Inflation is at a 40-year high, and although it dipped a bit in recent months, it is still a lofty 7+ percent.
Unprepared businesses often sink in an inflationary era; however, there are savvy business owners who knew all along that the global economy is cyclical. It has ups and downs — periods of rampant inflation and periods of price stability, occasionally even deflation (notably in 2009 with the Great Recession), where prices go into freefall.
Know that instability is the rule, not the exception, and that’s a key step in coping with inflation. It’s just another spin of the economic wheel.
Inflation is survivable; there are tips and attitudes that help startups cope with difficult times such as today. Read on for a basket of tips from the trenches.
There is no need for panic. “The reality is that it is not that bad,” said Marc Werner, founder of GhostBed, a mattress company. He’s right. In 1974, inflation was above 12%. In 1980, it reached 14.4%. Yes, after 20+ years of minimal inflation, today’s rates seem mind-blowing. But in the scheme of things, inflation could be far worse.
“You just need to pivot,” added Werner. There’s no need for most businesses to throw out the baby and the bath water. But almost all businesses will want to make incremental adjustments — or, to use Werner’s language, pivot. The business plan you had that was working last summer probably will still work — after you tweak it to suit today’s challenges.
But crucial advice comes from Stephanie Scheller, CEO at Grow Disrupt, an events company targeted at entrepreneurs: “Be actively involved in managing the finances of your company.” Don’t leave the books to your bookkeeper only, said Scheller, who urged, “Negotiate with vendors aggressively” — and look to get discounts.
Now is a time when the business owner needs to know where his/her every dollar is — but even more importantly, Scheller said, “Do not use debt to cover operating expenses like payroll.” Debt can strangle a startup. It may be necessary to take on some to get through the present economic times, but, said Scheller, “do not build debt you cannot pay off.” Before taking on debt, know when and how you will pay it back. That’s a critical survival skill today.
Steps for Surviving Inflation
How exactly should you be tweaking your business? Here are some pointers.
Make What You Sell Irreplaceable — That’s advice from Nick Swan of SEOTesting, a search engine optimization company. In inflationary times, buyers look to cut back by eliminating what they don’t need. “As a business owner, you want your customers to feel your goods or services are still worth it,” advised Swan.
When prices are rising, we all look for items to cut. First to go will be what we don’t believe we really need. You don’t want what you sell to get slotted in that category, so work hard to position it as crucially important to your customers.
Differentiate — Stacy Elmore, co-founder of The Luxury Pergola, takes the irreplaceability theme a big step forward. “It may seem counterintuitive, but now is the time to get more experimental and creative.” When you are one of many providing pretty much the same product or service, in times such as now, customers may simply hunt for the lowest price. Why shouldn’t they?
Make very sure that what you are offering truly is different in important ways. Get creative about this. A differentiated product just may win more sales at higher prices precisely because it’s not just one of many.
Cutting Your Prices — Do it if you can. That’s what Taylor Van Arsdale, owner of Topanga Rug Company, said she is doing. Her company specializes in cleaning handmade rugs, and Van Arsdale is honest with herself about the work. “When you think about it, cleaning your rug may not be considered an essential.” That rug probably has gone some time without cleaning. What’s another year?
Van Arsdale said that, for her, this “means rolling back our prices to undercut other companies, waiving our pickup and delivery fees, or giving discounts.”
She added that nowadays, she is “working hard to close every deal.”
Trim the Fat — When was the last time you combed through your business’s budget looking for items to cut? Maybe never is a common response. That has to change. Mario Peshev, CEO of DevriX, which builds and maintains WordPress platforms, counseled that now is the time to look for expenses that are crying out to be trimmed. Such as? “Unnecessary perks, travel expenses, tools, and licenses.” He added, “If you can reach profitability by cutting third-party expenses, layoffs may be prevented.”
Raise Your Prices — Don’t frown. Scott Lieberman of Touchdown Money, an advice site for small businesses, said that now may be just the right time to raise your prices. Sure, that won’t work for every startup, but hear him out: “With inflation, there’s an opportunity to increase prices. Customers are seeing price increases everywhere. A reasonable price increase won’t come as a surprise.”
Sure, Van Arsdale suggested cutting prices. Now Lieberman says raise them. Who’s right? You know your customers. Will a 5% price hike send them fleeing? Or will most shrug and pay?
Do More With Less — “To stay afloat, most businesses will have to do more with less,” said Sean Sollitto, co-founder of enterprise app platform Relish. He elaborated that this means “less staff, less capital for investment, and less product to sell.” If that sounds bleak, accept that it may also be true. And that means you need a plan for prospering even if less is the prevailing theme.
Know What You Can and Can’t Control — Greg Ott, CEO of Nav.com, which helps businesses secure financing and optimize credit cards, advised, “Know what you can and can’t control.”
He elaborated, “Inflation is out of your control but taking control of your business finances isn’t. Focusing on what you have the power to fix can help relieve the anxiety throughout your business function and personal life.”
Don’t Get Locked Into an Inflation Survival Plan Too Soon — Face it: there are many things we just don’t know about tomorrow. Today’s business world is characterized by abrupt switches in direction. Who saw them coming? That’s why Brian Greenberg, CEO of Insurist, an insurance agency, said, “The best way for businesses to navigate an inflationary era is by staying flexible and adaptable — and being able to adapt quickly.”
Don’t Dawdle — Not sure which steps to take to keep your startup healthy? That uncertainty is normal. But don’t linger on it. Listen to Liang Zhao, CEO of VANSARY, a marketing consultancy: “Businesses that survive inflationary periods and/or recessions are those that act first and quickly when they start to see the tides coming in.”
She added, “Find out what your customers need and what you can do to improve their experience with your business. One benefit to owning a small business is that you’re typically less removed from the consumer than a multinational corporation is, so the simplest way to initially achieve this is to open a dialog with your customers.”
Ask and then listen — you just might hear exactly the changes you need to be making to survive today’s times.
Link to Truic Startup Savant