Chip Bronk, president of Cableco, a San Jose, Calif., maker of cable systems, got a taste of what the next recession might be like during the third quarter of last year. That's when the "Asian flu" hit, and a lot of Mr. Bronk's semiconductor and telecommunications business started to fall off. It has since started to rebound slightly.
But Mr. Bronk has been in business long enough (14 years) to remember what it felt like during the last recession, almost a decade ago. Back then, he learned that patience wasn't exactly a virtue when his business supplying cable to telecommunications and semiconductor manufacturers started to dry up. For a while, he shrugged it off, but a few slow weeks turned into months.
As a result, "I'm no longer unrealistically optimistic," says Mr. Bronk. "When you see the business slowing, you need to make cuts and not to wait. We lost money [during the early 1990s], and it made it more difficult to recover when business picked up."
Today, Mr. Bronk's focus is on driving his costs down so he can remain competitive if and when the next recession hits. He says that 10 of his 85 employees are temps and adds that in midlevel manager positions he employs consultants because "I can terminate them quickly." The remaining employees are "leased" from Judy Madrigal & Associates in San Francisco -- the agency technically employs Mr. Bronk's workers and handles all their payroll and benefits issues. This has reduced his health-insurance costs and enabled him to offer better perks, including a 401(k) retirement plan.
John Newman, a Babson College entrepreneurial studies professor, says Mr. Bronk has the right idea in keeping his business lean and flexible. "A trap that many companies fall into in strong economic times is that you start to see these monuments built up to individuals," says Prof. Newman. Suddenly, the president gets new furniture or the company moves up to fancier digs.
"I've seen many businesses that got stuck, blowing a million dollars on new offices and that million bucks could've been used to cover them through a difficult time."
Prof. Newman suggests entrepreneurs become aggressive about paring their assets and reducing their liabilities as much as possible.
"There are things you can do on receivables, inventory, tighten credit, improve collections so that you're not selling to as many risky credits," he says. "People get more and more lax [in a strong economy] about selling to marginal credit risks, and that often comes back to bite them hard."
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