And confidence isn't exactly high. A brutal stock market. CEOs in handcuffs. A dicey situation in Iraq. The perception that things are bad all over is part of a vicious cycle: as the perception grows, confidence wanes, and as confidence wanes, the perception grows. Says Zandi: "The prospects that this recovery is going to evolve into a more sustained expansion seem poorer and poorer. Investor, business, and consumer confidence -- every one has grown increasingly dark."
So there you have it: the worried well, facing a situation that isn't too bad but isn't exactly hunky-dory, either. Which raises the question, How do you manage a fast-growth company in confusing times like these?
Some answers from the Inc 500: Trim costs (including that biggest one of all, health insurance) -- but intelligently. Learn how to grow without outside financing. And, oh yes: jump on the opportunities that a recession provides. There are more than you'd expect.
Cost cutting I: The scalpel, not the meat-ax
It was Mark Comiso's gloomiest moment. His San Francisco-based interactive marketing agency, Maus Haus Inc., was down from a high of 50 employees to 8. Short on revenues, the company had high fixed costs, including rent for office space, furniture, and computers. But Comiso refused to give up. "I told my partner, 'We can't go out of business -- we wouldn't find a job!' "
Instead, Comiso slashed his expenses, just as almost one-third of our survey respondents are planning to do next year. But he did so with a rapier, not a bludgeon.
At Maus Haus, the most important choices centered on the staff. With his revenues dropping from $2.6 million in 2000 to $2.3 million last year and even less in 2002, Comiso knew he had to cut people. Despite the expense, he saved a handful of senior staffers. "A lot of companies went right at the top -- they cut senior designers and senior programmers because they get the biggest salaries. But you wind up with a dichotomy: you sell with the A team -- the partners -- and deliver with the B team." To make the finances work, he asked the remaining employees to work half-time for half pay, and he and his partner took 75% salary cuts. In return, he encouraged the new half-timers to freelance on the side. That arrangement lasted for about six months, until last spring, when the market picked up. Today all the staffers -- now 14 people -- work full-time.
"We just do not want to get hung out with extra burn in case something were to go wrong. Maybe we're being too afraid of our own shadow here, but it just seems like things are going well, so let's not muck it up."
Shrink expenses too far, of course, and you deprive a company of its lifeblood. Like almost half of the CEOs who responded to the survey, Comiso is now carefully growing his marketing budget. His goal: to keep $1 million worth of potential business in the pipeline at any one time. He's upgrading the company's Web site, spending $20,000 on a new CD-ROM sales piece, and producing direct-mail promotional material. Although Comiso won't hire new in-house salespeople, he may recruit commission-only sales help from the vast quantity of laid-off advertising professionals.
For Comiso, saving pricier employees was the right choice. "When we did get clients, we were still able to deliver, and that has allowed us to come through this forest fire and survive," he says. Now it's time to invest again. "We still have to get our name out there and create brand awareness."
Cost cutting II: Reining in health care
Health insurance: it can make you sick. Nearly all our survey respondents are concerned about today's rise in rates; about 60% report that they're "greatly concerned." How much do they think rates will go up? More than 70% of the CEOs surveyed expect total insurance costs (including health, vehicle, and workers' compensation insurance) to rise 10% to 25% in 2003. Another 20% of respondents expect the costs to rise 26% to 50%.
For some companies, the increases have already begun. Take Legacy Financial Group Inc., a $6.9-million mortgage-services company based in Arlington, Tex. Legacy's health-care costs are more than twice what they were only three years ago. The company's 2002 premiums are up 50%. Anticipating an increase of another 40% for 2003, CEO Chad Bates decided radical measures were in order.
One step was to increase the portion paid by employees, a common tactic. But given the competition for good people in the red-hot mortgage industry, Legacy had to absorb most of the increased costs itself. "Because of lower mortgage rates, business has been brisk," says Bates. "So we have to provide benefit programs that can compete with those at larger banking institutions, or we lose key employees."
