Way to Grow

Why Discounting Can Be Harmful to Your Business

You offer a discount and you'll sell more product, right?  Yes, could be.  But how much more do you need to sell to be better off than if you didn't discount? This is fundamental math that every business owner needs to consider.  Reuben Swartz authors Dollars and Sense: The Pricing Blog, and he recently treated this topic in a very clear and simple way. Rather than repeating what he says, I urge you to go there and read it all yourself.

One of Reuben's commenters pointed out that low-margin customers are often more demanding than high-margin customers. Sometimes. If this turns out to be true for you, you may be better off with fewer high-margin customers.

Another argument for not slashing prices applies if you have a large competitor. Chances are the big company has lower costs than you, and they can still undercut you without spilling red ink.

Know If Your Market Is Changing

Gary Bourgeault, who writes a thoughtful blog called Managers Realm, wrote Are You Monitoring the Market You're In?  Speaking of the U.S. auto industry, he puzzles, "With companies that have been so long in the business and having been through a number of difficult periods of time, what was it that caused them to not respond to what is obvious to those that take even a cursory look at the auto industry?"

Some industries change more rapidly than others. In ones like tech, people tend to be very watchful, sometimes even paranoid, of market trends. In less fast-paced industries, entrepreneurs can slip into complacency. "Business is good!"  "If it ain't broke, don't fix it."  Except the landscape may be slowly eroding beneath them, and they haven't been watching out.

Bourgeault admonishes, "We need to take a somber and thoughtful look at this and ask ourselves if we are doing what huge companies that should have know better have done. Whether you're a sole proprietor or managing a huge division, somebody has to understand clearly and without prejudice what the true condition of the market you serve is, and where your current customers are at in reference to your products or services."

The start of a new year is a good time to look outside your business and see where your market may be heading.

Local Communities

An article caught my eye today, Independence from the Global Corporate Economy. It was in the GreenBiz newsletter which I follow for alternative energy stories, but as a trained economist, I was interested. It starts out looking like a rant against globalism and capitalism, but it really isn't. It's a bit of an ode to the local economies that are out there flourishing.

The articles speaks of Community Market Economies—networks of exchange built from small businesses and cooperatives that are accountable to their communities through social ties, innovative ownership models, and mutual support.

This rang bells because in a recent interview for my book, I heard from a woman who operates a retail franchise business in a small town on the outer edge of Silicon Valley. It became clear that in her bedroom community, people prefer to do business locally. She said,

"Because it’s a small market, it is important being part of the Chamber [of Commerce], and there’s a Women in Business group. I thought when I went to these kinds of meetings I would be connecting to the people who would be coming in and placing orders with me. And interestingly enough, because a lot of them are small business owners, they’re really not spending a lot of money, but they’re talking. So if somebody mentions that they need a framer, they’ll say, “Oh, you have to go see Leah.” And I do the same thing. I tend to refer people to these businesses that are involved in these groups.'

I, myself, recently joined an association of home-based businesses in my district in my city. And I have become a user of Yahoo Local when I want to find a business in my own community. I prefer to find a business near me rather than get in the car and drive to the mall. I have a hunch that I'm not alone. I believe we'll be seeing a great deal more of local economies in the next decade.

How the New Congress May Affect Small Business

CNNMoney writer Jessica Dickler is optimistic about what the 110th Congress will do for small businesses. In Entrepreneurs hope for help from new Congress (tip of the hat to Dane Carlson), she sees promise for more affordable health care for small businesses and life-support for the SBA 7(a) lending program. She doesn't foresee major changes in the current tax strategy but thinks there might be a chance for some tax breaks for small business.

The only piece of legislation that this Congress may produce that will likely have a negative impact on small business is an increase in the miminum wage. Since that is an expense that has not risen in many years, I hope that small businesses with minimum-wage employees have been anticipating the time when it will ultimately go up and have been banking the difference against the inevitable future increase.

What? Entrepreneurs don't do that? No, rarely. But it is a good idea to look at where your costs are relatively low today and run some budget scenarios where they go up, so you can plan how you'll adjust your operation when you need to.