The U.S. Department of Commerce reported today that preliminary estimates show the economy shrank 1% in the second quarter of this year versus an adjusted contraction of 6.4% in the first three months of 2009.
The 1% decline was slightly better than analysts expectations, and indicates that the economy may have hit bottom.

At the beginning of July we posted the current Rough Air Demand Index, which had started to indicate a slight shift in the overall economy. We even posted an article advising small business owners to begin thinking about new growth initiatives rather than continuing to keep their heads low. All of this is good news, and indicates that the very worst may be behind us, but there is still a long road ahead.

It would be unrealistic to expect any recovery to come in the form of a “V” shape. Although many pundits will likely get impatient quickly with a slow recovery, the reality is that it will take a considerable amount of time for the U.S. Economy to really begin to pick up steam. The job market is likely to be weak in the coming months, which will lead to some trepidation among consumers, but Rome was not built in a day and neither will our economy recover in one quarter.

I know this is a scary time for many business owners, I have heard some say this is the worst business environment they have ever seen. The takeaway from today’s news is that nothing last forever, whether it is a contracting economy or a growing economy, so now may be the time to get ahead of the curve and begin preparing for growth. I know with my businesses, Rough Air Associates, 4 Iron Development, and Logos@Work our thinking has begun to shift from how do I position for survival to how do I position for growth? 

There is little doubt that we are currently challenged with an extremely difficult economic environment. Some are saying this is the worst they have ever seen, or this is as bad as it gets. That could be true, it is without doubt a challenging time to be a small business owner. My banker told me yesterday that the businesses that are doing well are only down 20%!

Given the rough environment, there is no shortage of consultants ready to spread their advice about how to manage the turbulent times. Most of it is relatively generic business advice, like this. That is probably because although we have all managed through difficult times, this is likely one of the most difficult we have encountered. Given all of that I thought I would share what my partner and I are doing to manage our business through the downturn. It is all pretty simple stuff.

1) Watch cash – I have developed a weekly cash flow model that allows me to project our needs over the next thirteen weeks. This is somewhat a moving target, since it requires me to project sales and expenses, but it gives a rough idea of trends, and where we might see trouble.

2) Capital – Monitoring cash flow closely is one thing, being able to do something about it is another. You need to have some plan for raising money if you find yourself in the position of having to pump capital into your business. I have seen several operations lately that don’t consider this until they are behind the curve. At that point it is really too late and no one wants to talk to you. You need to know where you are going to go to raise money when you need it.

3) Pay Attention to Customers – Now is the time to over-serve. Transition periods are always difficult, and when markets are receding you need to defend your turf. That means exemplary service and attention to your customers as well as any new customers you have the good fortune of finding. This is a buyer’s market, don’t push people away, pull them closer.

4) Don’t stop selling – Many business owners pull in the sales reigns when the economy slows. We believe you have to sell harder and be out there more. Whether it is direct sales or advertising, it is important to drive more the business in the door, especially since some of your competitors may not survive.

5) Understand your P&L – Paying attention to the cost side of your business now is critical. This game is all about adjusting your cost for the new realities your business faces. Don’t wait until it is too late, and cutting cost just prolongs the inevitable. Get healthy now!

All of the data we are looking at indicates we are past the halfway point in this downturn. If you have made it this far, you can probably go the distance. Focus on the fundamentals and you can steer your business through this rough air!

PNC Bank published their national economic outlook today. There are some positive glimmers in the news. It appears the housing market has bottomed, which is a good indication, since this is where all of this started. Employment is still weak, but keep in mind the job market tends to lag the overall economy.

The bottom line is it appears that things are started to get better!

Back in late 2007 and early 2008 I began blogging about the economic downturn and the possibility that we were headed for a recession. At the time the mainstream media and most pundits were still infatuated with the booming economy, there was little concern shown for the declining real estate market or the slowing job market.

Yesterday I was listening to a business reporter from The New York Times on the radio. He was commenting on the week’s news. His main them being that the past week’s report that our economy had lost 400,000 jobs in June meant we will continue to suffer from a stagnant economy. The jobs data did have markets worried on Friday and caused the pundits to lament about continued economic distress.

This all sounds vaguely familiar. If you would recall our prior recession in 2001, there were many analyst concerned about the jobless recovery. As late as 2003 many economist were pondering the impact of the jobless recovery and what it meant. There was a great deal of concern that the lack of a strong recovery in the job market would translate into the lack of a strong economic recovery overall.

