the cost of production against the cost of survival, here's what becomes abundantly clear:

We are not in control of what we pay for hardly anything.

We are not even in control of what we charge for the services we render.

Negotiation has always been part of the process and, in many cases, part of the fun. I've never had a problem with hearing or saying, "Can you sharpen your pencil just a little bit?" Today what we often hear is simply, "We'll pay you this amount for that—take it or leave it." Yet, I have no opportunity to tell the post office that I cannot afford another hike in the cost to mail our magazine. The alternative: put it on the Internet. The problem is that too many publications have already done that, which decreased the mail volume and reduced the efficiencies at the USPS. So what happened? Those of us who still use the mail to deliver our product to our readers have to pay more.

At a recent meeting of an industry group board of directors on which I serve, the discussion centered around what corporations are doing to cut costs and conserve cash. Some large companies that market their product through retailers (small and often minority-owned) are no longer sending product out on consignment. The retailer is forced to purchase the product and take the loss if it doesn't sell.

Product developers who do projects for major corporations are now required to underwrite the entire cost of development rather than share that cost with their customer.

Construction contractors, usually paid in progress payments of 1/3 up front, 1/3 midway through the project, and 1/3 upon completion, are being asked to accept the entire payment after completion. They now find it necessary to borrow cash in order to fund those projects, yet they are also being held to pricing schedules that do not reflect that cost of capitalization. This may not be a problem for the big guys, but it surely is a problem for small businesses. And using up cash reserves is not only alarming, it is probably not the most prudent solution to the problem.

The upside is (yes, there's almost always an upside to every downturn) that small businesses are nimble. Big business, once it gains momentum, often moves at incredible speed. But can it stop on a dime? Probably not. We can. We can stop, analyze, retool, and with a little bit of luck, survive. But we must go about identifying the opportunities that arise out of every crisis, a sometimes difficult task. It's not easy to rethink what we do and how we do it. Even if we love the way we've always done things in the past, keeping up with the times is essential. And anticipating what the customer will need tomorrow might even put us at the head of the pack. I certainly hope so.

In this office, we're already trying to figure out what we think you'll need to know, want to read, and even enjoy in the next issue. There's always time for a little bit of pleasure. Without that, we'll never be able to withstand the pressure.