Staying Alive

The struggles of a business trying to survive.

In my last post I imagined an exchange between myself and two tiny visitors. Three weeks without a sale, an extremely unusual event, had forced me to take a hard look at the numbers and explore what to do next.

A little devil on one shoulder advised me to reduce expenses by firing staff members, while a little angel on the side pleaded that I should either take the hit myself, or slash advertising expenses and spare my workers. I didn’t much care for either option. I don’t want to cut my pay, I fear that cutting advertising will make the sales slowdown even worse, and don’t want to lose any of my hard-working and productive employees. (And that’s the only kind I have.)

In response to my request for advice, readers chimed in with some further questions, observations, and suggestions:

Question from Kris: Do you see this slowdown the same time each year?

Nope. In my 25 years in business, I have noticed two consistent slow periods: the two weeks before Christmas, and the first two weeks of April (which perhaps is related to the pall that paying taxes casts on our national mood). Otherwise, sales are pretty steady, but they do vary greatly in size and sometimes come in clumps. We frequently go a week without a sale and go two weeks without a sale maybe three times a year. But I had never gone three weeks without closing something. And that spooked me.

Question from The All Knowing One: It seems like the market for high-end conference tables is limited. It’s not an item people buy every day. What about adding other types of furniture, like dining-room tables and chairs, desks, maybe beds, etc.?

Been there, done that. And I’ve written many times about the difference between the residential and business furniture markets. For those who didn’t see those posts, selling to homeowners involves a very long sales cycle, with a lot of hand-holding, and the jobs are difficult to produce efficiently. And there is also ferocious competition from overseas producers. I lost money in that market for many years and I don’t plan to return any time soon. So even though I have a huge catalog of residential furniture, I don’t want to divert my efforts into a difficult business.

Another from The All Knowing One (an odd moniker for someone with so many questions): Are you still having weekly conferences with your staff and sharing financial info?

Yes, we have a meeting every Monday, and I have been clearly explaining the potential problem as it has developed, including the same numbers I detailed in my last post.

Which brings me to Adam, who observed: If I read that my boss was considering layoffs I’d be kinda ticked about finding out about it first on a blog on the internet.

As I said, I have been sharing the numbers at our meetings. However, the blog post was my first attempt to clearly lay out the problem and possible solutions. It’s hard for me to give that kind of logical exposition while speaking off the cuff, so I used the blog as a vehicle to communicate my thoughts on the situation. Yesterday, after seeing Adam’s comment, I asked my two salesmen their reaction to the post. One of them, who has been with me for many years, said he read it but wasn’t worried at all — he trusted me to do the right thing, and that whatever decision I made would most likely be a good one. The other, who is a new hire, said that he was disturbed by it, because he assumes that as the last hired, he would be the first one laid off. But he took some comfort from my stated desire to keep all of my staff.

From Ted: I think you should call the Angel the one that is trying to save your business and keep your family happy, and the Devil the one that wants you to keep spending money unrealistically by keeping your work force.

Funny, as I was writing it I started to consider the same point. But in the end I decided to go with the conventional liberal-lefty attributions. Kudos to you for realizing that it could be flipped and still make as much sense.

From Doug: Google Analytics will show you if your referrals are from paid search or natural search. If it’s natural (are you paying someone to get you on page 1?) then you can cut Adwords.

Yes and no. Looking at Google Analytics, I can see that 42 percent of my traffic is organic, and 22 percent is from pay-per-click. But what I can’t easily see is which type of traffic drives the phone calls that make up the majority of my inquiries. I understand that there are ways to set up the Web site so that I can trace those calls, but I haven’t done it yet. Up to the end of August, everything was going great guns, and I didn’t have any reason to change anything.

From David Fisher: Cut and cut NOW. Cut hours or layoff staff…or both. Whichever causes the least disruption to your business and production and keeps your doors open and a roof over your head. I waited for things to “get better” and believed the constant refrains of my (non-paying) clients and it wiped me out…I am still trying to re-build.

David, this is excellent advice and I, too, went through a similar episode in 2008. I told that story here and here. Fortunately for me, this time is different: my clients continue to pay on time, and I have a decent cash cushion. So I haven’t reached the point of desperation yet. But, having been there, I know how bad things can get. That’s why I started thinking hard about what to do before I needed to.

So here’s what I decided to do: nothing at all. I’m a big believer in the idea of “reversion to the mean,” which means that unusual events are most likely to be unusual events, and that it’s far more likely that what will happen next is what usually happens. Nothing about our marketing had changed, and we continued to get new inquiries at the same rate as we have the rest of the year. That told me that potential clients were not reacting to the news of stock market gyrations and European debt problems.

We were still sending out the same kinds of proposals that we usually did, and those proposals had gotten us work in the past. We contacted everyone who had received a proposal, but that we hadn’t heard back from, and many of them told us the jobs were still alive, but they didn’t know exactly when they would place an order. We still had work to do and money to do it with. Those two things told me that I should keep all my staff at least until we finish the jobs we have and our backlog goes to zero — cutting back on production would only slow the stream of cash we get when a job is done. And eliminating people would reduce our build capacity and our ability to take quick-turnaround jobs.

I wrote that post on Sunday, Sept. 26. We had sold one job in the preceding week, bringing our monthly sales to $19,366. (Previously, our average month this year had been $165,000.) Monday, Tuesday and Wednesday we received no more orders. Then on Thursday the dam burst. Five new orders came in, totaling $73,402. And on Friday we got four more, totaling $56,985. Our sales for the month of September totaled $149,753, and sales for the year added up to $1,495,963. That’s just $4,037 shy of my target of $1,500,000. Phew!

And whatever happened that week is continuing. We have booked five more orders, totaling $212,461. That’s right — we’ve sold more than a month’s worth of tables in three days. So in the space of a week I’ve gone from worrying about layoffs to sweating about how to get the work out the door. Which is also a problem, but the right kind of problem.

Is there a moral to this story? Maybe this: if you set up a system that reliably produces results, a sudden hiccup may not mean that all is lost. And it’s a good idea to have systems to track your cash supply, so that you can start planning for any scenario. Thanks to everyone who offered advice. I’m mighty happy that I haven’t had to take any of it.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.

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