At this point, it’s pretty hard to ignore all of the signs that point to a major recession.

Opinions vary as to its length and severity. (For the record, I think it’s going to be a whopper on both counts.) But the fact is, it’s either here or coming soon. So the only question is, what do you do?

Not what do you do about it – unless you’re the Fed (in which case: Thanks for reading, Mr. Bernanke!), that part is out of your control. Rather, the big question is: What do you do in it?

Let’s review: a recession is defined as two or more consecutive quarters of negative growth. Typically, that’s exemplified by falling sales, but sometimes it’s accompanied by inflation, and this is going to be one of those.

Here’s why:

• Worldwide consumption of raw materials is rising, especially due to demand from surging young economies in places like India and China. [Interesting factoid from The Economist: China consumed 80% (!) of the world’s copper production in 2007.] Even though those economies will suffer somewhat from the recession in the US, their internal economies are still growing strongly.
• The Federal Reserve will need to keep interest rates as low as possible as a result of the mortgage and housing situation, which means that the dollar will continue to be weak against other currencies. (While the dollar remains a solid “safe haven” currency, low interest rates push overseas investors to look elsewhere for better returns, which will reduce demand for the dollar.)

These two factors – rising commodity prices and a weak dollar – will cause the price of almost everything to rise, even in the face of falling demand.

In practical terms, this means you’ll be under pressure from employees and vendors seeking higher compensation, while facing resistance from customers when you want to raise prices to offset those rising costs. Bottom line, your bottom line is what gets hammered. As does everyone else’s – which is where opportunity lies.

Here are ten things you can do so that you come out of the recession stronger than ever.

1. Focus on your existing customers – Figure out how to keep them. Remember, they’re under the same pressures you are. Make sure you’re the one they want to do business with when things get tough. But don’t make the mistake of becoming their bank by extending too much credit.
2. Make sure you know your best customers, and that they know you care about them – Who, specifically, is your buyer? There’s an old expression in sales: “know your customer’s shoe size.” It’s always a good idea, but especially in an uncertain economy. If you sell to other companies, you need to understand them at the individual level. Communicate frequently, but take the time to make your communication relevant and interesting.
3. Make sure you keep your best employees – Remember, they’re feeling the pinch, and will be tempted to look for a better job if they can find it.
4. Prune your payroll – This is the time to look hard at all of your employees. Know in advance who you want to keep (and who you have to keep), and who you can (or should) let go.
5. Conserve creditworthiness – Just like you don’t want to be your customers’ banker, don’t get into the position of being overextended with vendors, especially the ones you really depend on. This is often the opposite of what your instincts are – we all think our key vendors need us, which is true right up until they decide they can’t afford you as a customer. If you have to stretch payments, do it with ancillary vendors, and don’t wait for them to call you – tell them that you’re going to pay them later than you think you can, so you then pay them sooner than you said you would.
6. If things are tight, pay off all the little bills first – You’ll spend as much time and energy answering calls from the little guys as you do from the big ones. And remember the old adage: “If you borrow $1,000 and can’t pay it back, you have a problem. But if you borrow $100,000 and can’t pay it back, the lender has a problem.” Your bigger vendors will work with you – they don’t want to lose you if they can help it. So pay off the little guys, and then communicate with the big ones openly and frequently. And pay something – it shows good faith, and makes it harder to cut you off.
7. Invest in systems – It may seem like a strange time to be making investments, but in fact it’s the best time, for two reasons. First, you’re likely to be a little less busy than normal, meaning that it’s a window for you and your staff to evaluate and deploy something. And second, good systems will help you pay better attention to your customers while getting more from your employees. Big companies have done this for two decades, and it accounts for most of the increase we’ve seen in productivity over that period. (In case you were wondering, I recommend NetBooks.)
8. Dump slow-moving inventory – This is always a good idea, but at times like this it’s essential. It doesn’t help you to have money tied up in things that aren’t selling. You’ll need that cash for more important things, so dump it! If you can recover your costs, great, but don’t sit on it – it isn’t going to increase in value! I’ve found that the best thing to do with slow-moving inventory is to offer it at a deep discount to the customers who have bought it in the past. They’ll appreciate it, and you’ll get the cash!
9. Make friends with two banks – They’ll be feeling the pinch, too. Remember, they make money by making loans. So develop good relationships with people who can lend to you in at least two banks. Make sure they understand your business, and keep them informed about what you’re doing to navigate the recession. Then, if you hit a rough spot, or an opportunity crops up, you’re more likely to have quick access to debt.
10. Be ready to acquire – There will almost certainly be opportunities for you to expand via acquisition as your competitors fall. In many cases, you can cherry-pick, snapping up customer lists or accounts along with key employees rather than whole companies. Be sure to network constantly, so you’re aware early when competitors are having a hard time.