Our economy is certainly not in a growth mode yet, but all indications are that we have turned the corner. Jobs data is a lagging indicator. Why wouldn’t it be? After years of consultants telling managers to “hire slowly and fire quickly,” everyone seems surprised when the practice actually translates into a job market which lags economic activity.

Our economy has started the process of recovery. Many numbers still indicate an economy that is contracting, but there are indications that the trend data is heading in the right direction. Given these mixed signals what should a business owner do? Should you continue to keep your head low, and think only of survival, or is it time to start planning for your next growth spurt. My suggestion is to stay ahead of the curve and began today preparing for what may be down the road.

Business owners should start considering what the next wave of economic growth may mean for their business. Now is the time to plan for how you can position your business to capitalize on a growing economy. Consider what investments will need to be made, and where the money will come from to make them. Create an org chart that shows what new positions will be created and when they will need to be filled. The downturn is old news, we all have a pretty good idea of what the recession has meant for our businesses, and the steps we had to take to survive. Now we need to think about what a recovery will mean for our business and how we can lay a strong foundation to capitalize on an economic upswing.

Is the worst over? No one really knows, but the data is starting to indicate that we may have seen the bottom of the downturn. You can check out The Rough Air Demand Index and The Rough Air Cost Index on our home page. Both indicate we may be reaching a point of stability in our economy.

It has been three years since Rough Air was founded. In fact at this very moment I am sitting in the exact spot I was sitting in when I decided to leave my corporate job and start a new business. It has been two years since I quit my job, and began focusing on Rough Air full-time. My goal was to focus on finding small businesses to acquire and grow, and do some consulting work on the side.

At this point I have committed to five investments, there is a small investment in a local angel fund, I have completed two acquisitions of other businesses, and I have acquired one piece of commercial real estate with another set to close later this year. As of today we now have 18 employees, with more than $2 million in sales, and three locations. We are by no means where we need to be, we have a very long way to go, and it is way too early to start declaring victory. We have made some progress, and as I sit here pondering my next steps I have been thinking about the “valuable” lessons I have learned these past two years. A few come to mind quickly:

1) Don’t expect a lot of help – When I started I met with various groups locally that are supposedly in the business of helping entrepreneurs get started. At the end of the day none of them really did anything for me. There were some exceptions, a friend of mine who runs a local entrepreneurship program at a nearby college has been very supportive and helpful. My business partner took a risk and joined up early on. My wife has been in the game from the get-go. But all those groups that tout their desire to help entrepreneurs must be spending their time on other folks. At the end of the day, my wife, my partner, and I have had to do the heavy lifting. I get the impression that none of these groups want to attach themselves to your business until they are certain you are going to make it, otherwise you are on your own.

2) Cash is still king – My old CFO at Hyde Park always told me cash is king. She was of course right. Getting this thing started has sucked a lot of cash. At times, just when you see some light at the end of the tunnel, you find out it is an oncoming train. The whole deal is getting the system churning, and trying to prevent any hiccups. Even once you have established a respectable flow of money coming in and money going out, there will always be those unexpected hits. Understanding our cash flow has been a key to helping us keep things moving forward.

3) Wear a lot of hats – I know more today about wireless networking, phone systems, and other items that I never really needed to know much about. In the last two years I have installed, and reinstalled wireless routers. I have learned I don’t like DSL or cable. I have rewired motors on industrial dryers, taken out the trash, swept the floor, delivered orders, made sales calls, coached consulting clients and on and on. My partner and I are constantly amazed at the number of different things we may have to do in one day. What happens is something breaks and everyone looks to the boss to fix it, whether you know how or not.

4) Culture change is a bear – Our first acquisition was relatively easy. Everyone involved was pretty service oriented and seemed to view customer service in the same way we did. The second acquisition is a bit different. I know it may not be reality, but it seems in some ways the culture was designed to find ways to say no to customers as opposed to yes. We are working to get everyone more customer focused, but this is a challenge. Some are grabbing onto the idea of just doing what is necessary to make the customer happy, others still want to put problems in the customer’s lap and not take the responsibility to solve them.

5) The barrage of stuff is part of the game – I was with one of our attorneys recently and I was telling him about all of the major challenges we have had with our new business. A terrible economy, loss of key employees etc. After I finished lamenting about how tough things were, he said it sounds to him like the normal course of business. He’s right, all of the stuff a business owner gets pounded with everyday, employee issues, financial issues, operational issues, everything is just par for the course. All that stuff that seems so overwhelming is what most entrepreneurs are going through everyday. So when you find yourself scratching your head and saying it just can’t be this hard, guess what? It is!

By the way, did I mention, no one really wants to help!