In the midst of one of the worst economic recessions in history, I find myself reflecting on sage advice from a mentor of mine, Ed Carson. He advocated that business owners should always expect and prepare for economic hardships due to Arizona’s boom to bust to boom cycles. Uncertainty, he said, was the only certain thing businesses could count on.
Ed’s advice is as relevant today as it was when I first heard it two decades ago. And those businesses that head Ed’s advice, I’ve observed during my career, are most likely to endure the rollercoaster of the Arizona marketplace and come out stronger on the other side of a financial storm.
There are other strategic moves to beat the odds that successful businesses have consistently made to weather Arizona’s recessions. Here are some of the best strategies I have observed during my more than 20-year banking career in Arizona:
• Invest in top talent, for they can help your business overcome challenges and outmaneuver the competition. An owner/operator naturally fills a variety of roles in a small business, but he or she cannot do it successfully alone. From quality control to brand reputation, employees can make or break a business. Hiring and retaining the right talent, with a likeminded work ethic, is key.
• Forge strategic partnerships whenever possible to refer business to each other, co-market, pool resources, outsource, share expenses and take advantage of discounts.
Strategic partnerships with outside vendors and partners, including your banker, lawyer, CPA, and marketing firm, are also vital. Align with professionals who will tell you the truth about your business plan and ask the hard questions about the logistics and likelihood of success.
Seek out professionals who will be trusted advisors and partners verses merely business contacts. Listen to the advice these professionals offer. They are experts in their fields and want to see their partners and clients succeed because if you lose business, so do they. If a banker is unable to have a frank discussion with a business owner, the lack of needed advice could ultimately lead to failure of the company
• Resist the urge to over extend business capabilities by expanding too quickly or without a solid business plan. Give consideration to the challenges that arise when a smooth running company of eight to 10 employees quickly grows to a staff of 20 people. Suddenly there are human resources and benefits questions, employee turnover and retention challenges. If the owner/operator changes focus to managing these growing pains, who is overseeing new market and product development, quality control, customer service, finance and operations?
• Focus on what you are truly passionate about and what has made your company successful and stick with that through the tough times. I have seen manufacturing companies jeopardize success by taking distribution in-house. Sometimes this can work if the business owner can acquire the right talent, but more often I see companies fail when they depart from their original core strength.
• Build your own capital reserves – at least six months operating expenses – without relying on others. Credit is a great resource for businesses and a strategic relationship with a trusted banker is important, but plan for the day that funding may not be available to you. Don’t rely solely on outside financial resources such as a wealthy friend or family member.
• Create a succession plan for your business. This is perhaps the hardest advice I provide our customers, especially for family-owned businesses. There are times when passing a company down to the next generation may not be the best choice for a business to remain successful. Employees who have been with an owner since the beginning may not be ready, willing or able to grow the business. It may be necessary to bring in someone else to take over business operations, or create a plan to sell or merge the company. Succession planning is not easy or comfortable in each situation, but it is important to the company’s overall long-term success.
All of these strategies circle back to careful planning and execution.
Plan and prepare for the worst, and you will be able to navigate nearly any storm that comes your way. When the sun comes out, you will reap the rewards of owning a sustainable, small business in Arizona.
John S. Lewis is president of the Arizona-owned community bank Commerce Bank of Arizona. The bank’s website is www.commercebankaz.com.