Living Like Warren Buffett

I was reading Warren Buffett's "predictions" for 2009 this morning. They're not really predictions, they're more along the lines of Mr. Buffett's thoughts on the economy. The essence of what he said was that economies go through cycles, it's what they do. We happen to be in a low spot now, but that followed numerous years of expansion (albeit on the back of a housing and mortgage bubble). Mr. Buffett is not alarmed by the recent meltdown - he's a 'value investor', he purchases investments that have a good value (low cost to future earnings potential). He's looking at the current environment and seeing opportunity. Of course, there's more opportunity when you have a pile of cash in your corner....

Rather than get into economics and investing theories, I mention this because I thought about how this economic cycle impacts Mr. Buffett...which is 'hardly at all.' On the other hand, it seems those at the lower end of the economic pile in this country (or in this world) bear a disproportionate burden - sort of like being at the tip of the whip - it makes the widest arc and experiences the sharpest change of direction.

I mention this because many small business owners are over-extended financially right now - they're experiencing being at the end of the whip. I know several people in various business segments who were preparing for continued prosperity (or outright expansion) in the months leading up to the notorious 'crash' of 2008. They, like so many others, are now running on credit and hope - a dangerous foundation.

Mr. Buffett on the other hand may have seen his personal fortunes decline but when you have billions, that's not a hardship story by any stretch. However, Mr. Buffett is a unique individual in another sense and one that's worth noting right now even while you're experiencing the sharp pain of economic whiplash.

I've never met Mr. Buffett, but I did make a tenuous connection to him. I was invited to make a presentation on business and technology at the University of Nebraska a couple of years ago. I was told that Bill Gates and Warren Buffett had given a presentation in the same room, at the same podium just the year prior. One of the school officials told me that it was a fascinating day. Security for Bill Gates came in and spent the better part of a day securing the area and that he showed up surrounded (and protected) by his staff. Mr. Buffett drove himself in from Omaha in his old pickup truck.

I don't begrudge Mr. Gates his security detail, his face and fortune are well-known. However, Mr. Buffett still lives in a modest home in Omaha and drives an old pickup truck, despite being among the wealthiest men in the world.

My point? Even as a small business owner facing slowing sales and rising debt, you can use Mr. Buffett as a role model. Chances are good you started your business because you believed in what you were doing and you wanted to control your own fate (and fortune). No doubt you were also looking for the potential payoff down the road. Have you been living beyond your means in hopes that the payoff would come sooner than later? Have you spent too far ahead - personally or in your business? A you living more like Mr. Gates or Mr. Buffett?

What about value? Have you examined how you create it, how you measure it, how you demand it? Does your business provide value in its products or services? Do your current customers appreciate the value you offer? (Note: if not, don't chastise them, just do a better job communicating it or go find customers who do value your offerings). Have you looked at how you create value and whether or not what you create is of value in this economic climate? Do your vendors and staff provide value to your company or are they just coasting along?

You might want to start the new year by doing a value inventory - where is your company in the value chain? How can you increase the value you provide? How can you increase the value you receive? If you look at this economy as an opportunity to increase value, you'll be well positioned for any economic cycle. (Note: that doesn't mean things get easy, it just increases your chance of surviving this economy).

Here's an example. A real estate broker is struggling to pay rent for offices he signed a five year lease on in early 2007, when he thought things were going to continue along. He's had to let most of his agents go and the big office is now just a huge anchor on his finances. After coming to grips with the current economic outlook, he decided to change direction a bit. He's now working with homeowners to help them through the mortgage minefield to help them keep their houses. He is consulting, for a reasonable fee, with homeowners who still have some funds to pay for assistance and who are willing and able to continue paying their mortgage if they can make it through the current maze. He also is inviting financial professionals who might be looking for smaller digs to move in.

Time will tell if this approach will work, but what he did was shift his value proposition. He looked at his skills, knowledge and experience and found a way to put those skills to work in ways that are valued right now. While the approach may or may not work, it certainly is a better approach than continuing to go down a path that would simply lead to dwindling cash and the closing of his business. And who knows? By applying his skills in a new and different way, he might discover a unique path that leads to a more fulfilling and profitable future.

So, in this tough economic environment, look at the value you're providing and the value people are looking for. Find a way to meet that need within the context of your skills, expertise, knowledge and constraints. Be creative in value creation and you might find untapped earning potential you might never have discovered otherwise.

Here's to a better year ahead.

Saving Your Bacon

In lean economic times, businesses often look for ways to cut non-essential spending. One area that often gets cut first is business continuity and disaster recovery spending. But, if you're like many businesses, you don't have a BC/DR plan at all...and if your business doesn't have a BC/DR plan, you're risking your future.

