Riding Out The Recession

By J.Ed Marston and Carolyn Mitchell

In the latter half of 2008, Chattanooga businesspeople watched as the national economy faltered so severely that the effects rippled across the globe. Over the last 18 months, the solidity of major employers like Unum and BlueCross BlueShield of Tennessee, among others, has buttressed the local economy.

Chattanooga’s future prospects have seemed brighter than ever as Volkswagen made rapid progress in building its new automotive assembly facility, Alstom continued its expansion, and companies like Chattem, Westinghouse, and others announced new projects for a combined total investment of $1.4 billion that will create more than 3,000 new jobs.

Of course, no company ever made payroll on bright prospects, and nothing could shield Chattanooga’s businesses from scarce credit, scared consumers and the domino effect as one company after another put projects on hold and implemented cost-cutting measures.

Not surprisingly, more than 80% of local businesses that responded to a Trend survey reported that the downturn has motivated significant changes in their business operations (survey participants included 177 companies that are members of the Chattanooga Chamber). The survival strategies cited most often by these companies were "Cost Cutting Measures" and "Improving Operational Efficiency."

About 55% of the responding companies report that current net revenues are "Somewhat Lower" or "Much Lower" than they were before the downturn, but about 20% have been able to maintain their revenue without losing ground, and about 25% are actually reporting growth. Local companies are mirroring national caution about hiring new workers. About only 18% anticipate increasing their employee count during the first quarter of 2010.

In previous issues, Trend has profiled Chattem and other companies that have been succeeding despite the economic tide. In this issue, we are focusing on the strategies more than a dozen local companies have employed to find opportunity in the economic necessities created by the downturn.

Sharing space with another business can be a cost-cutting move that offers advantages beyond a reduction in rent. Jamie Curtis with Gault & Associates, Inc., a provider of audio-visual services, reports that when the company’s long-time location came under new ownership, their rent was set to more than double. "One of our best customers, Solid Rock Systems, was looking at a move for their company, but the location they favored was too large for them," Curtis says. "They asked if we wanted to move in with them, and we agreed. The arrangement has worked out very well. We have lower rent, better access for loading orders for our customers, and a more organized workspace than at the old location."

Deron Austin says that when the leadership at Lectrus, an electrical integration and metal enclosure manufacturer, sensed a slowing in the economy in late 2008, they developed a multipronged strategy. "We put more sales feet on the ground regionally, increasing our inside sales and quotation capacity, added a direct marketer, increased spending on marketing and developed new products and services," says the vice president of marketing. "This broadened our exposure to new customers and mitigated the effect of the downturn on us."

Miller Industries Towing Equipment, Inc. managed to continue operating in the black by instituting a rotating furlough program when the economy began to tailspin. "The program allowed us to cut our payroll without laying off people," says Human Resources Director Bill Beckley. "This enabled us to retain necessary skills for when business improves and still operate profitably with current volumes. The feedback from our employee base has been very positive."

The furlough program works like this; each work group was divided into five sections and then rotated weeks off. Group One was off the first week and worked the next four; Group Two worked the first week, was off the second and then worked weeks three to five and so on. The week an individual was off he was eligible for temporary unemployment benefits after the first waiting week. The company maintained employee benefits.

Beckley said employees with low seniority who might have been laid off naturally preferred the furlough program. "But we also got tremendous response from our senior people who were glad that co-workers weren’t laid off," according to Beckley. "I really can’t say enough about our workforce. They’re a great bunch."

The truism that "Cash is king" is never more true than during a recession. "We carefully conserved capital during the better times and remained debt-free," says Alex Emerson at Industrial Welding Supply. "As the crisis descended, we decided to use some of our resources to expand our physical plant, invest in new equipment and new people in order to come out the other side of this thing stronger, less dependent on the efficiencies (or lack thereof) of others, and more efficient and cost-effective than before. By doing so we should be able to substantially broaden an already extremely loyal client base and continue to go toe-to-toe with some of our much larger competitors."

