Tuesday, March 25, 2008


Whether you call it an economic downtown or slow down, there’s no masking a recession for those of us who have operated virtual companies during recessions past.

The signs are unmistakable. In the beginning, customers cut back on work or ask you to accept smaller payments. Checks that used to arrive in 30 days or less start showing up two or three months late.

Then there’s the call, or email, dropping the bomb: there is no more work. If you’re lucky, the customer suggests calling back in a few months rather than just severing all ties.

Given the virtual nature of our work, there’s not even the indignity of cleaning out a desk and having security escort you out of a building. All you’re left with are blank sections of your weekly calendar that used to be filled with meetings and interviews. And, not too many weeks later, those blanks start showing up in your receivables.

I’ve lived these downturns so many times I can smell the change in the wind long before the economists, and then the media, use the “R” word.

This time it started with a major corporate real estate magazine canceling a scheduled article. The editor said their freelance budget had been cut; a victim of the sub-prime mess, apparently. The next indicator came in January when my chief client didn’t book any work until May. The stated reason was a corporate reorganization, but anyone in the know could figure out that money was getting tighter. Then a major Web site killed funds for all correspondents.

The tally of income lost during the first quarter of 2008: $15,000. And don’t get me started about the stock market . . .

Despite these setbacks, I’ve been lucky . . . so far. I still have a number of regular clients. I was able to clear investment capital from a house sale in 2005 and bought my condo outright to reduce monthly expenses – all the better to weather downturns. I have a supportive life partner, a great network of virtual company owners at Hidden-Tech and social networking sites, and I was able to make a little from the strong bull market, which helped create more of a cushion. Even so I’m loathe to dig into savings. For an entrepreneur that feels like death.

If I have one prayer it’s to hold onto the condo. I don’t think I could bear telling my daughter, Julia, I have to move us again. She still cries for the house I sold three years ago that she calls home. If I can get through this downturn without calling the realtor I’ll feel lucky, indeed.

So how am I coping? Here are seven key steps (and a few minor ones) I’m taking to ride this recession that should help if you get into a financial bind:

STEP 1: FUNNEL ANXIETY INTO PRODUCTIVE PLANNING: As scary as losing income can be, work really hard to funnel anxiety into productivity. The best way to feel secure is to create a plan or strategy that will keep you from doing rash things like selling homes unnecessarily or cutting back spending too quickly.

You want to be prudent in your spending, recognizing that you often need to spend money to make money. And you don’t want to cut assistance at a time when you will need to double or triple market efforts (see No. 2). So haul out your ledgers and look at what money you can spare and where you can cut judiciously. But remember the old saw about being penny wise and pound foolish.

STEP 2: MARKET INTENSELY, BUT STRATEGICALLY: In good times I spend about 10 percent of my time marketing. That ratio changes depending on the percentage of earnings lost. In 2001 – 2002 I was probably spending more time marketing than working.

There’s a tendency when things get tight to market like mad, but that can be self-defeating. It’s best to stay as calm as possible, assess your budget and create that strategy to build short-term and pipeline business. Efforts born from panic could prove fruitless and demoralizing. All the experts advise you to reach out to friends and contacts, first, before casting your net too wide. So that’s what I’ve been doing. I think I’ve conducted 10-plus informational interviews on the phone in the last month to get the word out that I’m available. The interest has been strong and it feels good to be taking

STEP 3: CUT BACK ON DISCRETIONARY SPENDING: Don’t wait until the bills are overwhelming to start exploring ways to reduce discretionary spending. The less you are spending the less you need to generate. Taking this advice, I made the following list keeping in mind to budget for treats. Remember the old maxim about all work and no play:

a) Do not use the cell phone in the car (about the only place I do use it to excess, I’m sorry to admit). In fact, keep it out of reach while driving; preferably locked in the trunk. Those minutes and costs add up quicker than you can read this

b) Stop eating out at lunch unless it’s a business meeting with a clear money-making agenda in mind. Invite friends out for a lunchtime walk instead of meeting at cafes and restaurants.

c) Cancel the trip to Costa Rica in April. Book an apartment in NYC, instead, and reach out to NYC business contacts. Estimated savings: $2,000.

d) Put off buying new clothes for yourself, and put Julia on a clothing budget.

e) Scope out the cheapest gas stations. Also, coordinate errands to save on driving and gas expenditures.

f) Return to buying food on sale. Stop purchasing expensive packaged items. Same for visits to discount drug stores.

STEP 4: REVIEW LARGER EXPENSES: If things get tighter, my next step will be reviewing my health care plan. Right now I spend about $7,000 a year on health and dental insurance. This is a top-rated plan. I can always consider a lesser one.

STEP 5: OUTSOURCE YOUR BILL COLLECTIONS: This seems counter-intuitive as you will need to spend some money. But some projects are worth out-sourcing and dunning is one of them. It’s not cost-effective to spend time collecting bills when someone else can do this more efficiently and effectively. It’s better to direct time and energy to generating additional income. Julie, my book-keeper, has been directed to spend extra time pulling in all of those uncollected receivables.

STEP 6: TRY TO MAINTAIN SUBCONTRACTORS: I won’t cut hours for subcontractors without doing a lot of personal belt-tightening. Not only is it tough to pass on financial pain, but this approach can be self-defeating because you will vastly reduce the amount of time you have for marketing your business if you do all the work yourself.

Many times I’ve had business buddies reach me in desperation because they lost the one or two clients they had during a recession. Although I’ve always struggled during these times, I’ve learned to practice my “accordion” method of managing growth and have never been out of work during a recession. Trust me: it works.

STEP 7: REVIEW TECHNOLOGY ADD-ONS: Technology can produce tremendous productivity. If you haven't upgraded your PC this may be the time to do so, deploying those programs that can best assist with your work. Think of adding a database/broadcast alert system onto your Web site (or building one ASAP) if you don't have one. This can turn you into an online retailer almost overnight and at minimal cost. And wireless gadgets like PDAs can really boost your work efforts if you are on the road a lot, again at minimal cost.

Let's consider this an ongoing dialogue as the U.S. and global economy won't turn around overnight.

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