Research shows that the most common business 'disaster' is fire. Studies show that businesses that do not re-open within days of a disaster have about a 10% chance of long-term survival.

So, make a plan - even if it's just a plan to protect your valuable corporate information. There's plenty of information out there to assist you, I've included a book that I've written to get you started - it's an easy read and brings you step-by-step through the process. Also check out a blog post with some barebones suggestions.

Make a New Year's resolution to create and implement a BC/DR plan in 2009. When the deck is stacked against you, take every opportunity to reshuffle the deck in your favor. A BC/DR plan is a good start.

Business Continuity and Disaster Recovery for IT Professionals

BC/DR blog post

Credit Crunch Redux

Here's part two. I was listening to NPR the other day and heard that due to Bank of America closing out a credit line for a small business whose sales were declining, 300 people were suddenly out of work.

Come on, (banking) folks. The US government did NOT give you all our taxpayer dollars so you could sit on the money and pull back credit for companies that are doing their best to survive.

My earlier post on American Express giving small businesses a hard time said that Bank of America was among the good guys. Based on the NPR story, it seems we may have to revise our view of BoA. We'll wait to see what happens in the coming weeks, sometimes there's more to the story than we hear.

Still, if the government keeps handing out money to companies and doesn't step in to help individuals, this US economic boat may just capsize. Let's hope someone recognizes this and starts tipping things in the other direction soon.

Credit Crunching Your Business?

For months we've been hearing about the credit crunch - but for many of us, it meant the tightening of mortgages or fewer new "You're pre-approved!" credit card offers. Now, though, many small businesses are feeling the real credit crunch - the rollback of credit lines.

Even if you have good credit and pay your bills on time, credit card companies are revising their tolerance for the debt they enticed you into taking on. Those pre-approved credit cards with ridiculously high credit limits have all but disappeared. Now, credit card companies are acting like an alcoholic after a particularly bad binge - swearing "never again" just before reaching for the bottle.

Several small companies I work with have experienced this. Here's how it works. Say your company has a $50,000 credit limit on your American Express card. You've made purchases on that card for business and you've been paying bills on time, though you've been carrying a balance. Let's say your balance is $45,000. You get a notice from American Express that your new credit limit is now $45,250. Hmm. Suddenly, and without warning, you now have no spending power on this card. Doggedly, you pay another $2,500 on the card so you can make the necessary purchases for your company. Hmm, another notice from American Express with your new credit limit at $42,000. Depending on your situation, as you pay down your card, your credit limit gets lowered behind you.

Not all credit card companies are doing this and American Express, in particular, seems to be the worst offender. They tout themselves as the resource for small businesses, but my anecdotal evidence tells me they've been the least small-business friendly in these recent credit reversals.

The question for small businesses is, where do you turn? Here are a few suggestions -
1. Look to your bank to see if you have additional options with them. Unlike a faceless credit card company, you may have a relationship with your local banking staff that you can utilize to have an earnest discussion about your financial needs for your business. If you don't currently have that relationship, now's the time to develop it.

2. Look to your vendors for assistance. Though chances are good they're in the same boat you are, by working together you may be able to help each other through these tough credit times.

3. Look for options at other financial institutions. I've heard from a number of people that although credit has tightened, thus far Bank of America has continued to work with small businesses in a positive manner. Contact Bank of America (this is not a sponsored ad, just information from several of my small business clients and we might as well support those who are working with small businesses!) and see if you can get needed credit or other banking assistance from them if your own bank can't or won't help.

4. Contact SCORE. This crew of retired business executives has a vast pool of experience from which to draw and though they may never have been through this particular economic environment (none of us has), they may have had experience working with companies in need of credit or financial assistance. See if your local SCORE folks can provide ideas and suggestions.

5. Get creative. Not with your bookkeeping, with your ideas. Though your options may be limited, I've often seen how rigid people's thinking can get when faced with fear. Try to stand back and look at the situation from a less detailed view. Then, try to think of alternatives. This may require a brainstorming session with your staff or with your trusted friends and associates to churn up additional ideas. Sometimes creative ideas pop out when you're in the shower or doing chores around the house or driving in the car. Pose the question then see what pops up in the next several days - the creative mind needs time to work. (Contrast this with flat out procrastination or avoidance).

6. Think, don't worry. It's easier said than done, but when your brain is in panic mode, rational thinking goes out the window and you're likely to make bad choices. A client of mine, after starting up a business said to me about a year later, "I've run out of worry, now I just get up and do what I can." Do everything you can think of to help your business survive in this time, but try to think instead of worry. Worry looks at the closed door, thinking helps you find the open door.

Good luck folks, better days are ahead.