Difficult times call for difficult – and creative – measures, but they’re also great opportunities if you plan ahead. Think of them as the rapids on the river of business life – everybody’s going to get wet, but some people will have a great time!

A brief rant here.

I needed a particular cable.  None of my local merchants carry it (I’m big on supporting local business), and I was in the middle of a project so I needed it right away.

I decided to check national merchants who had nearby locations by going to their websites, which is pretty easy.  (Shameless plug: NetBooks subscribers will have this capability for their businesses within a few weeks.)

I found a merchant that was relatively close, and had the product in stock at a reasonable price.  So I hopped in the car.

But when I got there, I discovered that the price was more than double what they’d shown online.  A clerk checked and the posted price was accurate.

For them, this was a double loss:  (a) I didn’t buy the product, so they lost the sale, and (b) it left me feeling like this merchant was trying to “game” me - much like what the airlines tend to do with variable seat pricing.

Is there any way this is smart business?

Fortune magazine has a fascinating article about a new line of “thin” computers from HP.

These are not computers in the traditional sense: they have no local storage (like a hard drive), instead having just an operating system and a browser - and not much else - “installed” in flash memory.

In a nutshell, HP has determined that the clear trend among larger businesses is towards software as a service (SaaS, sometimes called On-Demand), rather than software and data stored on local machines. Since everything is remote, what users really need is a web browser, memory, and a reasonably powerful processor.

The implications are huge. First, it’s a lot cheaper: the new line is priced at about half of what comparably-powerful traditional computers from HP cost ($450-$500 for desktops, $725 for a laptop). These are enterprise-class machines, too - not the cheap office supply store versions - so their components are top-notch.

Secondly, they’re vastly superior from a security perspective because there’s nothing stored locally. I know that many people are nervous about having data on a remote server, but having run one of the top network security companies I can tell you that’s a misplaced fear (see my posting Is your money in your mattress?) - data is much safer in a well-architected online environment than it can ever be on a local machine.

But most of all, it’s a window into the future.  Companies like HP don’t introduce products on a whim, but only after careful thought and research.  What this signals is that they see the market moving, and want to be at the forefront not just in terms of thought leadership but of sales.

As you plan for your company’s technology future, this is something you should be watching.

One of the benefits of having been involved in technology for as long as I have is the ability to see recurring patterns. None is more fascinating than the one that is happening right now with respect to small business.

In the 1980s and 1990s, big companies chose different paths when it came to adopting technology. Some (such as Morgan Stanley and Visa) saw technology as a mechanism for differentiating themselves from their competitors. Others saw it as a necessary evil and spent as little as they could.

The Visas and Morgan Stanleys were right: investing in technology enabled them to turn themselves into industry leaders.

But by about 2000, their peers had caught up, and in 2003 Nicholas Carr published a provocative article in the Harvard Business Review entitled “IT Doesn’t Matter” (you can read the article here). In that article, Carr made the point that technology had become a commodity, and arguing that it no longer made sense for companies to over-invest in tech because it was no longer possible to gain a competitive advantage that way.

He was absolutely right for big enterprises. But what about for small business?

I’d argue that, for small businesses, today is the same as the early 1980s was for big enterprises — because technology has finally reached the point where it can be deployed efficiently and easily.

Small businesses that deploy technology aggressively will be able not only to distance themselves from their less forward-thinking peers, but will also be able to close the gap between themselves and big enterprises.

This is a big deal. We’ve heard for years, for example, about the crushing effect of “big box” stores on local retailers. A lot of their advantages stem from technology, and there’s not much chance that mom-n-pop retailers will be able to catch up on that score.

But winning doesn’t necessarily mean fighting them head-on; in fact, it’s far better to engage on the basis of your unique strengths. The advantage a mom-n-pop retailer has, for example, is knowledge of local customers — who they are, what they want, and how to reach them — in ways that the big box retailers never will.

Every small business today should have a broadband connection. And that connection should be every bit as reliable as dialtone (if yours isn’t, change your provider).

Couple that with the growing capabilities of on-demand software (like NetBooks) and suddenly you have access to the kind of capabilities that took big companies two decades to deploy.

As I said, this is a big deal. I’ll talk more about the different ways you can leverage IT to benefit your business in the future, and welcome your questions.

I’m writing this from the Ritz-Carlton in Half Moon Bay, where I’m presenting at a conference.

{Rest assured that this is a long way from the hotels I usually stay at! In fact, it’s my first experience staying at a Ritz-Carlton.}

There’s a reason that the Ritz is The Ritz, and it isn’t about the setting (beautiful) or the rooms (luxurious) or the food (fabulous).

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