The Australian Small Business Blog

Friday, April 17, 2009

The GFC and the Small Business Advantage

It seems every week there is news of more layoffs by large businesses. Feed into that announcements of burgeoning deficits and negative growth forecasts and it is no wonder that highly precious, but fragile commodity, business confidence is weakening.

The reaction from businesses when this occurs is to become risk adverse. It’s all very well to attempt to remain positive, but if the fundamentals are rotten, you just become like the Black Knight in Monty Python who has lost all his limbs and still thinks he can beat King Arthur. Therefore expansions are deferred. New projects are put on hold. Upgrades are delayed. With many businesses, the layoffs or liquidation, while directly as a result of the downturn, were often an accident waiting to happen. Decisions avoided until the cash flow pain made those decisions unavoidable. Evidence of this is being seen with the US automakers.

For small businesses, the impact is far less spectacular, however, it is still there. Until a few years ago, 70% of the employment growth came from small business which resulted in unemployment falling below 4%. While there does not appear to be a lot of evidence that small business is laying off staff in significant numbers, it does appear, with the fall in job ads, that they aren’t employing at the same rate.

However, there is reason that there should not be same doom and gloom in the small business sector as for large business. Larger businesses tend to be more highly financially leveraged and have tighter margins. These factors along with their larger market shares, mean they are the first to feel market shrinkage impacting on their bottom lines.

Without these pressures, small businesses are able to be more positive as long as they take steps to address the changes in the economy. This may mean repackaging their offers due to the changed market conditions.

They understand that while there is a lot to be concerned about, there will be oases of opportunity that they can uncover. One advantage of being small is that these oases don’t need to be large. (Small oases are uneconomic for big businesses and big ones are rare in a major downturn.)

While there might be a lot of desert between oases, if a small business can find one they can prosper for a long time while those around them dehydrate. These oases, niches in business-speak, may be different to the ones that exist in the good times, but they can be just as commonplace.

If you have a pre-existing niche, you may find that your oasis is turning to desert. If you stay where you are, you will feel the same pain that larger businesses feel: stranded as their green pastures die off.

Re-examine your strengths and look for the new opportunities that arise as the market place changes. How have people’s needs changed? They may not want to buy new equipment, but may be prepared to lease it. They will certainly need to maintain their existing equipment if they don’t replace it. People eat out less, but they still eat. How has your market changed and how can you respond? Small businesses can do this quickly. That is their advantage.

The oases will always exist and you may need a water diviner to find them, but sitting where you are waiting for an oasis to find you is wasting your advantage.

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

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