Is the Economy Losing Steam?

Say "recession" around most homebased entrepreneurs, and they break out in a sweat. But things aren't as bad as they seem.
4 min read

This story appears in the February 2001 issue of Subscribe »

If you asked a fellow homebased business owner what the largest threat to his business is, he might say a recession. A sustained economic downturn, he'd say, will cause companies to turn off the money spigot, lay off employees, and hunker down until the financial clouds part on the economy and skies are sunny again.

Maybe...but more likely, maybe not. It's important to note that we're not in a recession, so worrying about it is a waste of time. In fact, the economy may even grow in 2001, albeit slowly. According to Merrill Lynch chief economist Bruce Steinberg, the global gross domestic product (GDP) is expected to rise to 3.2 percent, which is down from 2000 but stronger than in 1998 and 1999. In addition, the Fed has cut the federal funds rate to 5.5 percent, making the risk of recession low.

And even if we do enter a recession, many experts say it will be thin and short and that the economy will rebound quickly. Philip Jefferson, an economics professor at Swarthmore College in Swarthmore, Pennsylvania, says the nation is equipped for a speedy recovery due to an increasingly versatile and highly skilled work force that's already well-acquainted with the processes of acquiring skills, meeting deadlines, staying on schedule and learning. These skills, along with the experience of having had a job in the recent past, will empower workers who might temporarily lose a job in the next recession, according to Jefferson. Workers' willingness and ability to retrain and move to areas where jobs are more plentiful can potentially facilitate a faster recovery from a recession.

For SOHOs with some experience going solo in recent years and a stable of clients, the best strategy for staving off tough economic times is to know when things are cooling off. That doesn't mean just recognizing that the NASDAQ is in steep decline, but also understanding more subtle market nuances.

Signs of a slowdown might include less lavish holiday parties, lower or no bonus checks, and the elimination of cash bonuses for finding new hires at corporate offices. (Check with your salaried friends on those issues, or simply keep up with the business section of your newspaper.)

More directly relevant to SOHOs is the possibility that work will actually increase as the economy slows. As companies slash overtime and stop filling employee vacancies, many will turn to outsourcing to fill those productivity gaps. Many SOHOs in the service sector can expect an increase in assignments to make up for unfilled vacancies.

It's also a good idea to beef up your cash reserve accounts to help weather any economic storms. That means budgeting and cutting back, but that's practically painless and a small price to pay to maintain your independence. For some homebased business owners, building a cash reserve may come at the expense of swifter business expansion. But the alternatives-taking out a loan, dipping into personal net worth or shutting down entirely-are far less palatable.

If you're in the retail sector, it's also smart to streamline your business operations to get a better gauge of how your business is doing. One way to do that is equip your computer with point-of-sale (POS) software that can provide you with a whole new set of management tools. A good sales software package can help you swiftly determine which are your best-selling products, how quickly inventory is turning over and how much of each item is needed for future demands. POS software also helps you avoid locking up cash in slow-moving goods, an extremely important goal during a recession.

One mistake some SOHOs make in tough economic times is to cut prices. While that sounds good in theory, your customers will still value a job well-done over a lower price. Instead of cutting prices, increase your value and reward good customers. Take a course and learn more about your customers' businesses. Then put your newfound knowledge to work. For your best customers, start sending thank-you notes or buying them lunch more often. People still appreciate the human touch, especially when they're a bit nervous about hanging on to their own jobs.

Remember, your best asset as a homebased entrepreneur is you. By cranking up the customer service dial and stashing some money away until the tough times are over, any SOHO worth his or her salt should easily survive a soft economy.

Brian O'Connell is a Framingham, Massachusetts, freelance business writer. His most recent book, (Bob Adams Media), is available this September. His earlier books, Generation E: How Young Entrepreneurs are Changing the Corporate Landscape and The 401(k) Millionaire, are available in bookstores. A frequent contributor to many national business magazines, he can be reached at


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