Focusing on customers in industries unscathed by the recession has helped InSource Software Solutions sustain less sales losses than many competitors. "Our company refocused our efforts on a deep and wide strategy with a major concentration on existing customers and expanding our sales to those customers," says James Mansfield, account executive. "We targeted markets that weren’t hit as hard, such as food and beverages, infrastructure and utility companies. We also focused our efforts on companies that received revenue from the federal stimulus packages. While similar companies’ sales were off 40 percent to 50 percent, we held ours to less than 10 percent.’’

Southtree Digital Media has weathered the economic storm, in part, by investing heavily in its online presence. "That’s where customers find us and that’s where we can convey our quality and value. We’ve continually studied trends on our website, making big changes as we have focused on whatever interests people," says co-founder Nick Macco. Southtree also caters to previous customers, offering them specials and making them aware of new services. "We insert special discount slips into their orders," Maaco says. "It’s our way of saying thank you." It also says "success" for Southtree. The company enjoyed a 60 percent increase in sales over last year and expects great things in 2010.

Like Smart Furniture, many companies have found that even their best efforts yield unsatisfying results in a down economy. But staying calm, focused, industrious and green was a smart move indeed for the innovative web-based provider of patented organizational, workspace and display solutions. "After a few months where there seemed to be no nexus between effort and results, our Smart Furniture team rallied in a way that amazes me," says Stephen Culp, Smart Furniture founder and chairman. "We are on pace to have year-over-year growth, with our most recent quarter being an alltime record for us. When things looked most grim, we simply decided not to panic and to continue focusing on customer services, technology, ergonomics, green materials and great design. We are still working long, long hours but I must say what we’re doing is working. Across the board, I could not be prouder of our team."

Jon Lancaster says Smarthomes -- which centralizes residential technology into one complete system -- has focused on improving efficiency and message. The company has increased the speed of product installation, improving costs and customer satisfaction. In another efficient move, Smarthomes now does all of the programming of their equipment (remotes, TV’s, etc.) at their facility rather than on location.

"We’ve improved our sales pitch by consolidating product groupings and helping customers to visualize what the finished purchase would look like," Lancaster says. "We allow customers to get a sense of what it is like to have all of their products working in sync, and how the combination of products can create a satisfying experience. This includes demonstrations and displays of packages so the customer can see everything Smarthomes does."

While focusing on a tried and true product line may work for some, others find success in diversification. Royce Cornelison at P & C Construction, Inc. says a pillar of the company’s strategic plan was to remain diverse in the types of projects they perform and the geographic area they work in. "To survive in tough times, it is essential that a company adopt and maintain a business plan that is flexible enough to continue growth in good times and bad," Cornelison says.

In contrast, over at Southern Hearth & Patio, Clay Dennis says the company has cut back on marketing to new customers and focused on the existing base. "Through strategic use of Facebook, Twitter and Chamber meeting sponsorships and emails, we have maintained revenues within 7 percent of last year and actually made more money than at this point last year," Dennis says. "Farming our garden rather than constantly seeding is integral to our success."

Nonprofits might take a cue from the Austin Hatcher Foundation for Pediatric Cancer. The foundation focuses on "cause" marketing and has doubled its funds raised over the previous year. The organization has also taken advantage of skilled volunteers who allow Hatcher to reduce expenses and extend services without a paid administrative staff. Jim Osborn, who directs the foundation, also points out the benefit of "corporate marketing synergies" created by a host of big-name backers, such as General Motors, BF Goodrich and Ford Racing.

Tourist attractions can survive downturns by emphasizing their family-friendly status and low-cost tickets. "The Chattanooga Zoo offers one of the best family values in town with its extremely affordable admission price," says Ashley Lattier, director of development. "We have capitalized on the fact that individuals are curbing spending and looking for a better value for their money. By marketing the value of our admission and family memberships, we have seen a definite increase in both areas."

And then there are those enterprises that appear to be recession-proof. The other day at Aunt Sue’s K-9 Bakery a lady from Forida spent $100 on treats for her two Schnauzers. Says shop co-owner Uneva Shaw: "We have found that even in bad times people still spend on their pets."