"It's the economy, stupid." This motto famously hung on the wall at campaign headquarters when Bill Clinton ran for president in 1992. While that dictum may seem even truer today, worrying about the economy--or blaming it for poor performance--is a dead end for today's business owners. That's the word from Grant Cardone (@GrantCardone on Twitter), star of the reality show Turnaround King, and author of Sell or Be Sold.
Small businesses can thrive in today's challenging economy, but not if they adopt the knee-jerk responses of cutting costs, lowering prices, and hanging on until times get better. Instead, he says, a completely new approach is needed:
1. Accept that this is the new normal.
Don't batten down the hatches and wait for the predicted turnaround to arrive. "I think this is the new norm," Cardone says. "This is not a bad economy, it's the economy, and what you make of it is what you're going to get out of it. We're not going back to the days of free money. Adjust to that way of thinking and you'll be better prepared."
Rather than lamenting the bad economy, Cardone recommends an all-hands meeting to discuss what you and your employees can do to create your own economy. "At my company it's not just an executive meeting, it's down to the receptionist," he says.
2. Focus on revenue, not cost.
In an economy like this one, "Revenue is God," Cardone says. "You have to have a top line. It's one of the problems with the U.S. government--not enough top line."
Most companies during economic contraction focus on cutting costs he says. "They spend all their time and energy on expenses." For a company to thrive, he advises, 95% of its time and attention should be on increasing revenue.
3. Raise (yes, raise!) prices.
Though this may sound like financial suicide during economic hard times, Cardone insists that raising prices--and not offering discounts--is the best way to survive. "Everyone thinks people are more price sensitive during difficult times," he says. "It's not true. People focus on value, not price. They still spend money, but that money gravitates toward the best value not the lowest price. Price and value are not related--they're not even cousins." Besides he says, remember the second point: You need revenue. During an economic downturn, your volume of sales is likely to decline--so don't make matters worse by lowering prices at the same time.
"There's only one lowest-cost provider in any market, and it's a precarious place to be," he says. On the other hand, raising prices forces a company to do a better job of providing value--and explaining to customers what that value is. "Most companies don't take the time to sell the value-add proposition in their products," he says. "A price increase really forces employees and management to answer the question, 'What is our value in the marketplace?'"
Lest you're still skeptical, Cardone says this strategy has worked with many companies he advises. "I work with the most profitable Honda dealership in the world," he says. Car sales are notoriously price sensitive but this store competes by offering better service and giving buyers confidence--with very low turnover, they can count on finding the same sales reps and service people year after year. Not only is it the most profitable Honda dealership but the volume is consistently high as well, he says.
"The big challenge with any company is certainty," he adds. "Everyone in the company has to have complete certainty about the company's value, its pricing, and why it is what it is. Starting from a higher price forces the rest of your hand. It means you have to recognize that we win this game by scoring touchdowns--not by playing defense."