Hi all. I'll get in first to explain that this is something of a conversational media experiment, which will be staged across the Scoop Media advertising network, with the conversation itself taking place here on Public Address. It has been sponsored by Xero.
I'm not a small business person and this doesn't normally excite my attention, but I will congratulate you for hosting this. It's just the kind of debate we need right now.
Great stuff. Looking forward to it.
congratulations Alastair on almost 10 years of Scoop.
a truly groundbreaking venture, and not only in terms of NZ.
i'm already impressed by the discussion, because Catherine Austin Fitts has already checked in! wow. cool.
i'm looking forward to the discussion too.
The first sound advice I got was not to bury my head in the sand, communicate with creditors if need be but don't make promises you can't keep. Otherwise all (your) good-will goes out the window.
A great initiative for hosting such a topic.
Would it be possible to extend this conversation to organisations in the community and voluntary sector?
There are many NGOs like the one for which I'm a board member, which are experiencing rapidly decreasing income from philanthropic and charitable trusts (government and private sector), membership sourced fundraising, and are also expecting government service provision contracts to become scarcer (we don't get government grants just to exist).
These NGOs are mainly run by and for volunteers with a very small paid workforce - but are still small businesses. Each paid worker directly or indirectly supports a large voluntary workforce. The support needs of the membership are likely to grow as the economic crisis deepens and adds to their general stress. So we do not want to cut down on staff or close regional offices.
Survival suggestions welcomed.
One of the things not mentioned in the media is that the length and depth of a recession/depression is in direct relationship to the level of debt preceding it, historically. Debt levels in New Zealand, on an individual level and corporate level are higher than they've ever been, much higher than in the early 1930's
Also, with the moves in the last 30 years to offshore much of our manufacturing, much of the profit generated in the NZ economy gets sent offshore instead of circulating in our own economy. That means our risks are greater than they've ever been and our ability to ride out those risks is more limited than ever.
Prepare for a very hard landing that lasts for at least 10 years, probably longer.
Socrates Fund Management
I agree with Charles. The debt overhang is huge. And what happens overseas will affect nz greatly because our domestic market is small.
Like any business, small businesses can't exist without staff. The more efficient and fulfilled your staff are, the better your chances of survival. If staff feels like no one gives a sh*t, they won't give a sh*t either. and that is the beginning of the end for any business.
Prepare for a very hard landing that lasts for at least 10 years, probably longer.
How hard? Icelandic-hard?
One thing I have found is that NZ companies are great at getting on together just as soon as we step on a plane and try to sell overseas.
Here in NZ it is a different story. I think we feel the market is so small we need to fight tooth and nail for every opportunity. Whilst this might seem like the perfect free market I would argue that it is not.
There are lots of times when we very much need to be working together to provide the rich and varied solutions/services/products our clients need.
As a start I would welcome a series of forums (fora?) where companies who are on paper competitors get together and work out their differences. Along the lines of 'this is where we might compete, but hell this is where we don't - over to you'.
To what degree are NZ small businesses already pretty canny about their costs, as an outcome of NZ's cultural identity?
Or is it a case that some of the prosperous 1st world nations are simply rediscovering oily rag economics that less prosperous nations haven't been so lucky as to forget?
To what degree may a global slow-down open the door for (cash rich) organisations to go against the trend of scaling operations back, by looking at it as an opportunity to put some distance between themselves and any competitors.
What questions is the answer "Knowledge economy" valid regarding, other than where can the government find some spending that it can reallocate to roads, housing & schools infrastructure spending?
After hearing the Kim Hill interview with Alastair several months ago, I am looking forward to hearing a bit more about Scoop.
Well I'm in a good place - no debts (personal or in my corporation), an increasing income stream due to the US$ and I'm still turning work away - I know it wont last and that I probably should be moving to customers who will pay in Euros ....
I kind of see this as a good time to expand, and will try and swing a real startup this year - my potential competitors who are extended are being winnowed as we speak and done right I'll catch the start of the next biz cycle - building stuff in China's going to get cheaper too about now ....
I'm wondering what helps maintain the readiness to spot opportunities, innovate and take risks? I've noticed it in my own business (learning and organisation development), should I take that bit of work I can do, but isn't in line with where I am trying to take my business? (I didn't).
I've also been recollecting the 1980s when the public service numbers were cut heavily. There were consequences that for years impacted negatively on productivity and efficiency. I noticed for example many organisations discarded their internal learning and development function. With it went a lot of institutional knowledge, as people in these roles were often the technical experts with information to share. The idea of outsourcing this work was fine in theory, but there was no infrastructure to support this. Many learning and development providers (including tertiary institutions) were funded around individuals, and courses were targetted to them, not to business. There just wasn't the capability in the sector to analyse business needs and deliver relevant learning and development. Its still not that great now.
