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Where Are All the Sales? . . .

August 20, 2012

In the previous post, I mentioned the fact that it looks as though this recovery is so slow because we aren’t seeing demand and therefore businesses won’t hire. Many of the businesses with which I work make it pretty clear that for the most part, hiring a new employee is a last resort. After the demand builds, everyone is working as effectively as possible, all procedures and policies have been streamlined (and where possible eliminated) and overtime is at a high level, then they begin to entertain the additional overhead of hiring an employee. There are exceptions of course, but in general, hiring is put off as long as it possibly can be.

What's ahead?The reality of getting the most out of present employees and operational capacity also explains why it is generally the case that large companies do not really help the employment numbers. In my experience, they lay off in large quantities and generally hire back at a much slower rate. There is always a discussion over this perception. However, a 2007 report on Employment Dynamics from the Bureau of Labor Statistics has pretty much settled the discussion:

Gross job gains and gross job losses combined yield an average quarterly net gain of 324,000 jobs. Firms with fewer than 100 employees contributed 45.0 percent of the average quarterly net growth, while firms with fewer than 500 employees contributed 63.7 percent. These data show that within this time series, firms with fewer than 500 employees have, on average, contributed the most to net job gains. The share of these firms in total job creation is greater than their share of total employment: on average over this time series, firms with fewer than 500 employees have contained 56.7 percent of economy wide employment but have contributed 63.7 percent of net employment gains. These numbers are consistent with the conclusions of many studies. The larger contribution of small firms to job growth is evident in both net and gross job gains. This fact coupled with the absence of the regression-to-the-mean fallacy in the dynamic-sizing methodology may settle many controversies surrounding the role of small size businesses in job creation. [Emphasis is mine. See the full report for tables and graphs.]

That of course begs the question, “How do we increase demand?” Depending on your view of how the economy “really works,” you will choose different solutions to that problem. Depending on your view of how government works (or doesn’t work) you will find different explanations for what might be helping or hindering. Here is some anecdotal points I’ve found in my work with small businesses (and some large as well) over the past six years.

  • When asked if employment incentives would cause the owner to hire people, the answer was a quick and direct “No!”
  • When asked (as they were “complaining about banks not lending”) if they, as owners or Sr. Executives, were ready to burden their company with more debt the answer was again “No!”
  • When asked if they were ready to invest in the company infrastructure (capital equipment) the answer was “No!”
  • When asked how they might handle increased demand now that they had cut all employment as far as they could, the answer was most often “by using overtime and temporary employees.”
  • When pressed about the “uncertainty” concerns, what came out was that all the usual uncertainties about taxes, regulations, etc. took a backseat to the real concern over the uncertainty of demand in major markets (US and overseas.)

Up until relatively recently, the response to this was to beat on sales to do more of what they were doing and to crack down on marketing to get control of their advertising and branding effort. When it became obvious that sales had become a “four letter word,” and that advertising has become a lot less effective, there was a rush to new media such as social networking sites. As a brief aside, it is the same for individuals looking for the next job. Mass mailing of resumes no longer works. Instead, LinkedIn has become the most effective place for professionals to network and look for the next assignment. More to the point, LinkedIn has become the place to be found, because selling (even yourself) is a four letter word. More people are being hired as contractors than ever before as “W2 employment” is not recovering in the usual “quick” fashion.

Alas, I don’t have a real “silver bullet” answer. Some of the companies in my network are doing very well and their demand is generating profits at this level for their re-sized companies. They have embraced new methods for marketing, branding, advertising and customer service. They are, in general, paying a lot more attention to their existing customers and clients. The numbers indicate they are increasing market share rather than simply getting a piece of the much larger pie.

I’ve asked these questions before, and they still seem pertinent today. What are you doing to prepare your company to be profitable at this level of demand? Is your leadership team open to trying new ways of engaging with customers and clients? Have you stopped “selling” and instead begun figuring out how to make sure you are found, add value and are trustworthy?

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