Economic Dark Clouds

[note: I posted this as a guest poster yesterday on Anita Campbell’s Small Business Trends blog. I’m reproducing it here for your convenience. Tim]

As I climb up into the morning, coffee brewing, today’s headlines in the New York Times remind me of thoseStorms on horizon darkening late Spring afternoons in South Bend, Indiana, when what had seemed like a warm, sunny day would suddenly cloud over and the Midwest veterans knew to take cover. I was a California kid, 35 years ago when I first survived the Midwest; I’d have visions of the Wizard of Oz, do nothing, and end up soaked.

Seriously, the economic news is clustering now. As I write this, today’s NYTimes has “4-Year Growth in Jobs Ends” and “Dow Drops 200″ combined into one story. That headline will change as the Dow changes, I assume, but these days it seems it’s likely to go down. We also have Rate of Home Foreclosures Hits Record, and even what seems like good news — retail sales up — is just a silver lining.

Which brings me to the question of how all this affects you and your business. If you’re like me, trying to run your own business and unable, hard as you try, to not think of all of it in terms of your specific business, your sales, your employees, then the bad headlines take you very quickly to the unconscious analysis of what it means to you.Gloomy headlines

Which is very little, if you are like the vast majority of small businesses. With some notable exceptions, your business moves up and down far more because of very-micro specifics of what you and your team and your customers do. Your specific marketing programs, your new product release, your email campaign, your pay-per-click keyword decisions, your product development, your word of mouth … it’s what you do with your business that moves it up and down, not what happens in the headlines.

I’ve learned this the hard way, 20-some years now, building the same company from zero to 40 employees without outside investment. In the beginning it was business planning services and for the last 13 years it’s been business plan software. Having had academic training as an analyst, I’ve always instinctively looked for the larger picture as a set of clues to my own specific small-business near-term future. When the economy turned down, I’d brace myself for falling sales that didn’t happen. I’d explain that lack of correlation with some presumed macroeconomic puzzle piece, such as people losing jobs were developing new businesses.

What was really happening, however, was very micro: new products, better marketing, channel development, whatever was working. And we had some nasty drop-offs too, due to micro-phenomena like changes in channel management and knock-off packaging in retail, and in one case the assumption that the market was ready for environmentally-sensitive packaging that looked ugly. Then there was that time that I figured my customers were smart enough to recognize that $100 was only $0.05 more than $99.95, a stupid mistake that nearly killed our sales. Headlines have so little to do with it.

All small businesses live with the threat of some disaster or another. Not just the natural disaster like Hurricane Katrina in New Orleans, but the business disaster like the mortgage industry coming apart for a while. Software companies live in the shadow of major operating system shifts, and the nightmare of Microsoft or Apple or Google or some new technology accidentally crushing you the same way an elephant crushes somebody without even knowing it. Think of the people who had data compression software, or fax software, or digital rights management, when Microsoft included these in the operating system for free. I had a good friend who built a chain of used CD stores just before Napster.

Not that small business doesn’t get caught in major economic shifts. Usually in those cases you know it before it gets into the headlines. Those of you caught in the mortgage crisis, for example: today’s NYTimes also has the story More Layoffs in Mortgage Industry; you knew that already. It looks like some startup investment funds from major venture capital and angel investors could get hit by this storm too, especially with the combined impact of proposed changes in the tax treatment of some related interest income. There’s a lot of conjecture on this out there.

I’m not saying that the major macro-economic trends don’t threaten you. I’m just saying that your own microeconomic actions are so much more important. Six years ago venture capital was reeling after the dot-com crash, and the larger numbers and statistics showed it conclusively. Life was more difficult for both venture capital firms and the elite startups that depend on them. Some startups were postponed, some turned to other sources, and the vast majority of small businesses were unaffected.

Thoughtful economic analysis is readily available, fascinating, and scary. I don’t know about you, but for me some measure of future fear is a good thing. As president of a small company, being fearful is part of my job. Then I finish my coffee, go to my email, and get back to work.

–Tim

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