Thanks for this forum, great idea.
Stephen: Thanks for your kind remarks
Catherine: Great to see you
Blake: That is indeed very sound advice. Creditors tend to be fairly understanding and reasonable in the current circumstances as long as they are not mucked about. I guess its pretty much a case of putting yourselves in their shoes and considering how you would act. A creditor who is speaking to you and who agrees to a payment plan is much better than one who doesn't take your accountants calls.
Hillary: That’s an interesting idea. I personally do not have a lot of experience in the NGO charity area but there maybe others that do. I expect that NGOs and charities have some special characteristics that they can draw on to survive - goodwill reserves in particular are likely well stocked. Overall the basics will be the same however - get the costs and especially regular overheads down as quickly as possible.
Charles: I hope you are wrong but it is certainly prudent to assume that you are correct and that we are in this for the long haul.
Stephen: One of the very difficult issues for small business owners is maintaining a cheery and optimistic demeanor in front of staff when things are rapidly deteriorating behind the scenes. I would be very interested in others experience around this. A sense of common purpose helps obviously. While putting a brave face on things seems like the best strategy staff have a tendency to know what is really going on. That’s a curly one you have raised there.
Don: Collaboration is something Scoop has been exploring as rapidly as possible. We have had some successes and some failures. There is an element of wearing your heart on your sleeve when you move to collaborate with people - and as you say Don - here in NZ there is often a tendency for people to read a desire to collaborate as a sign of weakness. The idea of forums to discuss ways to work together is a great idea. In principal
Jon: I think you are correct about NZ small businesses already being very lean. One of the things we found was that although we thought we were very lean - we still managed to cut a lot more. Admittedly we were assisted by some timely staff attrition.
Paul: That's great. However I would very much encourage you to save up some reserves while things are going well.
Ange: Will get to you interesting remarks in my next post….
Everybody: This is a great start!
Alastair's big bit of cost-cutting was to move to reduce his rent.
Our small business has been handed a rent increase - again, like last year. A year ago we probably would have griped and swallowed it. Now we're looking at office space elsewhere, and so are a few of the other small companies in our building.
I think some landlords see that they won't be making capital gains, and are looking raise rent to try and make the returns they'd been hoping for. That's a mistake, given what the recession will do for demand for office space: because "recession" and "vacant office space" go together like ham and cheese.
My advice to small businesses: consider if you can push back on rent increases, or consider moving. Moving is expensive (in all sorts of ways), but do check your option. I have sympathy for those who invested in commercial real estate at the height of a property boom: but us small businesses ain't gonna pay for your mistakes.
I'd suggest that keeping on top of the numbers is job #1. Too many business people I've encountered have a poetic approach to finance - this seems to be particularly prevalant amongst salespeople.
Fixed costs (rent and other commitments) have got to be a major problem if income isn't up to expectations. Getting out of those has to be the way to go.
I'd guess that for 99% of independent NZ internet businesses there are no intrinsic scale limits before the firm is no longer viable, so in the absence of fixed costs one can downsize to the point where the firm is costing a few hundred dollars in hosting plus a couple of hours a day of maintenance. Of course one might question what the point is at that stage?
Mind you, I have this nagging feeling that those who do really well in business *are* the ones who don't take a sensible approach and plough on regardless. 99% of these people go bust. 1% get lucky and are venerated as business gods.
Our small business has been handed a rent increase - again, like last year.
Is Sir Bob your landlord? We gave notice that we are leaving our (really cool) office in town last year & we're converting our large front room into a home office - we lost a couple of ineffectual staff at Xmas & realised we were doing better as a lean & mean crew (4 of us). Leaving the office & losing those staff means we save well into the 6 figures in expenses.
Also, those in Wellington might note, we gave notice of leaving 4 months ago - the landlord has not yet found a new tenant, and I suspect they won't by the time we move out.
Recruiters have a few cautionary words in regards to the credit crunch:
By 'don't alter' he means 'don't weaken'. And certain segments of the (big) biz community sometimes wonder 'why do they hate us?':
I've done three main things: moved my business into my big front room, geared up for phone & video conferencing (travel is a significant cost) and have been collaborating with erstwhile 'competitors'. The last has been surprisingly successful (a) amazing how similar our core offerings are, given industry hype, and (b) amazing how well we get on and work together. Perhaps a different business model is emerging for us?
nd have been collaborating with erstwhile 'competitors'. The last has been surprisingly successful
My wife, who is the business brains of the family by a mile, reckons that kiwis don't collaborate enough - we're all trying to reinvent sundry wheels.
