The fundamental principle of finance in a capitalist market is making sure one’s income exceeds one’s outgo. The measure of success-by Wall Street, by a small business owner, or by an individual balancing his or her checkbook-is how much the income exceeds the outgo. And when the amount of income decreases, both businesses and individuals respond by reducing the outgo.
The principle is sound. It’s the details that need periodic re-examination. Historically, the expenses that often get trimmed first, such as advertising, compensation, merchandising, or training, are the ones that should be trimmed last-particularly those that involve your people and your market share. Both of these may put a few painful short-term holes in your balance sheet, but rarely has investing in high-quality, well-trained people and in keeping your name at the forefront of the buying public’s consciousness not paid off in long-term gain.
Naturally, it’s important to manage expenses wisely. It’s also important to manage expectations wisely. There is no need to spend money recklessly, but there is a need to do a reality check. A perfect example is the holiday 2000 season and its aftermath. After planning for an expected 5%-10% growth in sales, jewelers around the country were crying in their collective beer when it didn’t materialize. But look at the big picture: Not only were 1997 and 1998 very healthy for jewelry sales, 1999 was the ultimate banner year for us. It’s just not realistic to expect that kind of sustained growth-in any industry-and it’s not prudent to manage one’s business to that expectation without having a contingency plan if sales don’t keep pace. Unfortunately, for many businesses, the “contingency plan” is drastically cutting all unfixed expenses and/or downsizing staff. In the short term, it looks good on paper, but eventually you’ll have to pay the piper. You may make your margins this year, but what’s left to cut next year?
For many jewelers, 2000 overall was a fairly strong year, so that even with a disappointing holiday, their final figures remained close to or above 1999’s. Mark Moeller, a jeweler in Minneapolis and a popular figure on the lecture circuit, was thrilled when his holiday 2000 sales checked in about even with 1999. “How can I be unhappy matching the best year I ever had?” he asks.
Moeller’s staff had to work a lot harder this season than they did the year before. When it became evident by November that there was no joy in Whoville, he kicked into high gear. His sales staff got on the phones, sent letters, found special pieces to interest their best customers, and did all the right things to bring people into the store, with the result that his year overall was a positive one.
Sometimes, it’s not about convincing customers to buy your product instead of someone else’s. Sometimes they don’t want to buy anything, period. It’s not easy to sell in this kind of environment, but it’s not impossible. Just ask Moeller. If you need more proof, remember that even in the midst of the 1991 recession, shopping center developers continued to build, and indeed the customers did come. Maybe they didn’t buy as much or as often as retailers would have liked, but they did buy. The pie may have been smaller, but firms who continued to advertise and market effectively maintained their share of it. When the pie (market) got bigger, so did their share.
In the 1980s, the term “human resources” replaced the old-fashioned “personnel.” Political correctness aside, the point of the change was a reminder that your people are your greatest assets, and they’re also a key part of your marketing efforts. Investing in them is good for them-and it’s good for you. Yes, occasionally an employee will take all your training and then leave, but one bad apple doesn’t spoil a whole staff. Imagine what would have happened if Moeller hadn’t invested in the best training possible for his staff. Would they have been able to pull off a positive year?
More to the point, would they have cared enough to try?