A rising tide lifts large boats first


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This is a copy of the article published today  at http://chenected.aiche.org/general-interest/rising-tide/

You know the saying.  It’s “all boats”, of course.

Current data indicates the economy is improving, albeit at a slower pace than usual.  Past recessions have enjoyed a more robust recovery.  What does this mean for the average small business?

Many small businesses went into “hunker down” down in 2008.  This means they curtailed most capital purchases and certainly stopping hiring.  They may have laid off people.  If they didn’t lay people off, they might have reduced the number of hours worked.  They had no choice!  Their customers reduced orders to them, asked for pricing concessions, and stretched out payments.  Even large companies did this to the small companies.  Why?  Because everyone else was doing it.  I’m not saying this is unreasonable.  It’s just the way most businesses work.

Business try to use the periods of reduced sales to continue to market into new areas, or develop new products with existing capabilities, or establish alliances with other companies.  They also do this when times are good, but you can spend more time on these areas when things are slower.  There’s less pressure to do these things when times are better.  You focus on improving operations to become more efficient, but that requires investment.  In “hunker down” mode, you avoid investment unless you are sure it will pay off.  If things get a lot better, you might be able to hire someone to help in those areas.

Back to the current situation.   Small business can’t layoff too many people.  Believe it or not, small business owners in particular loathe laying anyone off.  They know they are affecting families when this happens, and it feels very personal.  It is also a matter of survival, so sometimes it must happen.  But unlike large companies, there is not a lot to cut before you are cutting muscle.  There are many key people in a small company, that, if you laid them off, would get another job, and you would not be able to bring them back.  So small business owners “carry” them.  This means they do not have the profitability or the orders to keep those people but they keep them for the sake of the future of the company.  Most employees don’t realize this.  The owners assign other tasks to keep these people busy until the climate improves.  and the owners still might need to reduce hours.

As the economy improves you will see hiring start to pick up.  The large companies are hiring.  The work week in increasing as the small company has more orders and can bring their reduced team back to full time.  Check the BLS for data on the work week.  The increasing number of hours indicates hiring will follow.  And, in case you didn’t know, you can subscribe to all kinds of BLS reports.

Once the employees are working full time with maybe a little overtime, the small business owners gain some confidence that maybe the sales are here to stay, and they begin to hire.  They hire slowly, and fire slowly, as in their nature.  This small business hiring lags well behind the large business hiring, hence the title of the article.

Do you agree that most small businesses are more than fair, as described here?  Let us know!



Tom Smith, a new contributor to ChEnected, is Managing Director at Focused Solutions Group in Chatham, NJ, and can be emailed directly here.


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