Collaboration should be the next big thing she reckons.
Amazing how many of our "associates" compete with us on the sly :)
How does collaboration influence revenue?
How do your clients respond to agency collaborations?
I was watching the Charlie Rose interview with Netscape founder Marc Andreessen last night.
Marc was commenting in the credit crunch for tech companies. He had some great quotes around this time being the tail of the dog but the best quote was something like ...
Tech companies are normally funded by equity not debt.
Simple stuff when said but actually a very useful insight. I suspect many small business owners are like that as well and have minimal debt in their companies and don't have ongoing debt dependency because it has been traditionally very tough for small business owners to get debt in the first place.
I have spent 15 years working in the arts sector, and everywhere I have gone there has been a struggle for money. For us the recession is nothing new. What is new is just how much harder it has become to gain corporate support. As such we have treid to scale back our thinking, going for more people giving less each as a way to make up the shortfall.
@Andrew - arts organisations have always been ones that work on a small committed staff doing as mny things as possible. This has meant that staffing costs are less because everyone who is there wants to be there rather than just turn up and get the paycheck. So I'm sure that you will find that having 4 people who care will get you just as far as having 6 people. The problem, and this is one that I have encountered a lot, is that the organisation then works off the goodwill of its staff through necessity. You may find that you go through staff quite quickly as they burn out. You also can then encounter a problem when you take on more staff - your existing staff can feel that the new people "don't know how hard we worked to get it this far."
Finally, a question. I seem to remember a few years ago reading that we would all soon work from our homes and that offices would become redundant as the internet improved. I'm interested to know from those of you that have moved out of offices into your own homes, or indeed those of you that have never had an office for your business, the pros and cons of your business arrangements. Do any of you have staff that are also working from their homes? My current organisation may be heading that way and I am curious to see whether it works well or not.
Ange: Interesting question "helps maintain the readiness to spot opportunities, innovate and take risks?" The answer is definitely not business stress - but then when our businesses are under these stresses insight and innovation is what is required. Perhaps in theory we should be concentrating on our knitting in circumstances like this but in fact we tend to chase the cash. I am in twoo minds.
Icehawk: I would agree that landlords pushing to up the rent in circumstances like this should be opposed. Practically speaking sometimes its easier said than done. Maybe someone has some tips for strategies for dealing with greedy landlords?
Rich of Observationz: That is very very true. Scoop had during its growth phase 2004-2007 been not exactly poetic about finance - but neither had we been precise. Last year we implemented a standards compliant accounting system which (like Xero) produces an up to the minute balance sheet, P&L and clear and transparent reports on creditors and debtors. The difference that having a proper hold of what your ACTUAL FINANCIAL POSITION is cannot be overstated. It is the difference between sleepless nights and regular anxiety. On your second point - the plowing on regardless - clearly there is a touch point beyond which a business should not venture. I am not sure where that touch point is. Some canny people manage to pull rabbits out of hats at the last minute but that is not in my view a business strategy.
Andrew Llewellyn: Sounds like you have been following a similar approach to us.
DeepRed. Looks like good advice (I haven't read the link) but it is certainly true that when you are in a position when you need greater performance from your staff it makes little sense to stress them out by making them worry about job security. Especially if quality of performance and customer relations is a KPI.
Supplejack: Your experience with collaboration lines up nicely with mine. In very many sectors I expect that there are lots of small players working essentially alongside each other in a pond dominated by some big sharks. It can take a bit of getting your head around but the minnows really are safer when they stick together. (& Andrew - far too many of em compete on the sly --- I wonder often whether my trusting nature is likely to get me into trouble - on balance I think not.)
Rod: Hi. True dat. We have found it very difficult to get into debt here at Scoop. Seems the banks have a checklist that reads something like: Online company (Big black cross). Small (Big black cross). Media company (triple big black cross.) And as you say it does mean that in circumstances like this we are relatively less vulnerable than say most manufacturers (and retailers) who often do carry debt and stock.
Stuart: I used to work at home (for five years - office in the lounge and staff in the shed)and I would definitely say that I prefer working in an office. That said a home working environment has a bunch of beneficial financial effects. You can charge the company rent, pay part of the phone and power etc out of company expenses and commuting is a breeze. OTOH… its not too good for the waistline being so close to a well stocked fridge and not needing to walk any distance to get to the workstation.
Al: Did you find a problem with clients? Did anyone not take you seriously because you were working out of your house?